What is an Initial Coin Offering or ICO?

In the cryptocurrency world, an ICO or Initial Coin Offering is a crowdfunding event where a percentage of the newly issued digital currency is sold to investors in exchange for legal tender. This is also called a token sale or crowdsale.

In this post I feature an example with the EOS ICO showing how the tokens are released each day and what impact this has on the cryptocurrency market!

What is an Initial Coin Offering or ICO?


An initial coin offering is basically the start of a new cryptocurrency, where the initial funds of that currency are being released and available for purchase.

If you are familiar with companies and investing in business, you might think of this basically as a startup company stock crowdsale.

In other words, think about a new company launching and offering stock in their company immediately as soon as that company launches, this is where the problem starts coming in.

If you think about what I just said, that doesn't sound very lucrative, does it?

Therefore, my advice in terms of what to do is avoid buying in during any initial coin offering. I suggest waiting 1 or 2 years to consider buying into any new cryptocurrency, unless we are all in. If we are doing that currency full time, if we are doing everything we can to contribute and support the marketing or development, then sure, go all in on it and then buy some right away.

If you'd like to see a list of ICOs, go to icoalert.com where all of the ICOs are nicely listed.

Here’s what it looks like.

You can see ICOs in progress, ICOs that have finished and ICOs that are upcoming, that haven't launched yet.

Be aware that some countries such as China and I believe Korea have banned or are banning initial coin offerings, which means that it's not legal to buy into or offer an initial coin offering. Other countries like the USA are getting unfriendly towards initial coin offerings to the point where some initial coin offerings are not allowed to be purchased in the USA.

Again, the government regulation is pointing directly back to what I just suggested, avoid buying in during an ICO because it's basically a startup company stock crowdsale. If you've looked in anything, Venture Capital or Angel Investing, the rates of return on startup companies overtime tend to be horrible.

Sure, while occasionally a company like Google or Facebook, if we invest in those early, we might get fantastic returns, but most of the time, the companies fail and take all the money, and give nothing back ever besides time and aggravation.

If you'd like to see a list of all cryptocurrencies, go to coinmarketcap.com, which has a nice list of all the cryptocurrencies or most all of them.

If you've seen the Bitcoin and Ethereum price rise lately, a big part of this rise has been Bitcoin and Ethereum being purchased with US dollars in order to buy into ICOs.

Would you like to see how this works inside EOS because I think this case study will show the inner workings of an ICO that's proven successful and show exactly how it works inside EOS?

EOS case study


EOS is one, if not the top ICO that's happened recently as of September 30, 2017.

EOS is giving out two million EOS every day in exchange for whatever Ethereum is received. Now, this initial coin offering is repeating this process every day, it says for 350 days here.

Now, what happened with this initially was a huge amount of excitement in the first few days of the EOS sale, buyers paying into EOS.

So what you do, this is on the Ethereum Blockchain, you send Ethereum, although if you're in the USA, you're not allowed to participate as I would assume you're not allowed to in China and Korea, and perhaps some other countries.

So you send Ethereum over through this crowdsale, and then every 24 hours, the two million EOS is divided among all the Ethereum equally. This is providing an opportunity, if you watch the price carefully of both EOS every day and the amount of the Ethereum and Ethereum price on some days, buyers are able to put Ethereum in here and then make an almost instant profit.

Who's paying for that?

If you're just holding your EOS, every time the buyers make a profit doing this, you’ve essentially taken a big loss. This is one of the things that makes ICOs problematic, this is allowing smart traders to put in money with Ethereum at the very end of the distribution, and then immediately sell that to make a profit.

I just watched this happen earlier and I'll bring up the exact figures.

There were 4,445 Ethereum that were put into the last token distribution just minutes before.

Now, if you multiply that by the price of Ethereum today, which is about $300, that was $1.3 million or so that was put in to buy 2 million EOS.

4,445 x $300 = $1,333,500

That means if I divide by 2 million EOS, the result is $0.66 to buy one EOS.

$1,333,500 ÷ 2,000,000 = $0.66

Now that's a really sweet deal if you're waiting till the last minute and calculating the price because you just got EOS for about 9% or 10% less than you can sell it for on the market.

This system is allowing smart traders to essentially grab the EOS through the ICO every single day whenever the price is ideal, and at the same time, this can go the other way.

For example, if the price drops, everyone who sent in Ethereum early that day, say the price dropped down to $0.53, and the Ethereum price and the other numbers stay the same, you would have paid $0.66 to get something that could be immediately sold at $0.50, which might have been the case yesterday or the day before.

