ICOs are a way to raise funds for different cryptocurrency businesses in an unregulated way. This is what startups use to get around the regulated and rigorous funding process that banks and venture capitalists demand. In such an event, a given percentage of cryptocurrency is sold to project backers early on in exchange for other cryptocurrencies or fiat currencies.
how it’s done
When a company wants to raise funds through an ICO, it needs to have a plan in a white paper that sets out the details of the project. It should outline what the project is about, what the project needs, and what it will accomplish. It should also state how much money is required to carry out the entire venture and how much the Pioneers will receive.
The plan must also mention what currencies are accepted and how long it intends to run. At such events, supporters and enthusiasts of the initiative will use virtual or fiat currencies to buy cryptocurrencies. These coins are called tokens and are very similar to company shares that are sold to investors during an IPO. If the required minimum funds are not reached, the funds will be returned and the entire ICO will be considered unsuccessful. When the requirements are met within the stated time frame, the cash can be used to start the program and even complete the program if it is still in progress.
Investors who participated in the project in the early days were mainly to buy cryptocurrencies in the hope that the program would be successful and that they would get more value from it once it was launched. There are very successful such projects in different economies and this is the main factor motivating investors.
similarities
ICOs can be compared to crowdfunding and IPOs. Just like an IPO, a startup must sell a stake in order to raise money that will help such a company operate. The only difference is that IPOs deal with investors, while ICOs work closely with backers who are as keen on new projects as crowdfunding campaigns.
However, ICOs differ from crowdfunding in that backers of ICOs are often incentivized by the fact that they are likely to get a good return on their investment. Funds raised through crowdfunding are basically donations. It is for this reason that ICOS is called crowdfunding.
So far, there have been many successful deals. ICOs are an innovative tool for our digital age. However, it is important for investors to take precautions as some activities can turn out to be fraudulent. This is because they are highly unregulated. Financial authorities are not involved, and if you lose funds due to such moves, it will be difficult to follow up to get compensation.
For this reason, some regions do not allow ICOs at all. To be on the safe side, it is important to only buy such currencies from trusted sources.