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Often, when you are reading cryptocurrency news you may come across the terms such as ICO, presale and so on. For instance, Bancor ICO has offered a decentralized liquidity network, which enabled its users to keep any Ethereum tokens as well as convert those within the network. The process eliminates any kind of counterparties and the prices are calculated automatically. The Bancor ICO took place from the 12th of June 2017 to the 12th of July of 2017. During this period of time Bancor ICO has raised around $150 million, meanwhile, its market cap was about $137 million.
At first, these terms and the data you see along with them may seem rather confusing. However, by the end of this article, all of these and much more will make completely make sense.
What is Pre ICO?
As its name implies, a pre ICO token sales give investors an opportunity to invest into (buy) the currency’s tokens before the official sale starts. In general, pre-ICOs tend to raise a small amount of money in comparison to ICOs. This is primarily because pre-ICOs tend to sell tokens at lowers prices with various bonuses. A pre-ICO makes use of a separate smart contract, so as to keep the funds separate and to avoid confusion. However, one downside of separate smart funds is that it results in some uncertainty related to the total amount of money raised.
- What does Pre ICO mean? – ICO stands for Initial Coin Offering. Pre ICO lets the investors purchase tokens prior to the official opening of the crowdfunding.
- It is a method of crowdfunding, which is targeting cryptocurrencies.
- After the crowdfunding, the funds start financing startups.
Different companies organize ICO presales for various reasons. In order to give you a better idea here are some of the reasons why a company would initiate an ICO pre-sale prior to the ICO itself.
- Many startups, which organize pre ICOs use it as a tool for promotion. ICO presale is an easy way to distribute capital and make sure that the investors will support the project. Just like the “buy one get one free” sort of approach, which is very common in supermarkets, pre-ICOs end up raising awareness about the ICO through this method. At the time of the presales, the tokens usually tend to be cheaper than usual and the companies make favorable offers that would interest the potential investors and to be able to attract their attention. As a result, in case of the successful implementation of the project the companies end up increasing their profits and getting long-term investors.
- Some companies initiate ICO presales in order to understand how much potential the ICO has. In other words, they try to find out whether people are interested in the ICO and what is their willingness to invest in it.
- Finally, pre-ICOs are a tool for attracting and keeping the long-term investors who truly believe in the idea, service or the product that the given company is offering.
Why carry out pre-ICO sale?
A pre-ICO sale is usually carried out by block-chain companies so as to gain angel investors. Angel investors provide companies with a great opportunity to cover their operational costs while the company is still working on their road-map and white papers. The money that is raised from a pre-ICO is most commonly used for the development of infrastructure.
While ICO presales are a great opportunity for companies to raise some early funds, they can also hurt the company’s credibility if a very large number of tokens are sold at very low prices.
Commonly, ICO presales start about a month or two before the official ICO date. However, it sometimes starts just about a couple of weeks before the ICO release. As far as ‘angel investors’ go, such opportunities could not be available for everyone. Firstly, you need an approval from KYC (Know your customer). Secondly, there exists a maximum/minimum amount. For instance, the minimum amount could go as low as $10,000 while the maximum amount cap would be $1,000,000 per person.
This is how a pre-ICO works:
- During the process, some crowdfunded cryptocurrencies are given to investors and then they exchange the tokens for other cryptocurrencies.
- Usually, Blockchain enterprises run ICO Presale (also known as Pre ICO), before the crowd sale is live.
Pros of pre-ICO
- Liquidity – The investors get to trade tokens in the markets that are secondary instead of locking up a value in an equity of a company.
- Provides good distribution of capital – If a pre-ICO is organized well enough, it will bring up a great opportunity to allocate capital as rationally as possible. There are no geographic or demographic barriers when it comes to ICOs. By the end of the day, after the allocation of capital, the companies automatically become transparent to some extent.
- A crowd-funded startup = startup with many supporters – By involving and incentivizing a large number of people to take part in a project, the companies gain a lot of supporters who are engaged and care about what is happening.
Cons of pre-ICO
- Frauds and scams – Many scammers take an advantage of the opportunity and use it to raise money, which later on is not being implemented in the project that has initially been presented to the investors.
- Riskiness and restrictions – Economists always claim that risk is equal to the rewards. In other words, the riskier the investment is the more is the potential returns. Due to the risky environment of this sphere, many countries look at it as a threat to the economy and make restrictions to avoid those. As some companies fail to succeed and pay the investors back, a number of people end up losing their money. For instance, China has completely banned ICOs and pre ICOs, which means people can no longer partake in similar initiatives. The China ban was a quite harsh one on the crypto world as there were a lot of people involved in this industry from China.
