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Cryptocurrency

What Are ICOs and How Do They Work? Everything You Need to Know

written by Nitin Garg | Dec 14, 2021
What-Are-ICOs-and-How-Do-They-Work

Have you been involved in the cryptocurrency sphere? If yes, then you might have heard of the term ICO, also known as Initial Coin Offering. What is an ICO? Does it mean that you can buy and sell cryptocurrency like Bitcoin? 

To illustrate the concept of the ICO, let me provide an example.

Let’s say you’re immersed in the cryptocurrency world and discover a brilliant Blockchain startup idea. Maybe you are interested in developing a blockchain-enabled vehicles system or a social media network that uses the technology to protect users’ data from security breaches.

Seems like a lucrative blockchain business idea with huge potential in 2022 and beyond.  

But just like any other startup, the first thing you must do to make your idea a reality is to raise some capital.

This is where Initial Coin Offering comes into existence. 

When crypto startups need to raise funds, they invest in ICO token development and offer ICO to their investors to collect funds. 

To be more specific with the definition of what is an ICO token? Scroll down. 

What is an ICO Token?

ICO aka Initial Coin Offering is a way for cryptocurrencies startups to raise capital. 

In many ways, the ICO is similar to the IPO. The only difference between an ICO and a stock offering is that investors receive digital tokens rather than equity in the company. As a result of this perk, ICOs are frequently referred to by names such as token offers, token crowdfunding, etc.

A company’s ICO tokens usually give users access to the product or service it aims to introduce to the market after collecting funds. 

Additionally, a token can be considered a digital representation of material or digital assets.

Now, move to the next question of how ICO tokens work?

How Does an ICO Token Work?

How ICO Token works?

Through ICOs, startups can raise capital by issuing tokens on blockchains (a public record of transactions secured by cryptography) for a donation in exchange for the tokens. 

They can serve a variety of different functions, ranging from granting access to particular services to giving dividend rights to the holder. Tokens can be traded on cryptocurrency exchanges and transferred across the network. 

Depending on their function, tokens are either utility tokens or security tokens.

Utility Token 

User tokens and app coins are tokens used in the future to access a business’s product or service. 

As an incentive for users to use their services in the future, utility tokens allow ICO startups to raise capital to fund the development of their blockchain projects. 

A utility token is exempt from federal securities laws if it is properly structured since it is not intended to be an investment like a share of a company.

Tokens may be created by startups so that they can sell “digital coupons” for their services in development, much like electronic retailers accept pre-orders for months-away video games.

Read More: How To Make Your Utility Token ICO Launch Successful ?

Security Token

Security tokens (STO) are defined as tokens that derive their value from an external asset or can gain value through the efforts of others. 

In the event of non-compliance with these regulations, costly penalties may result, and the project may be derailed. As a result, businesses should meet all of their regulatory obligations.

The way a token is classified may determine the different applications it can serve, among them the possibility of issuing tokens that correspond to the company’s stock. 

Initial coin offerings are a completely new phenomenon in the world of finance and technology. The popularity of initial coin offerings (ICOs) has led to a significant increase in capital-raising processes. Nevertheless, regulators throughout the world were not ready to deal with the introduction of the new fundraising model in the financial sector.

According to different countries, different approaches to ICO regulation exist. Chinese and South Korean authorities, for instance, do not allow ICOs to be used for fundraising.

Many European countries, including the US and Canada, are developing specific regulations to govern the conduct of ICOs.

Further, ICO guidelines have already been published in several countries, such as Australia, New Zealand, Hong Kong, and the United Arab Emirates (UAE).

Let’s move to the next step and start talking about how your ICO token will be launched. Before that shall we develop a sound knowledge of the different types of ICOs available. 

What are the Different Types of Initial Coin Offering Exist?

There are two types of initial coin offerings that exist as mentioned below. 

1. Private ICO

Private initial coin offerings can be participated in only by a limited number of investors. 

This type of ICO are generally reserved for accredited investors (such as financial institutions and highly wealthy individuals). ICO development Companies may also set a minimum investment amount as well in private ICOs. 

2. Public ICOs

Public Initial Coin Offering is another form of ICO. It resembles an Initial Public Offering (IPO) in many ways. Just like an IPO, anyone can make an investment in public ICOs. 

As a result of its IPO-like perks, it may be termed “crowdfunding” aimed at attracting institutional investors and the general public. Due to regulatory implications, private ICOs are more practical than public ones.

Additional Perk: Step by Step Process of ICO Token Purchasing

Why Startups Should Invest in Initial Coin Offering?

Startups are increasingly using cryptocurrency ICO tokens to raise funding to make their business a reality.

If we go by the report of Statista, around $14.8 billion US dollar revenue was generated using the Initial Coin Offering that too in the cryptocurrency industry only. 

Here is a quick breakdown of the industry that leverages the power of ICO to collect funding for their business. 

Image credit: https://www.statista.com

Along with the rapid growth of the market, there are several other factors that might motivate startups to invest in a cryptocurrency Initial Coin Offerings (ICOs) development as follows. 

Cheaper Fundraising

A major advantage of ICOs over traditional fundraising methods is that they are virtually unregulated, so companies must jump through fewer hoops and can spend less on legal and related costs.

No Ownership Dilution. 

With an ICO, existing owners retain their ownership positions. In an IPO or sale of an ownership interest to venture capital firms, existing owners often see their shares reduced.

More Control

A venture capital company takes part in a company’s business by investing in it, such as by appointing directors to the company’s board. Company founders have a greater level of control over the business by using an ICO.

