What is an ICO and why is it important to understand before investing in Crypto

In the era of digital assets, fundraising is not limited to banks and stock markets. There is a new method called ICO (Initial Coin Offering), which changes the way projects raise funds from investors worldwide. Today, let’s understand the mechanism, advantages and disadvantages, and real-world examples from the market.

ICO is a revolutionary digital fundraising concept

ICO (Initial Coin Offering) is a fundraising mechanism primarily based on blockchain technology. The project team issues (Token) and offers it for sale to investors in exchange for funding support. Investors who participate receive these tokens, which can be exchanged or traded on international markets.

What sets ICO apart from traditional fundraising methods is its flexibility and transparency. Smart contracts (Smart Contract) are used to define all conditions, ensuring both investors and project developers are confident that the agreements will be strictly followed.

Additionally, there is a ICO Launchpad format, which is a dedicated platform for screening and supporting promising projects. These platforms rigorously verify the project’s capabilities. If approved, the project team receives marketing assistance, technical guidance, and support for further fundraising.

How ICO works step-by-step

The ICO launch process begins with the startup team creating a new token on a blockchain network, which is a secure, encrypted data recording system. Then, these tokens are offered for sale to the public.

Purchased tokens can be transferred across networks immediately and traded in digital currency markets. Tokens also serve various functions, such as granting holders access to special services, dividends, or voting rights in project decisions.

There are two main types of tokens used in fundraising: Utility Token (Utility Token), which grants access to various services, and Security Token (Security Token), which represents rights to assets or profits of a company.

Successful and failed ICO project examples

Ethereum: A successful digital fundraising case

In 2014, Ethereum held its first ICO and achieved remarkable success. In just 42 days, the platform raised up to $18.4 million USD. This success stemmed from the concept of creating Smart Contracts, which addressed Bitcoin’s limitations and enabled the development of programs on the blockchain.

Ethereum attracted investors by presenting a technology worth watching. As a result, Ethereum has now become the second-largest digital currency after Bitcoin in the market.

Tezos: Lessons on delays and risks

Conversely, in July 2017, Tezos launched its own ICO and raised $232 million USD, a much larger amount than Ethereum. Tezos’ idea was to create a platform with Onchain Governance, allowing for transparent oversight.

However, Tezos faced issues with the distribution of tokens purchased during the ICO, experiencing significant delays. This led to class-action lawsuits, and ultimately, Tezos had to settle and pay damages of about $25 million USD to investors in 2020.

From these two examples, we see that ICO fundraising does not always guarantee success. Success depends heavily on management and the development team’s capabilities.

Advantages of investing in ICO

Participating in ICO offers several benefits for investors with a long-term vision:

• Rapid fundraising: Project teams can quickly gather funds to develop products.
• High profit potential: Early buyers of tokens often get the lowest prices, and as tokens appreciate, they can earn multiple times their investment.
• Fairness and security: All data and agreements are recorded on the blockchain, enabling transparent verification and reducing fraud risk.

Disadvantages and risks of ICO

However, investors need to understand the following risks:

• Extreme token price volatility: Prices may drop below the offering price, leading to potential losses.
• Lack of clear legal framework: Cross-border fundraising via ICO is still not fully regulated, increasing risks of scams and fraudulent projects.
• Project quality vs. outcome: Not all projects with promising ideas will succeed in execution.

Summary: ICO is a double-edged sword

ICO (Initial Coin Offering) is a popular fundraising method in the digital asset world because it allows project teams to quickly access capital and develop robust platforms.

However, ICOs also carry risks that should not be overlooked, especially due to the still-uncertain legal environment and potential for misuse in scams.

Therefore, if you are considering participating in any ICO, it is essential to thoroughly study the project, verify the development team, review the (Whitepaper), and seek information from reputable sources. This article is for informational purposes only and does not constitute investment advice.