- June 17, 2018
- Posted by: Jessica Lee Walker
- Category: About ICO
Before we get down to an ample description of all ins and out of such modern phenomenon as ICO, let us tell you a story that may give you a slight hint on what’s going on in the world of cryptocurrencies and how it is different (and crazier) than the traditional financial markets. In the summer of 2017, a group of crypto enthusiasts decided to either play a joke or to disclose the weirdness of the crypto community in such a twisted way. Anyway, they developed a token called the Useless Ethereum Token (UET) which, basically, stands by its name and has no use or any practical value whatsoever. Even the logo of UET depicts the infamous gesture of a raised middle finger which underlines the total arrogance and humorousness which are the essence of this project.
The homepage of UET even has the sarcastic slogan which appeals to people not to buy these tokens because all money may be spent by some guy on a big flat-screen TV. Perhaps the developers wanted to show all the downsides of ICOs, which are usually associated with hype and, indeed, scam, though the reaction of the crypto community was the opposite to what these guys expected (given that it was not some sophisticated plan developed by the masterminds of mass psychology). The UET got plenty of attention and sold in volumes, so the ICO reached its softcap (if you don’t know what the softcap is, rest assured that we will explain it later in the article) and got listed on the coinmarketcap.com, the biggest cryptocurrency monitoring website in the world. It holds the 1247th position, which gives hope that not all people who deal with cryptocurrencies are crazy to the bone. The current price of the Useless Ethereum Token is fluctuating around $ 0,013 which is extremely high for something that, as honestly admitted by the developers, has no technology or concept behind it. UET is even traded on one cryptocurrency exchange called HitBTC, which is a rather popular and respectable platform.
The moral of this story is that the world of cryptocurrencies is unlike the traditional one: it is crazy, it is unusual, and it promises either great profits or great losses. ICO is one of the main gateways to this realm of digital investing, and we will get you acquainted with everything you need to know about it. Who knows, maybe you will decide to place the stake on one of the newly emerging ICOs that is backed by an innovative technology and promises enormous profits or you may form an opinion that ICOs and everything related to it is a total scam and choose to stay away from cryptocurrencies. In any case, the following information will be useful because ICOs and cryptocurrencies are on everyone’s lips these days.
What is ICO: How is it different from IPO and crowdfunding
ICO stands for Initial Coin Offering. To put it simply,
ICO is a process which involves sale and purchase of newly created digital coins which are also called tokens.
This is a relatively new form of investment that was introduced shortly after the emergence of first cryptocurrencies and became of the variations of crowdfunding, a method of fundraising where people (not necessarily professional investors) from all over the world invest different sums of money in a project that they find appealing. Crowdfunding platforms, such as Kickstarter or Indiegogo, have obtained mass popularity and helped such interesting start-ups as Pebble or Coolest Cooler get a lot of big and small investments which made these project gain footing in the world of tech innovations. In essence, ICOs serve the same purpose: they help young projects, which otherwise have very little chances of getting the attention of serious investors, attract decent sums of money from all kinds of people, housewives, students, and businessmen alike, who want to benefit from the ongoing crypto craze. ICO is also similar to IPO (Initial Public Offering), which has long become one of the primary means for attracting money from institutional investors in the traditional financial markets. The main difference between these two types of funding is that IPO involves the issuance of stocks and the transfer of at least a part of ownership rights to the investors. In case of ICO, the company issues tokens which can be characterized as digital units that allow their owners to perform certain operations within the framework of the platform. Tokens can’t be equaled to stocks because they aren’t backed by any valuable assets except for a technology or a concept. The second difference is that, in most instances, the developers don’t transfer any ownership rights to token holders while keeping the system decentralized. Decentralization is one of the key concepts of any blockchain-based project and it implies the absence of any centralized control and decision-making entity, thus the absence of clearly defined owners. The stocks are sold for fiat money while the tokens are purchased using cryptocurrencies, mostly Bitcoin or Ethereum. The main objective of ICO is to sell as many tokens as possible and reach either hardcap of softcap. The real value of these tokens remains unclear before they get listed on any major crypto exchange. Those who invest in such tokens will be supposedly able to use them in the future to gain access to certain services, provided on the platform, purchase goods or trade them on a crypto exchange, thus becoming involved in crypto trading.
