ICO is a fundraising tool with unregulated funds for various cryptocurrency ventures. This is something that start-ups use to circumvent the regulated and rigorous capital raising process that banks and venture capitalists require. In such a campaign, a percentage of the cryptocurrency is sold to project supporters very early on for other cryptocurrencies or legal tender.
How is it done
When a company wants to raise money using the initial coin offering, there must be a white paper plan outlining the details of the project. He must outline what the project is for, what the project needs, what it aims to complete. He must also indicate the money that will be needed to undertake the whole endeavor and how much the pioneers will receive to keep.
The plan should also mention the type of currency adopted and how long it intends to run the campaign. During such a campaign, supporters and enthusiasts of the initiative will buy cryptocurrencies using virtual currency or fiat. The coins are called tokens and are very similar to the company’s shares, which are sold to investors during the IPO. If the minimum required funds are not reached, then the money is refunded and the whole ICO is considered a failure. When the requirements are met within a certain period of time, the money can be used to start the scheme or even complete it if it is still progressing.
Investors who participate in the project early are motivated mainly to buy cryptocurrencies, hoping that the plan will be successful and will receive more value from it after launch. There have been many successful projects of this kind in different economies and this is one of the main things that motivates investors.
ICOs can be compared to crowdfunding and IPOs. Like an IPO, a stake must be sold by a start-up company to raise funds that will help run such a company. The only difference is that IPOs deal with investors, while ICOs work closely with supporters who are very passionate about new projects, just like the crowdfunding event.
However, ICOs are different from crowdfund in the sense that ICO supporters are usually motivated by the fact that they can get a high return on investment. Funds raised through crowdfunding are mainly donations. For this reason, ICOS is called crowd sales.
So far, there have been many successful transactions. ICOs are an innovative tool in our digital age. However, it is important for investors to take precautions, as there are some campaigns that can become fraudulent. This is due to the fact that they are highly unregulated. The financial authorities are not involved in this and if you lose money through such initiatives, it is difficult to follow up to get compensation.
To this end, there are some regions that do not allow the use of ICOs at all. It is important to buy such currency only from trusted sources to be safe.