What Is ICO (Initial Coin Offering)? Process, Risks, & Potential of Token Sales!

Demystifying ICOs (Initial Coin Offerings): Understanding the Crowdfunding of Cryptocurrencies

By Komeil Tabaar Last updated Jul 30, 2023 1

By reading the article “What Is An ICO” published in Adaas Investment Magazine, you will get acquainted with the Initial Coin Offering and its risks and benefits in general. This level of familiarity can be enough when you need educational information about this topic.

Table of Contents

What is ICO or Initial Coin Offering?

The word ICO stands for Initial Coin Offering and means the first offering of tokens for investors. The initial coin offering process can have a variety of purposes. For example, projects that intend to start their business, in a win-win deal, sell part of their tokens at a low price to raise the capital they need.

To better understand the concept of ICO, you should be familiar with the initial public offering process in the financial markets.

What is an initial public offering?

As you know, emerging financial markets such as the cryptocurrency market derive their concepts and professional terms from older markets such as the stock market.

Initial Public Offering refers to the first day a company is listed on a stock exchange. The company has certainly had a profitable and reliable activity that has received permission from the Securities and Exchange Commission to offer its shares.

What are the goals of an ICO?

At the beginning of this article, you read about one of the most important goals of the ICO. Due to the problems in the investor financing process, many projects provide the capital needed to develop their business through the initial coin offering by selling a part of their tokens.

Another goal of the initial coin offering is a marketing strategy to inform a portion of investors and traders in the cryptocurrency market. In this way, people who are active in the process of investing in the initial public offering, become familiar with the name of this project, and after their investment, they search for information to make a profit such as information about their roadmaps, and these activities are a very successful marketing strategy for projects.

How does an initial coin offering or ICO work?

Initial coin offering is recognized as an intermediary process between investors and developers of blockchain-based projects.

This process is done by smart contracts and platforms such as decentralized exchanges. In simple terms, investors buy tokens at a low price in the initial public offering process, and the technical issues of this investment process are done by smart contracts and platforms.

What are the risks and benefits of an ICO?

In the process of investing and operating in the financial markets, you must be familiar with the knowledge of examining the risks and benefits and the importance of carefully examining them. In the following, we have published the benefits and risks of the ICO process for you to experience a profitable decision with a careful review.

Benefits

One of the most important benefits that the ICO process provides to investors is the significant amount of profit that is made in the ICO process. You can use this link to study the top ICOs.

Another benefit that can be mentioned is the increase in analytical skills for investors. Analysts who intend to invest in the initial coin offering process will eventually acquire valuable skills in project fundamental analysis that can provide significant returns.

Risks

The risks involved in the process of investing in ICOs are very important, because novices, seeing the profitability of this process, try to bet or invest in the wrong projects and lose their capital.

The most important risk in ICOs is the lack of guarantees in the development of projects. Many projects in the White Paper set out excellent goals that they may not be able to achieve. At this time, the possibility of losses for investors is very high.

Another important risk is that fraud which is very easy and sometimes investors are hacked. Some projects, such as the risk of underdevelopment, are just a theory, and in fact, no real activity has taken place for that project. Even to buy some tokens in the initial public offering process, some projects introduce a particular platform that may cause the investor to be hacked by that platform.

Unwritten rules in the ICO (ONLY FOR EDUCATIONAL PURPOSES!)

The initial public offering of coins follows private rules, but these rules have not been officially documented or published in any reputable source. For example, one of the most important and effective rules is the right price to sell a token.

In the ICO purposes section, you will have understood why and how to raise capital through the initial public offering of coins. People who want to buy at the ICO are actually investing in some projects that have not had any development or progress, and therefore do not welcome the high prices that may be reasonable for a project.

Another important rule is to define and publish prerequisites such as White Paper. It is an introduction to the project, the developers, the project goals, and other information, some of which are very complete and professional and some of which are quite rudimentary. Many investors scrutinize White Papers to reduce their investment risk.

How to invest in the ICO. (ONLY FOR EDUCATIONAL PURPOSES!)

If you are one of the investors who are gathering information to enter the world of ICOs investing, you need a source of information and fundamental analysis and risk management skills.

There is no price history in the initial coin offering process so you do not need technical analysis skills, but on the contrary, you should be a master of fundamental analysis. Also, in the second step, you must be completely proficient in the basics of investment risk management so that if you see a suitable investment position, do not make decisions based on emotions to take a high-risk investment.

Once you have mastered these two skills, you will need a resource to introduce the initial coin offering, which is currently one of the most popular resources for this topic, the ICO Drops website, which provides enough free information to participate in ICOs for its users.

The end words

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