By now, those of you who are just getting acquainted with the very concept of ICO have probably come across certain new terminology that has to be explained before you continue reading this article.
Softcap – the minimum amount of funds that must be raised during the ICO in order to keep the project going. If the softcap is not reached, the project will most likely be shut down. Therefore, if you decide to invest in some ICO, keep an eye on its progression in reaching softcap. It is usually depicted on a special graph on the project’s landing page. The low fund-raising tempo or the absence of such a graph on project’s website serves as a clear sign that the ICO is a scam.
Hardcap – the maximum investment-attraction goal set by the project developers before the launch of the ICO. Hitting the hardcap before the official end-date of the ICO means that the project is viable.
Pre-sale is the form of investment attraction that takes place before the official start of ICO. During the pre-sale, the tokens are sold at a significant discount, usually up to 25% lower than the price announced at the start of ICO. The early investors are also entitled to pleasant bonuses, such as the right to vote on the further course of development of the platform. The funds attracted during the pre-sale stage are usually used for an active promotion of the crowdsale. The pre-sale, on the other hand, is not promoted so vigorously because the developers are interested in attracting only a specific group of investors. The investors, on their part, consider the pre-sale to be most beneficial since they get the chance to buy tokens at the lower price and then sell them once they are listed on one of the major crypto exchanges. Getting involved in ICO at the stage of pre-sale is a good form of the short-term investment.
Crowdsale – is a synonym for ICO. It is the main stage of token sale when these digital coins become available to the general public. The project developers often use this particular term instead of “ICO” to avoid the negative associations with the scammy projects which labeled themselves as ICOs. The token sale is usually conducted through the project’s official website. In order to participate in the crowdsale, and become an investor, it is necessary to transfer a certain amount of cryptocurrency (Bitcoin or Ethereum) to the specified digital wallet. Once the transaction is confirmed, you will receive a certain amount of tokens. Those who are already involved in crypto trading should keep in mind that you mustn’t purchase tokens using your exchange wallet. Otherwise, these funds will be lost and you won’t receive any tokens because the exchanges don’t allow you to deposit tokens which are not yet listed.
Bounty – is another name for the reward offered by the project developers in exchange for certain services. In other words, the project offers its tokens to those who make a significant contribution to its successful development. The contribution could come in the form of valuable advice, active promotion of the project in the community or on social media, related websites and forums, professional translation and localization of promotional material into target languages, provision of programming services and technical solutions, participation in the referral programs. Some projects even grant bounty reward just for registering with ICO.
Whitepaper – is a set of various explanatory documentation which describes the actual concept of the technology behind the project. It also may include some promotional material, designed to convince the potential investor of innovativeness and prospectiveness of the given project. A good whitepaper should also contain the detailed description of developers’ vision of the project’s future. It is extremely important to read the whitepaper thoroughly before making a decision to invest in ICO. Short and vaguely composed whitepapers must raise your suspicion, as well as the over-saturation of the whitepaper with promotional slogans and generic phrases. Another tip would be to check the whitepaper for plagiarism. Unfortunately, there are examples where even the well-known projects like TRON have descended to copy-pasting the content from other whitepapers. We can’t stress enough the importance of whitepaper: you can disregard the weak promotional campaign, but if the whitepaper is properly composed and contains all the necessary technical and conceptual information, you can rest assured that this ICO is most likely to survive in the harsh realities of the crypto world.
DAO stands for Decentralized Autonomous Organization created to support the crowdfunding projects that are based on the Ethereum smart contracts.
The smart contract is a computer protocol, the primary purpose of which is to store and transfer valuable information as well as ensuring compliance with its terms and conditions by all parties. The main advantage of smart contracts is that it provides means for conducting business and personal activities without the involvement of third parties. And since it is based on the blockchain technology, it is much safer than the traditional form of electronic contracts. Almost all crypto startups employ the Ethereum blockchain and smart contract as the basis for their platforms.