Therefore, this ICO in terms of being able to buy in if you’ve got Ethereum is really easy. In terms of just looking at it as a part of a portfolio though, you can see what's happened so far. If you bought this when it initially came out and it was really exciting, you might have paid anywhere from $1 at the least to $5 at the most.

If you look just a few months later, this went off in the beginning of July, three months later, the price is down to $0.74.

This means that if you bought at the $5 high when everyone was most excited, you've lost 80% or so of your initial investment if you’ve just bought and held. Even if you bought in before hardly anyone knew about it at $0.90 or $1, you’ve still already lost about $0.30.

I would guess that the losses are going to continue to pile up because every day with two million EOS available, every single savvy trader who knows how to every day have the opportunity to grab EOS cheap, and immediately dump it, this is almost a sure thing for continued inflation of the amount of EOS. Therefore, a continued deflation or a continued drop in the price for those just buying and holding.

This is an example of why participating in ICOs in the first year is extremely risky, at pretty much any point you would have bought EOS before, you’ve taken a loss. Unless you just bought it in the last few days, and then immediately sold it, you could have made maybe a few cents on every EOS you bought.

This to me is a very typical pattern with not just ICOs, but if you look over the years and at the historical snapshots, you can see what happened to other currencies.

Let's just look at July, four years ago.

There's Litecoin and Bitcoin at the top.

Now, sure, if you’d known about Bitcoin and Litecoin, bought in and held them today, it’d be great, but what about Namecoin and Peercoin?

What about all these other coins, have you ever heard of any of these?

Four years ago some of these were a big deal, but today, not much of an investment.

As you see, it's very risky to participate in something in the beginning because the failure rate is almost universal. If we look over at all these cryptocurrencies, nearly all of these are going to be failures.

There are hundreds of these cryptocurrencies, and almost all of them are just going to fail whenever things get difficult. Therefore, participating in an initial ICO is so risky that in fact, EOS is not even offered in the US for fear of response both by the US government and by customers buying EOS at a higher price such as a dollar or $5 dollars, and then watching the price continue to go down over a year.

Now, this is an incredibly clever business model for the companies that are able to run it. You see, millions of dollars every day are pouring into EOS and all they have to give out in exchange is a token, which may or may not have any value at all in a year or two.

Now, it might have a lot of value, it might change the world, it might be the one cryptocurrency that replaces it there, it might, it might, it might… but that's a big leap of faith. Why not wait a little bit longer?

Now, sure if you bought in on Bitcoin at $68, that looked like a big risk at the time and today Bitcoin is up to $4,300.

Let's look at the snapshot for September 29, 2013, which is four years ago. What happened if you bought in to some of these other cryptocurrencies. Let’s ignore the one at the very top, but Litecoin actually produces a good case study.

Now, Litecoin is $54 today, but if you bought in the Litecoin four years ago, the price was $2 and something. It hit an initial spike, and then the price proceeded to stay nearly the same for almost four years until it hit another price spike.

Now, let's look at some of these other cryptocurrencies.

I'm just randomly browsing through this.

Peercoin is $1.30 today and it was $0.25 four years ago, and meanwhile, it's been around where it is today for a long time.

Let's see some of these other ones like Namecoin, I've never made a transaction in Namecoin. Most of the time since four years ago, Namecoin has been worth less than it was four years ago.

What are some of these other ones?

When Bitcoin was $138 four years ago, Feathercoin was $0.11 and it’s $0.04 today. I'm just clicking because this is a consistent trend. Novacoin was $3.90 four years ago and it’s $4.80 today. Primecoin was $0.36 four years ago and it's $0.18 today.

In other words, most all these cryptocurrencies are losers. Most all these cryptocurrencies will never produce consistent good returns over time.

An initial coin offering is the very most risky thing to get involved with unless you've got some kind of guaranteed profit system that is a quick turnover.

If you were smart enough to send in Ethereum a few hours ago, you could have made 10% on just sending in the Ethereum to the ICO and immediately dumping it right away back on the market.

Now, who's paying that 10%?

Everyone who's essentially holding it already is watching their value drop and all of this is conditioned on the price of Ethereum. If the price of Ethereum plummets, if the price of Bitcoin plummets, all these things suddenly get more difficult, and then you see how all these equations are very delicate.

I hope this has been helpful in looking at what an ICO is today. I hope I've shown you the inside of an ICO. I've given you the basics of it, I've provided a recommendation. Wait a year or two to buy in.

Now, yes, if you'd bought into some of these Ethereum ICOs before, sure, I know there's data showing how great it'd be if you bought in before, but it's not before, it's now. These ICOs are getting regulated by governments, these ICOs are going to consistently be big losers.

