Initial Coin Offerings or ICOs have become a popular means for start-ups to avoid this fate by providing funding through cryptocurrencies in exchange for new digital tokens or coins that users can use on its platform. Platforms like Bit-Profit offer numerous trading options and help you start the bitcoin trading journey without any dedicated training. Initial coin offerings have been rising since 2013, with 2017 seeing an estimated total amount raised at over $4 billion.
It provides individuals with great opportunities for investments at various stages throughout their product lifecycle and makes investors feel confident in a growing company’s potential success. Initial Coin Offerings – the term given to distributing a company’s cryptocurrency, tokens, or coins. This approach provides funding for companies looking to generate capital from start-up ventures to revolutionize how we do business today.
An ICO can be compared to an IPO for stock exchanges or Initial Public Offering (IPO), where companies issue shares in their company and offer them for sale on a stock exchange. However, whereas an IPO’s purpose is to raise public funds, ICOs provide funds from anyone who wishes to invest worldwide through any cryptocurrency or digital asset.
Basics of ICOs:
The company behind the ICO sells tokens to investors, representing some value to the company’s future product. The main task of any ICO campaign is to gain as many investments as possible. Some projects allow potential investors to test their platform using a live demo and provide them with an opportunity to interact with it. This approach increases the chances that people will like your product, which is essential if you want more people involved in your project.
How does an initial coin offering bring the concept of crowdfunding?
An initial coin offering is a decentralized crowdfunding mechanism based on smart contracts to enable fast, secure, and transparent fundraising. The idea of ICO has become famous thanks to crypto crowdfunding on platforms like Ethereum, which are backed by blockchain technology and smart contracts which provide decentralized control over cryptocurrency funds.
ICO allows companies to raise funds through the sale of tokens. Tokens are digital assets that give investors access to the issuer’s platform’s tokenized services. In the current financial system, the most critical issue is to attract investments from private sources so that companies can get financing from these sources. The goal of an ICO is to show benefits for investors.
How are ICOs different from IPOs?
In an IPO, capitalization is done by issuing shares of stock in a company. On the other side, in an ICO campaign, companies deliver their cryptocurrency tokens or coins that they then use to sell to investors.
ICO has some significant advantages over the traditional way of raising funds. The most important one is that ICO can raise funds for companies running a new project or those just fresh and have yet to be recognized on the market. In this case, start-ups can raise funds to develop ideas. Another advantage is that an ICO campaign is quicker than an IPO, but it takes time to get up and run.
Issues with an initial coin offering
One of the biggest problems with ICO is that no clear rules or guidelines govern them. As a result, it makes a lot of projects face a lot of obstacles while they are seeking funding through ICO. For example, they can be used for fraud by scammers trying to steal money from people by selling them tokens that don’t have any real value or represent any services within the company’s platform.
How to invest in an ICO?
You need to provide an initial sum of cryptocurrency, which users will use to purchase tokens. It is possible by exchanging other cryptocurrencies, and you also need to download a wallet where you can store purchased tokens. The lack of regulation surrounding ICOs, and the use of cryptocurrencies makes them prone to attacks by hackers. To invest in cryptocurrency ICOs, you can go to a cryptocurrency exchange and subscribe to different forums that notify you about the upcoming initial coin offering.