The ICO roadmap is, basically, an outline of all stages of project’s development, from the announcement of pre-sale to the release of the working product. Most roadmaps also include the expected date when the token will be listed on the cryptocurrency exchange. This point is especially important for those who plan on trading with tokens acquired during ICO.
Jurisdiction is another very important issue as it is directly related to the legal status of the token and the project overall. Since cryptocurrencies and blockchain-based projects are still not fully approved by the governments in most countries, it is absolutely essential to pay close attention to the jurisdiction where the project is registered. We will cover the problems of cryptocurrency regulation later in this article, but for now, let’s just say that if the ICO is carried out by the company which is registered in a country that isn’t crypto-friendly, there is a big risk that this platform, and its tokens, may become subject to some legal calamities which mean potential losses for the investors.
A scam is a blockchain project that was designed for malicious purposes. We will also cover this topic later in the article as it is one of the main reasons why people still perceive ICOs as some financial pyramid.
Some History: Crypto Rise and Fall
As we have already mentioned, ICO is a new method of fundraising which started to gain popularity only 5 years ago. In 2103, there were only a few successful ICOs, one of which was NXT that brought its investors around 1,500,000% return on investment, whilst the year 2014 saw a rapid spike in popularity of ICO mainly due to the release of the Ethereum platform. This ICO alone gathered more than ¾ of all funds raised through Initial Coin Offering over the course of that year. Today, Ethereum retains the position of one of the most popular cryptocurrencies in the world while its platform and smart contracts are used as the basis for the majority of new blockchain-based projects. The initial investors bought Ethereum tokens for as little as $1 a piece and in just 3 years, its price peaked at $1,389 per ETH.
2015 was one of the worst years for ICOs due to a rapid fall in the Bitcoin price which resulted in the loss of interest towards cryptocurrencies from investors and the general population alike.
However, ICOs and cryptocurrencies came back with a bang next year mostly thanks to the introduction of the DAO platform which we have mentioned earlier. According to data provided by Coinshedule, that year saw the launch of more than 50 ICOs which have collectively raised over $200 million. The next year marked even bigger success of ICOs and all projects associated with cryptocurrencies which sparked a crypto craze in the media. The overall capitalization of cryptocurrency market has risen to over $2 billion and even made some big players from Wall Street nervous as ICOs and cryptocurrencies began to be perceived as direct rivals of fiat money and other traditional financial instruments. This caused a lot of controversies which led to vigorous fluctuations of cryptocurrency rates which skyrocketed in December of last year before plunging at the beginning of February 2018. Despite all this turmoil, ICO gained a reputation of a rather reliable mean for attracting significant investments (from the point of view of project developers) and a chance to reap great profits in a relatively small span of time (from the investor’s standpoint). The main trick is to choose the right token in which you would like to invest your hard-earned money.
Types of ICO tokens
As we have already figured out, a token is the main “commodity” that is sold and purchased during ICO. There are a few types of such tokens which serve different purposes.
Currency tokens are, basically, the tokens which are destined to get listed on some crypto exchange, thus becoming cryptocurrencies, the digital form of money which is deemed to replace the traditional fiat money in the near future. So far, the legal status of currency tokens and cryptocurrencies is not fully established and their prices remain highly volatile; therefore, investing a hefty sum of money in a currency token can be associated with significant risks. If you are an inexperienced investor who is not entirely sure how to distinguish the promising currency token from a usual hype, then you should refrain from buying these tokens until they get listed on some reliable crypto exchange like Binance, Poloniex, or Bitfinex.
The major difference between currency tokens (or cryptocurrencies) and digital forms of conventional fiat money is that cryptocurrency is based on the concept of decentralization which implies its complete independence from the central governing bodies, such as banks, with Ripple being the only exception as it is a cryptocurrency that was developed specifically for improvement of banking transactions and it is highly centralized.
