ICO is a means of raising funds in unregulated funds for various cryptocurrency companies. This is something that startups use to circumvent the regulated and rigorous capital raising process that banks and venture capitalists require. In such a campaign, a percentage of the cryptocurrency is sold to project supporters very early on for other cryptocurrencies or legal tender.
How is it done
When a company wants to raise money using the initial coin offering, there must be a white paper plan outlining the details of the project. It should outline what the project is for, what the project needs, what it aims to accomplish. He must also indicate the money that will be needed to undertake the whole endeavor and how many pioneers he will have to keep.
The plan should also mention the type of currency adopted and how long it intends to run the campaign. During such a campaign, supporters and enthusiasts of the initiative will buy cryptocurrencies using virtual currency or fiat. Coins are called tokens and are very similar to shares of companies that are sold to investors during an IPO. If the minimum required funds are not reached, then the money is refunded and the entire ICO is then considered a failure. When the requirements are met within a certain period, the funds can be used to initiate the scheme or even to complete it, if it is still progressing.
Investors who participate in the project early are mainly motivated to buy crypto coins in the hope that the plan will be successful and will receive more value from it after launch. There are many successful projects of this kind in different economies and this is one of the main things that motivate investors.
ICOs can be compared to crowdfunding and IPOs. Like an IPO, a stake must be sold by a start-up company in order to find funds to support the operations of such a company. The only difference is that IPOs deal with investors, while ICOs work closely with supporters who are very keen on new projects just like the crowdfunding event.
However, ICOs differ from crowdfunding in the sense that ICO supporters are usually motivated by the fact that they can get a high return on investment. The funds raised through crowdfunding are mainly donations. For this reason, ICOS is called sales crowds.
So far, there have been many successful transactions. ICOs are an innovative tool in our digital age. However, it is important for investors to take precautions, as there are some campaigns that can turn into fraud. This is due to the fact that they are highly unregulated. The financial authorities are not involved and if you lose money through such initiatives, it is difficult to take action 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 such currency only from reliable sources to be safe.