I've done this with the hope to help you avoid paying the price to fund basically a startup company. These ICOs are startup companies. I've done this to give you the chance to avoid just blindly investing into ICOs.

If there is an ICO you love, if you love EOS and you're going to give everything you've got in EOS, then sure, buy into it, buy some every day, use the crowdsale, but to just passively put these on a portfolio and hope they'll go up is insane. If you looked at the data I showed, most of these over time continue to go down and down. They go through awful downs and are lucky to even come back up.

I'm very grateful to share this with you today based on receiving a question on my blog saying, "Jerry, would you explain what an ICO is?"

If you have more suggestions, the best place to reach me is on my blog on Steemit. This is my single and only cryptocurrency investment because I find Steem is absolutely outstanding in terms of getting a consistent return and providing real value.

Would you follow me on my blog on Steemit because there I can actually give you money to make a comment?

This is the one cryptocurrency, I believe, that has mass adoption potential and why buying into almost any ICO is unnecessary because the cryptocurrencies that have proven value tend to be a much better buy over time.

Final Words


Thank you very much for reading this post, which was originally filmed as the video below!

If you've enjoyed this video, would you please leave a like because that helps motivate me to make more videos for you.

I appreciate you being here and I hope you have a wonderful day today.

If you found this post helpful on Steemit, would you please upvote it and follow me because you will then be able to see more posts like this in your home feed?

Love,

Jerry Banfield with edits by @gmichelbkk on the transcript by GoTranscript

 

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ICO is tempting but very risky. Most people jump to ICO so they can dump the coins afterwards.
I participate in one and so far wait and see.
never say never but I cannot wait, wait.

“In investing, what is comfortable is rarely profitable.” — Robert Arnott

https://medium.com/saske/the-art-of-the-trade-d46b4618bcd5

“Opportunities come infrequently. When it rains gold put out a bucket not a thimble.” — Warren Buffet

Good info Jerry. I have made some money on ICOs earlier this spring when it was pretty easy to do so, but also made a lot of mistakes.
I've written a "Top 10 Mistakes Crypto Newbies Make" series to help folks avoid losing their shirts.

Steemit - Good Job sign.png

thank you for valuable information but trading crypto can make you great profit but there is always a risk of loss trading is not for everyone on my opinion :)

good ico was in the past, now only scams.!

Why do you say that? 😀 😃 😄

cause it is real. now there are only scams that want a lot of money without a great project behind them.

pump and dump? Do you think iota might be one?

ICO = Inital Crap Offering So many of these coins have nothing to back them up yet people blindly buy into them hoping for the next big thing. People wake up the core ones are Bitcoin, Ethereum and Dash everything else is built on top of these blockchains for the most part.

Dash is a massive scam coin.

I like the Initial Crap Offering....... 99% of them are go no where scams and they will implode this crypto boom

yeah the bad ones are pump and dump. Even iota maybe. I don't know for sure though iota might be a good one 😀 😃 😄

I don't know. The same can be said of traditional venture capital investments and yet that's not considered a scam.

I think an ICO from a company that already has a product up and running and already generating revenue is pretty reasonable.

You forgot about WAVES NG. No WAVES project has ever been hacked and, more importantly, it's throughput embarrasses all other core blockchains :D

wavesnode Wavesnode.NET tweeted @ 12 Oct 2017 - 22:50 UTC

Wavesnode.NET proudly working with @SASKE_SXAS
Airdropping $SXAS to $WAVES, $WCT & $WNET.
More info:… twitter.com/i/web/status/9…

Disclaimer: I am just a bot trying to be helpful.

@jerrybanfied I have participated in TWO ICO's, I think I am done doing that for now. I would rather purchase more STEEM than participate in anymore ICO's.....

I like to hear that, Buy more steem

steem seems to be more of a tech company building on the blockchain technology that is building up it's value in crypto currency. This is very different from made up values from nothing with most other ICOs.

I agree.. Steem seem like a solid foundation.

There are indeed way too much ICOs going around. Regarding EOS I'm not sure if price is destined to keep on going down. There will be some news on a regular base. Also the price of the ICO is not always lower than the exchange price. I mean this is not 'free lunch' for 'smart' investors. Does that even exist a smart investor :) ?

Yup, and they're taking advantage of some really exciting arbitrage opportunities going on right now - https://medium.com/saske/the-art-of-the-trade-d46b4618bcd5

I am very pessimistic about EOS, the ICO will go on for MONTHS and i guess the demand will go down soon and so will the price.