Security tokens bear certain similarity to stocks which are sold during IPOs as they are backed by a valuable asset (stocks, bonds, real estate), provide the opportunity to obtain certain goods or services or grant the partial ownership rights to its holder. As for the ownership rights, they usually come in the form of the permission to participate in the decision-making processes and receive various dividends and benefits from the tokens. According to the US securities legislation, all blockchain-based tokens should be perceived as securities by both investors and government regulators. All operations involving tokens are closely monitored by the Securities and Exchange Commission (SEC).
Utility tokens are also known as user tokens. The name of these tokens is self-explanatory: they are utilized within the given platform as the mean for gaining access to specific options and services. These tokens can’t be traded on any exchange or used as a security. They are designed for the internal use only. For instance, there is a blockchain-based platform that serves as an online library. Let’s call it Libchain. The developers of this platform decided to carry out an ICO, over the course of which investors will be offered a chance to purchase the Librarian (LIB) tokens. The holder of LIB will be able to buy or rent books presented in the online library using these tokens. They can also download e-books to the library and get rewards in the form of LIBs. That is an elementary example of how the utility tokens work.
The next type of ICO tokens is called asset tokens. As you can probably tell by their name, these digital coins are backed by certain physical assets, such as precious metals or real estate. Since these tokens are backed by real assets, they are more secure which means that they may serve as a good long-term investment or a mean for buying other valuable assets. Moreover, these digital coins are less prone to violent market fluctuations which are inherent to the cryptocurrency market. However, they pose less interest to cryptocurrency investors and traders, compared to the currency or securities tokens, because they are unlikely to experience significant spikes in price over a short period of time, therefore they present fewer opportunities for financial speculations.
And finally, the so-called reputation or reward tokens. These tokens are usually given to users for making a contribution to the platform which usually comes in the form of quality content. Steemit is a prime example of a platform that rewards its users with reputation tokens called Steem or Steem-backed Dollars (SBD). This platform has a reputation score which is measured by the amount of Steem allocated to user’s account. The more Steem that user has, the higher is his or her reputation on that platform. There is even a gradation with regard to the reputation: users with the low amount of Steem are called Minnows and the ones that have thousands of such tokens are called Whales.
The reasons behind the vast popularity of ICOs
The latest upsurge in popularity of ICO and cryptocurrencies happened largely due to a spike of Bitcoin price that has displayed a swift growth in the period of April – October 2017 and has briefly touched, speaking in trading terms, the resistance line of $20,000 at the December of last year. At that time, it seemed that everyone went nuts about cryptocurrencies and ICOs. Whenever you would turn on the TV, there was a channel or two where hosts and their guests were vehemently discussing all pros and cons of investing in ICOs and cryptocurrencies.
Basically, there are two main reasons behind such massive popularity. The first one lies in the fact that the blockchain technology and digital money are the innovation that people sought for the last decade or so. From the commercial point of view, there hasn’t been any significant breakthrough in the world of technology since the introduction of iPhone way back in 2007. This device was able to shake the global community of tech-lovers to the core and turn the relatively small industry of smartphone and gadgets into a flagship of the world of technology.
