An ICO operates similarly to IPOs in traditional stock markets but with a crowdfunding model. When talking about how to launch an ICO, investors purchase tokens of a project by investing a certain amount of money, typically in exchange for a specific quantity of tokens. These tokens, usually based on blockchain technology like Ethereum, serve a particular vision or application scenario.
How to launch an ICO
Project Preparation
The project team drafts a whitepaper detailing the project’s goals, technical details, application scenarios, and token distribution and sets fundraising targets.
Project Announcement
The project team announces the ICO plan, often through various platforms like websites and social media, to attract potential investors’ attention.
Investor Registration
Potential investors register on the project’s official website or platform and undergo necessary identity verification procedures.
Investor Purchase
Registered investors use fiat currency or other cryptocurrencies to purchase tokens issued by the project. Most projects only accept cryptocurrency payments.
Token Issuance
The project team issues tokens to investors according to the established rules and terms. These tokens are usually digital assets based on blockchain technology, such as ERC-20 tokens on Ethereum or BSC tokens on Binance Smart Chain.
However, a reputable project continues beyond the end of ICO sales. Still, it continues to develop the project, promote it, and facilitate token listing on major cryptocurrency exchanges to ensure its sustainable development.
Advantages and Disadvantages of an ICO
Advantages
Low Fundraising Threshold
ICOs provide rapid access to large amounts of funding for new projects, facilitating the rapid development of the blockchain industry.
High Market Accessibility
Unlike IPOs in stock markets, which may have restrictions on fiat investment, investor qualifications, and listing locations, ICOs attract global investors’ participation without geographical boundaries, providing projects with broader market opportunities.
Disadvantages
Regulatory Risks
Most countries and regions hold a negative attitude towards unregulated ICO projects, and some even legislate to prohibit them. Falling victim to ICO fraud could lead to investors having no legal protection and being unable to recover their assets.
Fraud Risks
Because of the absence of comprehensive regulations governing ICOs, there is a proliferation of fraudulent entities leveraging blockchain, cryptocurrency, and ICO fronts. The lack of specific legislation to regulate their actions increases the likelihood of fraud for individuals participating in ICOs.
Famous ICO Fraud Cases
Pincoin and iFan
A company operating in Vietnam reportedly defrauded a total of 32,000 investors with a scam involving two ICO projects, amounting to a total fraud of $660 million. iFan was once a social media platform where celebrities published content for their fans, while Pincoin promised a monthly investment return rate of 40%. The project claimed to be building an online platform focusing on services like ad networks, auctions, investment portals, and a peer-to-peer marketplace based on blockchain technology.
Recognizing ICO Scams
Not every enterprise requires blockchain, nor does every situation demand decentralization. Despite this obvious fact, the hype surrounding blockchain technology and its disruptive potential often garners attention when ICO projects claim to apply blockchain to a large-scale industry.
When evaluating how to launch an ICO, it’s crucial to ask whether they genuinely need blockchain or native tokens. If not, it might be forcibly integrating cryptocurrency or simply a scam.
Signs of ICO scams
Empty Code Repositories
A lack of technical details or an empty code repository signals a potential scam. Legitimate blockchain projects typically provide code repositories on platforms like GitHub for public scrutiny.
Unreasonable Mining Structures
Projects with disproportionately high percentages of pre-mined tokens reserved for the development team should raise caution. Premine-heavy projects often prioritize token appreciation over blockchain network development.
Inexperienced Teams
Investigating the backgrounds of the team behind an ICO is crucial. A lack of experienced developers or relevant expertise within the team is a red flag.
Insufficient Information on Website/Whitepaper
Projects needing more detailed information on their website or whitepaper may be suspicious. While some projects might still be in the early stages, others might be scams.
Lack of Clear Roadmaps
ICO projects should provide clear timelines for fundraising and development goals. The absence of a roadmap or vague timelines may indicate a lack of long-term planning or short-term profit motives.
Invest in ICO
ICOs offer both opportunities and risks to investors and project founders. Understanding the intricacies of how to launch an ICO, including their advantages and disadvantages, and how to identify scams is crucial for navigating the evolving landscape of blockchain fundraising. By conducting careful investigation and staying informed, investors can minimize risks and actively support the advancement of genuine blockchain projects.
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