ICO Basics: Everything You Need to Know About Initial Coin Offerings

ICOInitial Coin Offering 2017

If you Google “Initial Coin Offering 2017,” you’ll find hundreds of results. Just don’t expect these results to explain what an initial coin offering actually is, because the vast majority of them were written by coders. In other words, they sound like gibberish to anyone who isn’t an expert.

But that doesn’t mean you should abandon hope of making money on initial coin offerings.

I’m going to do my best to explain them here, in plain English (or at least the closest thing to plain English that I can manage).

First off, you should know that ICOs are built on top of the Ethereum platform, and that Ethereum itself exists on top of the blockchain. We need to start there, or else this whole thing is going to be incomprehensible. So, really, the question should be: What is blockchain?

Blockchain Is the Key to Everything

The standard line is that blockchain is a public ledger that is distributed, shared, and synchronized across a wide array of…sorry, I nearly put myself to sleep typing that. Who could expect to remember such a boring definition?

Scrub it from your mind and remember this: Blockchain is an antidote to power.

Imagine if you and your friends were trying to organize a party. For one reason or another, you designate one person to be the Chief Party Planner. No one else is supposed to speak individually; all communications are supposed to pass through the Chief Party Planner.

He or she would hold all the cards. The Chief Party Planner could (if they were a terrible friend) make all the decisions without considering your input. How would you ever know? They control the flow of information, after all, and that level of power is intoxicating.

Now imagine another one of your friends is a tech expert.

She says there is a better way to do this. Just create software that automatically records every message between your friends, and make sure that every person gets a continuous feed of all the messages. This way, no one is out of the loop.

(I suppose a group chat works even better, but let’s ignore that to preserve this metaphor.)

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This is essentially what blockchain does differently than the rest of the Internet. Even crowd-sourced websites like Wikipedia force information to pass through a server. The “master copy” of data then resides in that server.

Blockchain is completely different. It makes sure that all devices carry an imprint of the information, meaning that there is no “master copy.” The data exists everywhere.

There are a lot of ways that blockchain can be used. Right now, all of your personal data flows through the servers of Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc (NASDAQ:GOOGL), and Facebook Inc (NASDAQ:FB). They are able to sell your information to third parties whenever they want to (and believe me they do!), because they own the “master copy.” Blockchain will break their grip by decentralizing the power structure of the internet.

What Is an ICO?

Bitcoin was the first time we saw blockchain in action. It was the pioneer, but it only applied blockchain to money, whereas competitors like Ethereum apply blockchain to everything else.

That’s where ICOs come into play.

Ethereum allows companies to raise funds on its platform, much like companies raise money on the stock market. Instead of selling shares, they issue tokens that are denominated in ether (the currency on Ethereum).

But here’s the best part: the tokens are sold directly to the public, whereas on stock markets, there are major banks sitting in between the company and the general public. The banks buy the new shares earlier, at a discounted rate, then sell them to the public at a markup.

It’s ridiculous how much power they have.

Banks effectively insert themselves as the middleman in the transaction. ICOs aim to shatter their power by connecting firms and the public without anything in between, and blockchain is what allows them to do it.

How Does ICO Work?

Although ICOs are relatively new, there is a pattern to how they emerge. It often begins with a white paper that outlines a new “use case” for blockchain. This is basically a business plan written by the founders, exploring the risks and opportunities of their new venture.

Then a website follows, building on the white paper. Advisors are brought in for credibility and to finesse the company’s goals. Then conversations with big cryptocurrency investors begin.

The last stage before an ICO is the development of actual code and cryptocurrency “wallets.”

Once those are fully developed, the crowdsale takes place over a pre-determined time frame.

How to Invest in Initial Coin Offering?

You’re going to need a “wallet” to store your funds. This is basically a place to store your cryptographic key, which is really just a unique string of code that acts like a bank account.

You can use either “MyEtherWallet” or “Jaxx,” although there are new ones cropping up all the time.

Next you have to go to the ICO’s website. Find the address and time of sale. Copy the address into your wallet, decide how much you want to buy, and follow any additional details from the ICO’s website.

Once you’ve done that, it’s time to commence the transaction.

Are ICOs Risky?

Yes. Initial coin offerings is a new and largely unregulated form of financing, meaning that it is extremely volatile. Only the most risk-tolerant of investors should engage in them.

Should You Invest in ICOs?

As stated above, ICOs are only for extremely risk-tolerant investors. Not only are they extremely new and unregulated, but they are the equivalent of investing in startups. This means that outcomes can vary dramatically. Some could make fortunes, others could lose them.