After that, there haven’t been any groundbreaking inventions and the world, being spoiled by the rapid technological progress, got hungry for something new and unusual. The emergence of the blockchain technology and its offspring – cryptocurrencies, tamed this hunger and drew a significant interest from private and institutional investors, as well as ordinary people who wanted to make a lot of money fast. Apart from being a tool for market speculations and fast enrichment (or impoverishment), blockchain also represents the revolutionary development in the area of electronic transactions (which became more accessible, faster, and anonymous) and business relations. In 2017, the overall capitalization of cryptocurrencies surpassed the mark of $100 billion and became a hot topic in business as well as political circles. These events proved that blockchain and cryptocurrencies should be viewed as the things of global importance. Some people even believe that this technology will eventually replace the traditional financial system and become a cornerstone for the new monetary relations, more liberal and less regulated. ICO is an integral part of the crypto universe because it works as a sort of a trampoline for startups with bright ideas and concepts that helps them get the necessary funding and promote their products or services to the wider audience. It provides great opportunities for realization of such ideas as ICOs take the bureaucratic turmoil out of the equation. In order to launch a cryptocurrency startup, the developers mustn’t pass any audits or apply for loans with unbearable interest rates. Also, the developers are not obliged to provide any guarantees regarding the success of their project or possible refunds in case of its failure. Remember, the Useless Ethereum Tokens which we have described at the beginning of the article? That is a good example of how the conscious abdication of responsibility may actually attract the investors. Certainly, the UET case is more of an exception to the general rules, though it clearly shows why ICOs are so popular: one can launch the ICO that is based on no more than a joke and still enjoy a relative success. The lack or even the total absence of responsibility for the results is one of the main reasons why ICOs became so popular. Another reason is that ICO present an opportunity for the developers to attract the sufficient investments for further development of the project even at the stage of pre-sale. The rumors that circulate in the media tell that Telegram, the hottest ICO at the moment, has already acquired around $2 billion during two private pre-sales. A state budget of a small developing country goes to the ICO that hasn’t even begun the official crowdsale. Now that is a staggering result which clearly indicates that the interest towards ICOs isn’t diminishing but growing exponentially.
So, why this, as well as many other ICOs, look so appealing to both private and institutional investors? The answer is simple, new tokens which are issued during ICOs, especially currency and asset tokens, may potentially bring enormous dividends. We have already mentioned NXT which gave its investors the triple-figure ROI. However, there is a plethora of ICOs which made their participants very rich, if not wealthy. Bitcoin and Ethereum are the obvious examples, though there are other coins, like Dash, IOTA, and Monero that also rose in value more than a100-fold.
The news that celebrities, like Floyd Mayweather, who endorsed the Centra ICO, or billionaires (Mark Cuban, Richard Branson) invest their money in ICOs and cryptocurrencies create a positive image for these investment instruments and attract the ever-increasing number of people to the crypto-related projects.
Anonymity also plays a key role in the popularity of ICOs, among other factors. The total anonymity implies that no one, even the project developers, knows exactly who their investors are or how much money was invested by a certain individual. When investing in a token during ICO, there is absolutely no need to provide any personal information. Just send the necessary amount of Bitcoin or Ether to the specified wallet and you will automatically become the investors in the project. There is no need to provide any official documents or bank statements: ICOs takes away all bureaucratic hurdles from the investment-making process.
The final reason why people love ICOs is that most of them have really low access barrier. In other words, getting the minimum amount of tokens during crowdsale may cost the investor as little as $50 or, in some cases, even $10, while in the traditional financial markets, the investor would have to spend thousands of dollars just to purchase a single share of a promising company. Also, in countries where cryptocurrencies aren’t strictly regulated, ICOs become a semi-legal mean for tax avoidance.
Risks associated with ICOs. How not to get caught in a scam
A scam is a synonym for deceitful practices or frauds which are, unfortunately, rather common in the world of cryptocurrencies and especially ICOs because many people, who are not really technology or financially savvy, are lured by the prospect of good and fast profits. The fraudsters try to capitalize on people’s greed and ignorance by organizing scammy ICOs, the only purpose of which is to gather enough money from the unsuspecting investors and then disappear on the endless spaces of the Internet.
However, there are certain tips, using which you have better chances of not getting into the fraudsters’ traps. First of all, we need to classify the ICO scams. They can be classified by duration (short-term and long-term scams) and complexity (primitive, average, and complex).
The majority of ICO scams are of a short-term character. Their only objective is to get as much money as possible using the aggressive promotional campaigns. The ads usually promise unrealistically big returns in a short period of time.
The long-term scams are also called the hype because they tend to create a lot of noise in social networks and other media. If the short-term scams don’t even live until the end of the crowdsale, the long-term ones usually operate even after the token sale is over. However, eventually, they all end in the same fashion, with some of the project developers, or even the entire team of developers, disappearing with the money.
The primitive scam works more like an invasive spam attack that is designed to get the attention of large masses of people.
