ICO is a means of raising funds in an unregulated manner for different cryptocurrency companies. It’s something startups use to avoid the regulated and rigorous process of raising capital required by banks and venture capitalists. In this campaign, a certain percentage of the cryptocurrency is sold to the backers of the project very early for other cryptocurrencies or legal tender.
How is it done
When a company wants to raise money through an initial coin offering, there needs to be a plan in a white paper that outlines the details of the project. You should find out what the project is about, what the project needs, what the completion aims to achieve. It should also indicate the money that will be needed to undertake the whole enterprise and the amount that the pioneers will be able to keep.
The plan should also mention the type of currency accepted and how long you intend to run the campaign. During this campaign, supporters and enthusiasts of the initiative will buy the cryptocurrencies with virtual currency or fiat. The coins are called tokens and are very similar to company shares that are sold to investors during IPOs. If the required minimum funds are not reached, the money will be refunded and the entire ICO is considered unsuccessful. When the requirements are met within a set time frame, the cash can be used to start the scheme or even complete it if it was still progressing.
Investors who participate in the project early are mainly motivated to buy crypto-coins in the hope that the plan will be successful and that after launch they will get more value from it. There have been very successful projects of this type in different economies and this is one of the main reasons that motivates investors.
ICOs can be compared to crowdfunding and IPOs. Like IPOs, a start-up company must sell a stake in order to raise funds to support that company’s operations. The only difference is the fact that IPOs deal with investors while ICOs work closely with supporters who are very interested in new projects like the crowdfunding event.
However, ICOs are different from crowdfunding in that ICO backers are usually motivated by the fact that they can get a large return on investment. Funds raised through crowdfunding are basically donations. It is for this reason that ICOS are called crowdsales.
There have been many successful transactions so far. ICOs are an innovative tool within our digital age. However, it is important for investors to take precautions as there are some campaigns that can turn out to be fraudulent. This is because they are not highly regulated. The financial authorities are not involved in this and if funds are lost with these initiatives, it is difficult to follow up for compensation.
In this regard, there are some regions that do not allow the use of ICOs at all. It is important to only buy this coin from trusted sources to be safe.