ICO means initial offer of currency, and is a way of financing a project openly with cryptocurrencies. Start-ups use them to finance their businesses, but ICO depends on the fact that the start-up has to grow. An ICO is a way to offer tokens of a digital currency, and it is easy to do so; Read on to learn more about them.
What is an ICO?
An ICO (initial offer of currency) is an unregulated public financing alternative based on new digital cryptocurrencies that have emerged outside the traditional financial system. Its popularity has recently grown to become a major funding source for start-ups. Since the first ICOS completed, celebrated by Omni Layer (formally Mastercoin) in 2013 and Ethereum in 2014, many more have emerged.
More than 3.2 million dollars have been collected this year from the sale of digital coins to investors. This model helps many projects and start-ups to obtain the necessary financing to start their activity.
How does an ICO work?
Start-ups raise money by creating and selling their own digital currency, called a token. The characteristics of the tokens are similar to those of digital currencies established as Bitcoin and Ether.
Creating your own digital currency and starting an ICO is not as complicated as it seems. The ICOs are usually carried out in the Ethereum network, which is the blockchain (the technology behind the digital currencies) and the main ICOs platform.
For example, a start-up of a movie streaming service could sell subscription tokens to the public before launch and accumulate motivated customers to promote the service once it is operational.
However, the difficult part is usually to convince investors to buy your token or currency with promises of future value, and many start-ups end up bankrupt before they have any value.
Why are you investing in these types of currencies?
ICO fundraisers promise those who purchase their tokens access to an application service or platform. The tokens they sell are used as ticket to the platform. In practically all cases a specific product or service is not offered, but only a promise.
In addition, people invest in currencies because they expect the value to grow once the services promised by the developers are completed, thus creating demand on the tokens.
What is the relationship between an IPO and an ICO?
Although they are inspired by the IPO (Initial Public Offering), in practice the ICOs are different. ICOs do not offer investors the ownership of the shares, and most of the projects behind the ICOs, if not all, do not have a real functional product or service.
However, ICOs are a cheaper alternative to IPOs because they do not depend on the stock market and its rigorous corresponding documentation. You can raise more money with an ICO as a start-up than you could in a stock exchange or venture capitalists.
Are ICOs legal, or are they a scam?
It is inevitable that there are gaps in the law, since it takes time to adapt to technological advances. This is the case with ICOs in most countries, except in China and South Korea, where they are totally prohibited.
Some countries, such as the United States and the United Kingdom, are stepping up legislation on ICOs in a similar way to how stocks and bonds are regulated. Meanwhile, however, fundraisers and ICO investors are having a great time.
ICOs can be used for a whole series of activities, from fundraising in start-ups and corporate financing, to outright fraud. For the average investor it can be difficult to carry out the necessary research on ICO projects and distinguish between potential opportunities and scams.
What do financial companies say about ICOs?
Like it or not, institutional investors are finding it increasingly difficult to ignore digital currencies. Most financial companies are beginning to investigate ways to take advantage of blockchain technology ; There is growing interest and pressure from customers to monitor and even buy and sell digital currencies.
For example, Goldman Sachs is reportedly consulting with cryptocurrency experts to start a Bitcoin trading company. Tiffany Galvin, representative of the company, said: “In response to the interest of our customers in digital currencies, we are studying how to serve them in this space.”
Others, such as Chris Dixon of Andreessen Horowitz (a US venture capital firm), says that tokens could offer a model for the creation of open and decentralized networks and shared computing resources (computers, databases and file storage), which could reverse the current centralization of the Internet.
Should you invest in an ICO?
Find the top ICO list and think about it before investing in an ICO. It is often not so easy to determine the viability of projects from a technological and business perspective.
Many issuers of ICOs promise irrational profitability, although many investors have laughed at skeptics on the way to the bank when the value of some currencies skyrocketed. However, according to experts, the cryptocurrency market is characterized by great volatility. This is the reason why some are requesting that regulators control and sanction irresponsible ICOs. Since not much can be done yet, investors will most likely lose money when things end up looking bad; the wisest thing is, as always, never to risk more money than you can afford to lose.