The average scams are more elaborated and such scammy projects even have an operating website that features a roadmap, a whitepaper, and a list of developers. However, after doing even a basic research you will be able to find out that the whitepaper is comprised of generic phrases about the “revolutionary blockchain-based product that will change the world”, and that the developers are just some computer bots or even people who aren’t associated with this particular project.
When it comes to the complex scams, they are obviously the hardest to uncover. There were even cases when the projects that weren’t initially organized as scams have turned into a Ponzi scheme over the course of its operations just because the developers understood that they are unable to deliver on their promises or they didn’t see any prospects in further development. Such was the project named Enigma. It was an altogether legitimate project until one day when the hackers stole over $500,000 from the electronic wallet of Enigma’s CEO Guy Zizkind. It turned out to be a fatal blow for the project because many investors saw it as a scam and turned their backs on Enigma.
So, the first and the most reliable way to figure out whether an ICO is a scam or not is to simply Google its name and look for some feedback. If it has very little to no feedback or the responses are mostly negative, it would be wise to stay away from such ICO. Certainly, there are negative publicity campaigns designed to hamper the development of some projects, but you would have to possess insider information or be an experienced investor to know that for certain. Otherwise, just stay away from such ICO! Even if the negativity was unjustified and the token “goes to the Moon” (a slang phrase which means that the price of a cryptocurrency radically rises over a short period of time), there are more reliable ICOs that will bring you significant profits.
Secondly, you have to diligently study the whitepaper. It is the most important document for any responsible team of developers, so they will try and include all the information necessary to convince people to invest money in their tokens. If there is no whitepaper on the official website, or it is short and contains vague or incomprehensible descriptions of project’s concept, it should serve as a red flag for you that the ICO is most probably a scam.
If you have even the basic knowledge of coding, then you should definitely check the project’s open-source code on such websites as GitHub, FogBugz or GitLab. The open-source code is the code which serves as the basis for a given platform, and it is accessible to any Internet user. The code bases are usually downloaded to such repositories as GitHub where virtually anyone can study them. If you don’t have this specific knowledge, ask someone who knows a thing or two about coding or even hire a professional coder to check the open-source code of the ICO for you. The presence of any suspicious fragments in the code would mean that this ICO is most probably a scam.
And finally, check the team of developers and research each and every one of them, especially the founders. Finds as much information as you can about their previous work experiences and reputation, whether they are associated with any successful projects. Also, check the project’s advisers. Not a single self-respecting specialist would agree to work with the ICO that has the potential to become a scam. In case the advisers previously worked with the project that enjoyed certain commercial success, then you should probably consider investing your money in this ICO.
ICO status in different countries
United States of America
In September 2015, the Commodity Futures Trading Commission issued a document where Bitcoin was equated to the stock futures. It was the first time when American authorities tried to regulate crypto products. It should be noted that legal attitude towards ICOs and cryptocurrencies on the federal level is different from that on the state level. For instance, the government of the state of Arizona is currently considering the possibility of allowing its citizens to pay taxes in cryptocurrencies. At the state level, cryptocurrencies (and ICOs) are regulated by SEC that issues the decree which equates this particular type of digital money to securities. As for ICOs, their legal status depends on the type of offered tokens. Obviously, currency and security tokens instantly get under the radar of this governmental body. However, there are no signs that the US authorities consider tightening the laws of ICOs and cryptocurrencies. On contrary, in December 2017, the Chicago Mercantile Exchange (CME), one of the biggest financial exchanges in the world, began trading Bitcoin futures. Although the US government is opposing ICOs and cryptocurrencies, they are trying to gradually place these financial instruments into a rather strict legal framework.
Despite the fact that China is home to the biggest number of cryptocurrency miners in the world, the government of this country has a negative attitude to everything related by blockchain and crypto, including ICOs. In fact, in September 2017, the People’s Bank of China has officially banned ICOs which caused a significant decrease of prices of Bitcoin and alternative coins and sparked a panic on the cryptocurrency market. The government official explained that such prohibition was a “protective” measure against illegal financial instruments that undermine country’s economic and financial stability. Therefore, all tokens, issued through ICOs, can’t be listed on any Chinese online exchange, and the Chinese banks aren’t allowed to provide any service related with ICOs or give loans for the purposes of carrying out the token offering. After that, the Chinese government went even further and banned all cryptocurrency exchanges that have previously operated on its soil. Some experts believe that the Chinese authorities are planning to issue their own cryptocurrency, so they try to eliminate the competition through such draconian measures.