- Loyalty issues – As it was mentioned above pre-ICOs tend to sell tokens for cheaper or with special favorable offers for attracting more people. As a result, a lot of buyers get the tokens for cheaper then they end up selling those immediately when the prices go up for a bit.
How to find the best presales?
For an ICO presale to be successful, certain parameters need to be taken into account. Here are some factors that you need to pay attention to, in order to decide if the presale is a good one or not.
- Hype: Make sure you understand the product or the service that the given company is offering and try to think critically if it is really worth it. At the same time, make sure to avoid “too good to be true” kind of offers as most of the time similar projects get people very excited but end up being a scam that steals people’s money. Usually, if the pre-ICO is a good one, you will come across it on social media very often and it will be discussed a lot in various other cryptocurrency forums. Also, a highly responsive customer support teams to answer the queries of people both via calls and through the social media. This is an essential criterion that indicates the legitimacy of the hype and the ICO itself.
- Rumors: Keep an eye on what people have to say about the given pre-ICO. Do people find it interesting or suspicious or trustworthy? Are there any special offers? Even though rumors are usually not taken as a credible source of information it is important to be aware of those as well. Rumors will help you navigate and make your critical decisions easier. At the same time always read what the experts have to say about the pre-ICO and make sure you consider their opinions.
- Funded by Big Companies: Find out whether the company behind the pre-ICO has any partners or parent organizations. This is another essential criterion that indicates the legitimacy of the ICO. Usually, presales that are funded by big companies, have a potential of being successful. As a matter of fact, similar ICO presales are less likely to be frauds and are more likely to have interesting offers.
- Reviews: One of the best ways to find out whether your decision is a good one or not, is looking at the opposing arguments. Pre ICOs are not an exception. If you think that the pre-ICO is simply perfect make sure you check out the opinions of the critics and vice versa. Make sure you have a general idea of what other people think about it, thus it will navigate you to make better decisions.
- MVP: It is a nearly finished product which early investors can test. MVPs are one of the best indicators of how realistic is the success of the company. It is the refection of the final product that gives the consumers and the investors a chance to get a better idea and to be able to imagine what is the product going to be like. If the MVP is good enough then the company is more likely to be successful.
- Team: A highly capable and qualified team of motivated individuals, who can drive the company towards success. Make sure that the team members have verified social media and especially LinkedIn accounts. Many scammers put up pictures of random people who have nothing to do with the project to make sure that you are not going to potentially invest in a fraud like those. Try to learn about the background of the team members, how relevant is their experience, how well can they really handle the project and so on.
How to participate in a presale?
This is how to participate in a pre-ICO:
- Study the whitepaper and the agreements of the given pre ICO and be sure that it is exactly what you want to invest in. Make sure you are aware of the deadlines and are ready to meet those.
- Make sure you own cryptocurrencies- Nowadays a lot of pre-ICOs offer ERC20 tokens and platforms built on Ethereum blockchain. For this reason, similar pre-ICOs and ICOs support Ethereum (ETH). If not ETH, then pre ICOs will support other well-known cryptocurrencies such as Bitcoin, Litecoin and so on. You are advised to check this information on the official website of the given pre-ICO and see the currencies they support or accept from the investors.
- Go through the KYC- Some platforms that use the Know Your Customer (KYC) or Anti Money Laundering (AML) methodologies may require you to go through a certain process for verifying your identity. This is not the case for all the pre-ICOs so to find out if it is needed read the proper section of the whitepaper and check out the requirements in the case of the given ICO presale.
- Buy the preferred tokens. Follow the instructions and the guide that the pre ICO organizers provide to the investors. The main part of this step is exchanging your cryptocurrency (ETH, BTC, etc.) with the tokens that the given pre-ICO is offering.
- Store the currency in a wallet (web, hardware etc.). Make sure you have a secure wallet that supports the tokens you buy. In order to find out which wallets support the newly bought tokens double check what kind of tokens are those. For instance, the ERC20 tokens usually work with ERC20 wallets (both cold and hot storage). Please note that in case the wallet is not safe your tokens can be easily stolen.
- Follow the news concerning the given pre-ICO and keep track on what is happening to the prices of those tokens. In similar situations, patience is very important.
How to keep crypto tokens safe?
To keep your tokens safe you need crypto wallets.
However, crypto wallets are very much different from “traditional” wallets.
- It is a software, which stores the crypto tokens.
- It keeps the public/private keys.
- It lets the users do transactions (send/receive).
Note: transactions cannot be done without a wallet.
Despite the wonderful idea behind ICOs, currently, it has several disadvantages. However, these issues have a rather big potential of being solved in the near future. Thank you for checking out this article and we hope it gave you a better idea about ICOs. Please check out our website to learn more about cryptocurrencies.