Over the past few years, there have been many changes in the world of finance. Perhaps one of the biggest changes is the introduction of Initial Coin Offerings (ICOs). In the crypto space in the past year, one of the most frequently asked questions was, “What is an ICO?”.

Think about creating the world’s first decentralized computer on the basis of a blockchain, which can create native digital assets and applications. Thus you had a great idea for a blockchain startup. You can create nifty decentralized applications on top of your blockchain and allow people to transact using the tokens generated by the network.

Some of you may be familiar with cryptocurrencies such as Bitcoin and Ethereum, but not all of you may be familiar with ICOs.

In order to fully understand how ICOs work, I need to be sure you understand what Blockchains and Smart Contracts are. The Concept of an ICO is also a good place to proceed if you are confident in your understanding of these two technologies.

Lets Start…

What is an ICO?

Bitcoin and other cryptocurrencies do not rely on blockchains. To put it simply, a block is a collection of transactions and a chain is a group of blocks connected to each other. 

It is a public database since millions of computers are linked to it. These computers can be thought of as the servers of the blockchain/database. In order to make a change to the database, it must be verified by more than 51% of nodes. If they are not verified, the change cannot be made. A 51% attack would probably not destroy Bitcoin or another blockchain-based currency outright, even if it proved highly damaging. A 51% attack is an attack on a blockchain by a group of miners who control more than 50% of the network’s mining hash rate. Since the database is owned by many different people and companies, it is very hard to hack the database because you would need to compromise over 51% of the nodes.

Decentralization refers to the fact that databases are not stored in one place, but instead in several locations.

Let’s say you had a great idea for a blockchain startup. Perhaps you wanted to create the world’s first decentralized computer based on a blockchain which could be used to create native digital assets and create applications. You can create nifty decentralized applications on top of your blockchain and allow people to transact using the tokens generated by the network. 

It sounds like a good idea. But, in order to launch it, you’ll need some capital.

Funding can be obtained through private investors, venture capital funds (or more likely, through crowdfunding platforms), or crowdfunding campaigns. 

Alternatively, if your blockchain startup wants to raise capital, you could sell tokens the network will eventually use in order to raise capital. As the blockchain grows, the token will become more desirable so its value will rise and investors will enjoy a profit. This cryptocurrency method is called an Initial Coin (ICO).

The popularity of ICOs as a source of funding

Many advantages are associated with ICOs

  • SPEED: A token based on Ethereum like ERC-20 can be created and distributed in a very short amount of time in theory with only 100 lines of code.
  • LIQUIDITY: Global markets operate 24 hours a day for the sale of tokens.
  • NO GATEKEEPERS: Anyone anywhere in the world with a crypto wallet can raise capital through an ICO.
  • OWNERSHIP: It is not necessary to program ownership rights into smart contracts for token holders to be granted ownership rights. 
  • COMMUNITY: By launching an ICO, you will be able to attract an early user base that aligns with your success.
  • MINIMUM BUREAUCRACY: If the token is not regulated (depending on its status), the disclosure requirements may be minimal.

The crypto marketplace is incredibly competitive, and your ICO will be thoroughly scrutinized both by regulators and the crypto community. Though there are many benefits to ICOs, they are no walk in the park.

How Do ICOs Work?

ICOs have been simplified to better explain what they are:

  1. Project – Seek financing
  2. Investors – Search for & invest in the project
  3. Investments – get total capital
  4. Return – Profit

For people to be interested in your ICO and be convinced your project is good, they can buy your token at a certain price. If you want to start a cryptocurrency or a dApp, you need a lot of money. 

Most of these prices are set in Ether (ETH), but a few projects accept more than one cryptocurrency – normally Bitcoin (BTC) and Litecoin (LTC).

An ICO is a digital token that you pay for with ETH, BTC, LTC, or whatever currency you prefer. The ICO smart contract then sends the number of tokens you have purchased to you. In most cases, tokens from ICOs are often purchased in two ways: to resell them at a higher price later on, and to use them for their intended purpose.

A token provides its owners with discounts, profits, or other benefits, such as discounted fees or premium features.

What Are Investors Looking For When Investing in ICOs?

A good idea may not be a good project!

There can be a lot of good ideas that fail once they reach the funding needs. Unfortunately, this is true. Since you now know what an ICO is, make sure that you are cautious when researching an ICO. There have even been cases where complete scams have been uncovered! 

Following are some things that investors are usually looking for:

  1. Market Competitor: Are there any competitors to the project and if so, why are they different from them?
  2. Experience/Team: Have they worked on similar projects before? Are they a skilled team with a good background?
  3. Fund Uses/Utilization/Invest: When and how do they intend to use the funds that they raise from their ICO?
  4. Budget Allocation: Using this simple budgeting method, one divides after-tax income equally between needs, wants, and savings for example
    1. Operational
    2. Marketing 
    3. Course Development
    4. Security
    5. Reserve 
    6. Bitdeegree platform 
  5. The Roadmap: How long does it take them to finish what they want?
  6. The Tokens: Are there going to be a lot of tokens? At what price will they be priced? How many will be sold in the ICO and how many will be kept as reserves? It is important to follow certain business standards token distribution, for example
    1. Bounties (2%)
    2. Advisors/Partners (2%)
    3. Team (10%)
    4. BitDegree Foundation (10%)
    5. Scholarship (25%)
    6. Tokens for Public(51%)
What is a 'White Paper'?

A good understanding of what an ICO is is nearly as important as knowing what is a white paper. A white paper is generally a longer version of the description of the ICO found on its website. It explains in more detail what the ICO is all about. 

System design, the use cases of the token, market data, growth projections, and the need for their idea will be discussed.

A list of team members, investors, and advisors are also usually presented, although this is sometimes displayed on the website as well. I wouldn’t recommend investing in a token from an ICO that doesn’t have a white paper. An ICO that doesn’t have a white paper can’t be considered successful.

White papers are essential for projects that are seeking investment. The project must first have a well-thought-out white paper.

The focus should be on how the funds will be used to grow the business rather than for personal gain. This is important information to provide in the white paper.

Note: The white paper for an ICO will provide you with the majority of the information you need. However, you should expand your research beyond the white paper and the ICO’s website. 

Additionally, every detail of the roadmap has been documented, and the community has been kept up-to-date through blog posts and forum responses. As you can see, it has been crucial to gain the trust of the community. People don’t give money to people they don’t trust.

To write this article was taken reference from here bitdegree.org, cointelegraph.com