The Association for Financial Market in Europe (AFME) has accurately outlined the application of potential regulation with respect to the initial coin offerings. Thus, ICOs in which tokens are issued in the form of tradable securities will be subject to the regulation of the relevant and applicable EU legislation. Thus, the assessment of each ICO will be conducted in accordance with the following acts:
Securities Prospectus Directive: the requirement to publish an issuance prospectus when securities are offered for public purchase. With some exceptions, the requirements of the directive will not apply if the proposal is valid only for investors who meet certain requirements or for a limited number of investors (up to 150 individuals or legal entities) or in case the investment from each investor amounts to no less than 100,000 Euros.
The Markets in Financial Instruments Directive (MiFID): Markets in the Financial Instrument Directive (as amended): contains licensing regulations, product management rules, clauses concerning the information disclosure before and after the token sale, the requirements for the relevant blockchain systems and token transferring, organizational requirements for trading platforms, etc.
Alternative Investment Fund Managers Directive (AIFMD): contains the requirements for licensing, the conduct of business, prospectus for issuance and disclosure of information, requirements for the mandatory appointment of a depositary and custodian, restrictions on the ratio of own and borrowed funds, and so on.
The 4th Anti-Money Laundering Directive: includes the requirements for due diligence of customers (the so-called Know Your Customer check) as well as the rules concerning the ICO management and record keeping, notification of suspicious activity and, if necessary, cooperation with the investigation conducted by the corresponding law enforcement agencies.
As you can see, the European Union has a well-elaborated system of regulation of ICOs which significantly diminishes the possibilities of using ICO for fraudulent purposes and as an instrument for tax avoidance.
How to launch your own ICO
If we have managed to kindle your interest towards ICOs and you are thinking about organizing your own Initial Coin Offering at some point in the future, here is a brief guide on how to do it properly:
- Elaborate the unique idea based on the blockchain technology
All successful ICOs are in some way associated with the blockchain technology. Therefore, your project should be based on this concept.
It is not necessary to offer the world some groundbreaking technology or any technology for that matter. You blockchain project can be based on some service that would be beneficial to a big number of people.
- Choose the platform on which you want to organize the ICO
The majority of modern blockchain projects are carried out on the basis of the Ethereum platform and employ its smart contract. However, there are decent alternatives, such as DAG or NEM platforms, each of which has its own advantages over “traditional” Bitcoin and Ethereum algorithms.
- Hire a team of professionals and analyze the market
If you aren’t an expert coder, you must hire a team of programmers who will write an open-source code for you. However, a successful ICO isn’t just about great code. It also requires marketing specialists, designers, copywriters, and advisers. If you aren’t inspired by the Useless Ethereum Token and don’t want to organize the ICO just for the sake of a joke, you should approach the issue of team formation with the utmost responsibility.
Analyzing the market is only key to the future success of your ICO. Try to find the vacant niche in the market where your idea will strive.
- Compose the whitepaper and other necessary documentation and register the ICO in the corresponding jurisdiction
We have put enough emphasis on the importance of the properly composed documentation and the adherence to the current legislation.
- Conduct the advertisement campaign to attract the investors of all scale.
Don’t just focus on big players, the majority of money usually come from small “household” investors.
- Properly organize all stages of token issuance.
Pre-sale, crowdsale and private sale must run without a hitch. Any delay in token transfers will harm your project’s reputation. If you successfully reach the hardcap, you can even try and get your token listed on some crypto exchange.
Only time will tell whether the ICO boom was justified or will it become just another “dot-com” bubble. So far, ICO has established itself as an effective instrument for investment attraction. The future of the ICO largely depends on its regulatory framework. Should the concept of ICO develop in the right direction, it could become a new dawn for the world of global finance.