ICO is a means of raising funds through unregulated funds for various cryptocurrency companies. This is what startups use to circumvent the regulated and rigorous capital raising process required by banks and venture capitalists. In such a company, a certain percentage of cryptocurrency is sold very early to project supporters for other cryptocurrencies or legal tender.
How it is done
If a firm wants to raise money through an initial coin offering, a plan with project details should be on white paper. It should outline what the project is about, what it needs, what it is aimed at. It should also indicate the money that will be needed to carry out the whole venture and how much the pioneers will receive to save.
The plan should also specify what currency is accepted and how long the company intends to run the campaign. During such an action, supporters and enthusiasts of the initiative will buy cryptocurrencies with the help of virtual currency or Fiat. Coins are called tokens and are very similar to shares of companies sold to investors during an IPO. If the minimum required funds are not reached, the money is returned and the entire ICO is considered a failure. If the requirements are met within the set time, the money can be used to initiate the scheme or even complete it if it is still ongoing.
Investors involved in the project early are mostly motivated to buy crypto coins in the hope that the plan will be successful and after launch they will get more value from it. Various economies have had very successful projects of this kind, and this is the main thing that motivates investors.
Similarities
ICOs can be compared to crowdfunding and IPOs. Just like an IPO, a stake must be sold by a startup company to obtain funds to help the activities of such a company. The only difference is that IPOs deal with investors, while ICOs work closely with supporters who are very interested in new projects such as crowdfunding.
However, ICOs differ from crowdfunding in the sense that ICO supporters are usually motivated by the fact that they can get a great return on investment. Funds raised through crowdfunding are mostly donations. It is for this reason that ICOS is called mass sales.
So far there have been many successful deals. ICO is an innovative tool in our digital age. However, it is important for investors to take precautions as some companies can become fraudulent. This is due to the fact that they are very unregulated. The financial authorities are not involved in this, and if you lose money through such initiatives, it is difficult to continue to receive compensation.
In this regard, there are some regions that do not allow the use of ICOs. It is important to buy such currency only from reliable sources to be safe.