ICO is a way to raise funds by unregulated means for various cryptocurrency projects. It is something startups use to bypass the regulated and rigorous capital raising process required by banks and venture capitalists. In such a campaign, a certain percentage of the cryptocurrency is sold to the backers of the project too early in exchange for other cryptocurrencies or legal tender.
How is this done
When a company wants to raise funds with an ICO, there must be a plan on a white paper that details the project. You must define what the project is, what the project needs, and what it aims to accomplish. It should also specify the funds that will be required to undertake the entire project and how much the pioneers will retain.
The plan should also state what type of currency is acceptable and how long you intend to run the campaign. During such a campaign, the initiative’s supporters and enthusiasts will buy cryptocurrencies using virtual currency or fiat currencies. The coins are called tokens and they are very similar to the shares of a company that are sold to investors during IPOs. If the required minimum funds are not reached, then a refund will be made, at which time the entire ICO will be deemed unsuccessful. When requirements are met within a specified time frame, the cash can be used to start or even complete the scheme if it is still in progress.
Investors who participate in the project early are mainly incentivized to purchase digital currencies in the hope that the plan will succeed and after its launch they will get more value from it. There have been very successful projects of this type in different economies and this is the main thing that motivates investors.
The ICO can be compared to crowdfunding and IPOs. Just like initial public offerings, the stake has to be sold by a startup in order to obtain funds that will aid the operations of such a company. The only difference is the fact that IPOs engage with investors while ICOs work closely with supporters who are very keen on new projects just like the crowdfunding event.
However, ICO differs from crowdfunding in the sense that ICO supporters are usually motivated by the fact that they may receive a large return on investment. Funds raised through crowdfunding are mainly donations. It is for this reason that ICOS is referred to as audience sales.
There have been many successful transactions to date. ICOs are an innovative tool in our digital age. However, it is important for investors to take caution as there are some campaigns that can turn out to be scam. This is due to the fact that it is largely disorganized. Financial authorities are not involved in this, and if you lose money through such initiatives, it is difficult to pursue them for compensation.
For this purpose, there are some areas that do not allow the use of an ICO at all. It is important to purchase this coin from trusted sources only so that it is safe.