Initial Coin Offerings, or ICOs, are capital-raising projects. They are a contemporary way of raising money for the establishment or the maintenance of a cryptocurrency venture. No registered authority regulates these ICOs. They are mainly used as an alternative source of investment to bank loans and capitalist funding.
The initial supporters of an ICO receive with numerous benefits, provided that the venture is successful. These privileges include an enormous profit and the ownership of a pre-decided percentage of the cryptocurrency.
When a startup firm wants to introduce a cryptocurrency, there is large scale planning involved in the first stage. This plan is embedded on white paper and states the following:
- The nature of the project.
- Requirements for completion of the project
- How much money is necessary for the initiation and completion of the project
- The number of tokens that the original supporters of the project will receive
- The types of money that will be acceptable
- The duration of the ICO campaign
Initial Coin Offerings (ICO)
Once they reach a unanimous decision, supporters of the campaign can purchase some crypto coins. These coins are more commonly known as tokens and are the virtual analogous of shares, which investors can buy during an IPO (Initial Public Offering). An ICO and an IPO are relatively similar, despite their diverse natures.
ICOs and Crowdfunding
There are cases where the ICO fails to raise the minimum amount of money needed to initiate the project. If this happens, the ICO is declared unsuccessful, and they return the money to the investors.
ICOs are referred to by most people as being crowdfunding. However, it is interesting to see how ICOs can more effectively be called crowd sales rather than crowdfunding.
In this process, they sell a stake in the company or startup with the objective of raising money for the venture’s operations. This process is common to ICOs and IPOs. However, IPOs deal with investors while ICOs attract supporters who are keen to invest.
Many successful ICO transactions are on record, but investors should be cautious before choosing which program to support. No certified entities regulate ICOs, such as the SEC. Hence there is great risk involved in investing in ICOs, owing to the possibility of a crowd sale campaign being a swindle.
An ICO can also prove to be highly profitable for someone who has the brains and the foresightedness to predict price translations before they take place and to buy and sell accordingly. When you decide to invest in a new cryptocurrency venture, you receive many tokens in exchange for your support.
Once the project is under way, you can expect an increment in the price of the tokens, provided that there is some degree of demand for the digital currency. You can now sell your tokens, which you receive at the initiation stage of the venture, at a price higher than what you paid for them in the first place.
Main Takeaway
The digital currency ecosystem has seen abnormal growth in the past couple of years. For example, Bitcoin experienced a $36 billion increase in its market capitalization. With such prodigious numbers, we are expecting the announcement of many ICOs, which will give you the chance to make a lot of money, provided that you capitalize on the opportunity. Personally, I don’t have all the data on the ins and outs of each specific companie’s ICO to invest in any of them or make a recommendation at this point. These ICOs are another option to gain exposure to cryptocurrencies. As of now the team at Crypto Crooks recommends purchasing Bitcoins directly, rather than through an intermediary.
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