How You Can Launch Your ICO For Fundraising?

Now, you are ready to launch your ICO token in the market to avail yourself of myriad fundraising opportunities. 

Let’s take a step further and explore all the steps involved in ICO token development.

But before that, we would like you to answer a few questions.

Why Do I Need an ICO Token?

It is imperative to decide whether or not you need an ICO in the first place. There’s no doubt that ICOs can fund you in a matter of months, or even days if you’re lucky.

 In addition to the fact that your token should be seamlessly integrated with your product and contribute value to the blockchain, your token must also be fully integrated with the end product. 

In the case that your token is just another virtual currency, investors will have little interest in it since it will add to a long list of ICO cryptocurrencies.

To have a successful ICO, your token must solve a unique problem and add value to the community of blockchain.

What Is The Best Place to Launch an ICO?

Different countries have different policies towards running ICOs, so geography plays a significant role in the setting up of an ICO. The following countries are considered ECO-friendly:

  • Switzerland
  • Singapore
  • Hong Kong
  • Lichtenstein
  • The British Virgin Islands
  • The Cayman Islands

Read More: ICO Development Services in Switzerland

Choose the Right Technologies to Power Your ICO Token?

For your ICO to be successful, you will need to choose the right technologies. In order to create a token, you will need the following technologies apart from the highly secure infrastructure and security. 

Blockchain

The vast majority of projects choose to use established platforms such as Ethereum to run their ICOs. However, some projects are developing their own blockchain. 

Building a blockchain is a complex and time-consuming undertaking and is really only used in projects where a bespoke blockchain is necessary. However, despite their several advantages and greater versatility, blockchains also require considerable experience and expertise.

The majority of ICOs run on established platforms such as Ethereum, but some decide to create their own blockchain to run their ICO. 

The process of creating a blockchain development is time-consuming and complex and is only usually used in projects that require a custom-made blockchain. There are many benefits to using this type of blockchain, but it requires more knowledge and more time as well.

Smart Contract

An ICO is powered by a smart contract. This application offers features such as accepting incoming token purchases, transferring and selling tokens and connecting to your token wallet. 

In order to keep your smart contract secure and functional, it is vital that you thoroughly audit it. For example, hackers will look for exploits to steal money from you and your investors.

Collaborate With Well-Experienced ICO Development Company

It is imperative to work with a team of well-qualified ICO token developers to start the ICO design process.

To make your ICO development project a success, you might want to include the following members. 

  • Your team of ICO token developers should be very familiar with smart contracts and blockchains generally so that your ICO product will be a success.
  • A blockchain advisor is someone who knows a lot about digital currencies, as well as the industry in which your ICO project operates. Typically, they are known in their communities as the founders of successful blockchain-based projects.

ICO Token Development Roadmap Creation

A well-designed roadmap will help investors visualise how your product can succeed and earn profits. It is therefore an essential component of the token sale process.

The key to investors’ success is ensuring your team’s work can be easily accessed, no matter how ambitious your project is or how much funding you need. The frequency with which your ICO developers add their source code to GitHub and other source code repositories may be monitored by potential investors.

To turn your idea into a profitable product, you need to convert it into a product that generates profits. A quality product roadmap needs to generate profits.

Whitepaper Creation

This document must be presented for an investor to consider investing in your project. In order to convince anyone to invest in your project, you must explain your proposal in detail.

Your whitepaper should contain clear, precise details so that investors can understand how you will make a profit and deliver results. 

Read More: How to develop white paper for Initial Coin Offering (ICO)

Develop Website for ICO Launch

For presenting your ICO development project, you want to make a website that is easy to navigate and engaging. You must provide relevant information that is outlined convincingly if you intend to attract potential investors’ attention.

Furthermore, hiring a software development company specializing in ICO software development can greatly help in ensuring that your ICO website is designed with the best UI/UX solutions so that it is attractive and straightforward.

Promoting ICO Tokens in an Effective Manner

Meanwhile, a company will typically conduct a promotion campaign in order to attract investors. In order to reach as many investors as possible, the campaigns are typically conducted online. Numerous online platforms, including Facebook and Google, ban the advertising of ICOs.

List Your ICO Tokens on Exchange Platforms

As part of ICO development and marketing, tokens or coins need to be listed on cryptocurrency exchange platforms. Assets can be traded based on their market value using these systems.

Platforms such as Binance and GDAX are the most reliable and best to trade on. It is common for users to be able to trade only within a digital system on cryptocurrency exchange platforms. Nonetheless, some of them allow for fiat currency exchange with cryptocurrencies.

Empower Your Fundraising Campaign With ICO Token Development

ICO token development has completely revolutionised the way the crypto business operates and raises funds. You can launch your own ICO token to raise funds in a professional manner. 

In spite of this, launching the ICO token requires a considerable amount of effort and time. Therefore, it would be in your great interest to partner with an ICO development firm to smoothen the process of ICO token development

BR Softech is one of the most recognized cryptocurrency token development companies you can count on.

Nitin Garg

I am Nitin Garg Founder of BR Softech PVT LTD - an Award-winning, app, web & game development company. We are armed with 180+ geeks & 2753 clients worldwide, I have driven by the spirit of entrepreneurship and dream to build a billion-dollar-company.

About Us

BR Softech Pvt. Ltd. excels in providing cost-effective IT Solutions. Established in August 2010 with over 10+ years of rich experience. An Apex rated IT serving company around the world. Our team of innovative and creative designers deals in web designing, mobile/ software development and other digital marketing services intending to deliver outstanding digital outcomes.

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