Blockchain and cryptocurrencies have been going through an astonishing phase over the last couple of years. On the bright side, the worth of the world’s most popular cryptocurrency, Bitcoin has galloped from a market capitalization of USD 11 billion in June 2016 to over $73 billion in October 2017. Some heists were reported in cryptocurrency exchanges but, except a few, many did not gain coverage due to lack of evidence. Countries across the world have started to open up their financial and regulatory information systems to recognize cryptocurrencies as a valid monetary unit for payments. Russia, Japan, and Australia are the latest additions to a growing list of nations that have started to accept digital cryptocurrencies as an authentic payment system. Start-ups and even tech behemoths are creating newer currencies in blockchain due to this increased acceptance and this is now creating a huge new ecosystem of Initial Coin Offering or ICO. Let’s see a bit about what ICO is before jumping into how to start ICO.
What is ICO?
Initial Coin Offering or ICO is like the Initial Public Offering (IPO) of blockchain currencies. With an IPO, you get to buy shares of companies which would then utilize those investments to expand the business, improve profits and ultimately, provide you with a stable dividend. ICO, on the other hand, allows companies to offer a new coin or token in the cryptocurrency market and attract investments to grow the network that accepts these coins. The investors get access to a fixed number of coins or tokens in the ICO purchase and the growth of the network over time determines the value of the coin. You might be wondering about the chances that new currencies have against established digital currencies like Bitcoin. Fear not. Bitcoin, which had over 80% of the market share initially is now down to less than 50% despite the meteoric rise in its value over the years. As such, an ICO is a sure bet for successful fundraising and growth of a new cryptocurrency. But now comes the real question. How do we conduct a successful ICO for a new coin?
What are the 9 pre-requisites to successfully start an ICO
- Product Development and Advisory:
Let us go straight into the most important aspect to consider before you initiate an ICO – to have a reliable technology model for your coin or token. Ensure that your project is solid, the tools and techniques, the information systems, the infrastructure you have utilized and all other technical credentials of your coin project are sound before announcing an ICO. It is always advisable to connect with expert blockchain consultants or firms specializing in blockchain solutions to evaluate your technology model and identify areas of improvement. Your technology architecture may be good, but it may not be the best and there could be simplified and more efficient ones that can be provided by people with more experience in creating blockchain-based solutions.
- Build a Transparent Sales Platform:
Let us look at the stages in the building such a platform:
Set up a Digital Wallet
This is needed to allow the purchase of coins in exchange using either existing digital coins like Bitcoin or any recognized international currency like the US Dollar.
Set up a Smart Contract
A smart contract on a blockchain network is an immutable agreement that is set up with terms, and conditions agreed upon by all stakeholders. Any violations of the contract would lead to penalties on the violating stakeholder. Due to its immutability, the contract ensures that the value of the currency or monetary units traded under its supervision is not susceptible to fraud. Once the smart contract is deployed, then all rules and dividend payouts would be following these smart contracts.
Set up supporting tools
Currency converters, payment gateway integrations, etc, if needed, should be set up to help the sale platform become more efficient and acceptable to all stakeholders.
Investors would be keen to know about the payment processors, exchange protocols, security policies, and smart contract rules before investing and hence transparency of the highest order should be maintained on the ICO platform.
- Document the Project on a Whitepaper:
Blockchain still is and will always be difficult for non-tech folks but these people would definitely invest in your coins if they can see extensive literature about your digital currency; why it is unique and different from others. Create a whitepaper or an e-book or an informative report of the project that details the goal, the objectives it aims to achieve, the story of how the project reached this milestone, and what the future holds for investors in the project.
- Pre ICO Management:
Hosting an ICO event is not an easily affordable venture. There are substantial expenses that have to be incurred including paid promotional ads on the internet, recruitment of resources, scheduling direct meet-ups with big names in the investor spectrum, and so on. As a result, most blockchain projects conduct an ICO Pre-sale or Pre-ICO as it is more commonly known, to raise funds for conducting the actual ICO as well as for gaining exposure to the management hurdles of an ICO process. This would equip them with sufficient funds and expertise to run an actual ICO on a bigger scale. Tokens or coins are offered at rates that are lower than the actual ICO offer price. This is a potential disadvantage because investors who buy tokens during the Pre-ICO may sell the coins when the actual ICO starts with a better price offering. Nevertheless, it is the best method to raise capital and equip yourself to conduct a bigger ICO event.
- Start a Conversation Around the Project:
All that we discussed now will not make you ready to start your ICO. After you have captured the essence of the project in a white paper, circulate it amongst potential users and so they can read and comment on it. This would also spread the word about the coin and garner interest from the international community. Share the white paper and other literature about the coin on social media as well as start conversational threads in popular forums like Reddit where more people are likely to debate about its features and provide solid feedback for improving the product.
- Global ICO Community Networking and Partner Relations:
The final step to start ICO is to set aside a substantial part of your marketing budget to connect with global communities at events where blockchain technology and digital currencies are hot areas of interest. This strategy enabled Ethereum to attract considerable investment when it launched its ICO through a global crowdsale. Ethereum’s globe-trotting founders could strike a chord with many global investors who later became ambassadors of the coin and advocated the use of the coin to their connections. This organic growth can highly influence your ICO’s value initially. You could strike a partnership with leading e-commerce and physical retail chains in different countries to be a part of your digital currency network and accept your coins as payment. These merchants would then include your coins in their loyalty and customer acquisition strategies and thereby, organically add more users to your ecosystem.
- Escrow and Custodial Advisory:
The crypto-currency economy has been hit badly by scams and fake ICO’s recently and several investors would hesitate to invest in ICO’s for fear of losing their hard-earned money if the project turns out to be a scam. To avoid this scenario, it is advisable to set up a decentralized Escrow account within your project where investors can vet to transfer the funds accumulated in the ICO only when the project owners can accomplish their milestones. Any failures would result in an instant refund of the investor money and there is no way fake projects can withdraw investor money because the Escrow is controlled by investors themselves.
- Distribution and Treasury Management:
The raised funds would be stored in the Escrow account and the terms of distributing the fund for the project need to be well defined as a smart contract within the decentralized Escrow. The funds might have been collected in multiple currencies and the terms of converting them into a unified currency for transparency and how the funds would be managed should be clearly defined.
- Security Audits:
Before going ahead with the ICO, it is imperative to conduct a security audit of your token protocols, the digital token exchanges, the wallet and Escrow accounts as well as your information storage systems. During an ICO, investors provide both monetary information as well as sensitive personal and business information that needs to be protected at any cost to safeguard their interests. So it is advisable to have a professional security audit of all your systems before going in for an ICO.
Once these 9 prerequisites are in place, you are all set to start ICO.
ICO’s used to be stand-alone and did not attract attention from IPO watchdogs and securities and exchange authorities. But off late, thanks to the growing monetary value of digital currencies, regulatory watchdogs have started to frame policies to prevent fraudulent ICO practices. Smart contracts enabled in ICOs are designed to prevent any fraud. Make sure to identify and comply with any legal or regulatory requirements that may be placed in your country for blockchain currencies.
