Utility tokens and ICO for Dummies

Do you remember the series of books “(some object) for Dummies”? These books were not so bad, thanks to one of them, I’ve learned how to use MS Word in junior school 😄

Once I’ve been at one of these blockchain conferences (where the cheapest ticket started at 400$). One of the participants wished to the project I was working with at that time to raise a “fork cap”. After that, I decided to write a basic information for complete newcomers (those who didn’t smile at “fork cap”). A lot of people visit conferences, read analytics and spend time trying to understand whether this or that ICO is a scam or not. But at the same moment, they can really don’t understand what ICO is.

Therefore, from time to time we will replenish some basic and essential stuff. You will be able to find it with the hashtags #icofordummies 🤖

ICO for Dummies

So, the First Chapter: What is ICO?

Initial Coin Offering, of course, will give little understanding for a beginner. But the name is not the main thing here.

In essence, ICO is a crowdfunding, mostly for blockchain and cryptocurrency projects. That is when a huge number of people from all over the world (both ordinary people and professional investors and funds) believe in the project (and it’s profitable future) and finance it. During the ICO the project issues it’s own tokens (you can assume for ease of understanding that it’s project’s cryptocurrency) and distributes them for investments that are most often made in the most common cryptocurrencies (BTC and ETH). These tokens can be used inside the project’s app/platform/business if it’s “utility” tokens or can give its holders the rights to get dividends from the project’s businesses if it’s “security” tokens. And of course, they can be sold and/or exchanged at cryptoexchanges.

As a result, the company raises capital to finance the development and promotion of its product, while investors have the opportunity to use these tokens in the future.

So, back to our main topic, a simple example for your grandmother. You have decided to open a bakery with special, delicious bread and pastries, each component of which will be tracked and recorded on the blockchain for the additional confidence of the buyer 🥖

But at the moment there’s no budget for that tasty start-up. You don’t want to go to the local oligarch, he will take 50% or maybe even 70% of your business plus can leave you with nothing in the future. So what else can you do?

You issue special coupons that promise good discounts (or even a share in revenue) in advance for those who will buy these coupons at this stage. You walk around your neighborhood, talk to its residents. Your adviser from the local barbershop talks about your project the whole day to all of his clients. Long story short, you create HYPE. And now you’re having a queue of people who are willing to buy your coupons, your chat room in Telegram is full of young moms and grannies, local newspaper calls you the most promising start-up since the vegetable point around the corner.

And you start the sale. Coupons are sold out in a few days and now you have money to open your bakery. Some of these early investors will really buy your tasty stuff with these coupons in the future and some will resell coupons at a higher price through the ads in the local newspaper.

In general, everyone is happy. Maybe except tax officer, but it’s a whole other story 😬

In short, during ICO campaigns everything happens in approximately same way.

In the beginning, the company announces its product, the dates, and details of the token sale. Next, it should create as maximum hype as possible. After the successful token sale, the company also increases its capitalization and starts cutting its innovative product. And some investors will wait for the product, some will wait for the tokens to get listed at the cryptoexchanges to earn profits from reselling it, while the token price goes up and down with project’s news 🎢

All of these actions have lots of nuances. But we are here to understand them.

PS — write me if you like such format. And if you have questions and topics to suggest for #icofordumies

PPS — if some of you decide to create a bakery on blockchain, don’t forget about my interest 👈😉

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store