ICO is a means to raise funds in unregulated media for different cryptocurrency companies. It is something that startups use to avoid the regulated and rigorous capital raising process required by banks and venture capitalists. In this campaign, a certain percentage of the cryptocurrency is sold to project sponsors very soon for other cryptocurrencies or legal tender.
How is it done
When a company wants to raise money with the initial supply of coins, there needs to be a plan in the white paper that outlines the details of the project. It should outline what the project is about, what the project needs and what it wants to accomplish. It should also indicate the money that will be needed to undertake the whole business and how much the pioneers will get.
The plan should also mention the type of currency accepted and the time it takes to run the campaign. During this campaign, supporters and enthusiasts of the initiative will buy cryptocurrencies in virtual or fiat currency. The coins are called tokens and are very similar to the company’s shares that are sold to investors during IPOs. If the required minimum funds are not reached, the money will be returned and the entire ICO will be considered unsuccessful. When the requirements are met within a set timeframe, cash can be used to start the scheme or even complete it if it was still in progress.
Investors involved in the project first are mainly motivated to buy cryptocurrencies in the hope that the plan will be successful and, after launch, will have more value. There have been very successful projects of this kind in different economies and this is one of the main reasons that motivates investors.
ICOs can be compared to crowdfunding and IPOs. Like IPOs, an start-up company must sell a stake in order to find funds to help the operations of that 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 the crowdfunding event.
However, ICOs are different from crowdfund in the sense that ICO sponsors are usually motivated by the fact that they can get a great return on investment. The funds raised through crowdfunding are basically donations. It is for this reason that ICOS is referred to as mass sales.
So far there have been many successful transactions. ICOs are an innovative tool within our digital age. However, it is important for investors to be careful, as there are some campaigns that can become fraudulent. This is because they are highly unregulated. Financial authorities are not involved and if funds are lost through these initiatives, it is difficult to track them to obtain compensation.
To this end, there are some regions that do not allow the use of ICOs at all. It is important to buy this currency only from trusted sources to be safe.