We will have to wait and see :) I expect some news soon on the development. But ok not necessarily positive :)

thanks again larry!!!

ones again a awsesome post!

keep your goog work!!!!

thank for sharing!

Very good analysis on ICO, keep up the good job.
Feel free to see my post on the latest scam and phishing going on on steemit, your support will give it more exposure, thanks..Wish you a blessed day.

Cool thanks there is some stuff going on. Cop bots help a lot.

hahahah you are the boss

what is Cop bots ? any link?

I just mean those ones that undo the work of the bad bots. 😀 😃 😄 😁 I hope you have a WONDERFUL WONDERFUL week!

Welcome

Have you thought of doing one yourself?

Absolutely....however I need time to conceptualize...and you?

Give us the basic version Jerry.

https://steemit.com/bitcoin/@dado13btc/herocoin-ico-online-betting best investments are and always will be gambling... you are all right it need's to take care but i am only sticking to bitcoin and gambling site tokens and household commissions and i would recommend it for all!

Thank you Jerry, for a clear explanation. You certainly seem to have a knack for spotting the weaknesses in these systems. I would never have thought ofthe strategy you describe -- waiting to see what volume of trade there has been and then dumping. I assume the weakness here lies in the model of making available exactly the same amount of tokens each day? But like you said, if the startup company's sole motivation is to get funded, it's no penalty to them to do that.
upvoted, resteemed and I'm following you

Thanks Jerry this is timely , because I am planning to join an ICO ...Now I would rather buy more Steem.

Totally funnnnnnnnny! Thanks for giving me a laugh today. I upvote and follow you for it.

welcome ;) thanks

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Thank you for the valuable information. With all due favor of you, kindly follow me. But trading crypto can make you great profit but there is always a risk of loss trading is not for everyone on my opinion :)

so nice and quite in this post

Great in depth analysis as always thankyou 😀

Does a token become automatically available to mine after its ICO release? Is it possible to mine any coin or some of them are programmed in a way that it is impossible to do so from the start?

Hey Jerry, I know I should know, but what is a Witness and a Proxy? And, why do we need them? I read the Steemit FAQ, but I still don't get it. Can you do a post about it? Great info, by the way. I upvote and follow you.

wow that was quite a read, I like it as its valuable information, good to see the time and effort put into this post

Congratulations @jerrybanfield, this post is the second most rewarded post (based on pending payouts) in the last 12 hours written by a Superhero or Legend account holder (accounts hold greater than 100 Mega Vests). The total number of posts by Superhero and Legend account holders during this period was 19 and the total pending payments to posts in these categories was $866.85. To see the full list of highest paid posts across all accounts categories, click here.

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Thanks for a detailed post jerry. Although Most of icos are crap , there are some good icos with good project and technology.

great work.. I follow you now...

It is very nice to see your post always , do your best Mr @jerrybanfield

SUch a detailed post as usual. Most of it is way over my head, but I do get the gist of it. I will Resteem for more careful reading later!!

Thanks for all your work @jerrybanfield
Be well and steem on...
✌😉

Very important and valuable information with superb instructions and tired to read long article. So Please let me know read this blog totally. Summery I got.
Anyway Appreciate you sir...
Following/ Upvote

Useful information. Thanks for posting

All the best post , very nice......

Great info Jerry! Now we just need the US to get their head out of their ass and allow us to invest

You put so much work on your posts.. That's something to learn from..

Thanks for posting

Very nice

You have being doing a great job, sharing beautiful post and informative tex. Keep it up.

Great rundown. I actually devised an ICO model to deal with some of these issues. It guarantees every single ICO buyer is happy with the final price while allowing companies to maximize their fundraising. Check it out!
https://steemit.com/ico/@roosterred/a-fair-ico-model-roosterred-s-uncapped-blind-ico-auctions

Thank You @jerrybanfield for this article, i see almost every week Ico appears. By knowing what ico is we hope people more wise to use their fund..

Thank you, Jerry, for explaining this so well. This is an excellent post for those of us who are new to crypto...

Fantabulous job @jerrybanfield! This is so far the best explained post on this topic. Also congrats as you're in top 29 Witnesses at Steemit. Want to see you in top 5 as that would be a well deserved place for you. I hope you reach there in no time.

Keep sharing, caring and rocking man. You're an inspiration to many. So, stay awesome.

Steem On!

I have been voted you for witness.
Can I get a permission for translation of this article to Myanmar Language?

:::: your ^ stability ::::

Another super post cheers

very great info @jerrybanfield. thanks and will surely follow your advice.

Very nice completion of post! @jerrybanfield

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