What is an ICO?
ICO (Initial Coin Offering) is a modern way of social funding (crowdfunding) allowing startups to raise capital using cryptocurrencies.
To start your adventure with ICO, you should start with reading the whitepaper – it’s a kind of a business plan, similar to prospectus from the traditional share market. Among others, you can find a roadmap in the whitepaper to see the detailed scheme of the future actions planned by the company. The milestones are aimed at achieving the business objective. Presenting the team behind the ICO is a frequent good practice, so you can see the people involved in the particular project.
How does an ICO work?
You have a business idea, but you don’t have funds to realize it. This is where ICO steps in – the founder emits tokens in order to raise capital for the project. The biggest ICO’s were able to raise capital worth millions of dollars.
The first ICO was related with Mastercoin cryptocurrency and took place in July 2013. The next big ICO was Ethereum, where the creators of the project raised as much as $2.3 millions in less than 12 hours. The sale took place back in 2014.
In most cases, when the token sale is over, the venture has the funds required to start developing the project. In some cases it turns out with time that the ICO was a usual scam and the company doesn’t even start working on the project.
Marketing plays a key role in the ICO world. Most websites show a good looking, nicely packed product and the project creators promise high returns for the investors. This is why preparing an extensive technical description and building a trustworthy team working on the particular project and presenting the details of the project to the investors gets so important nowadays.
The number of startups deciding to raise capital by an ICO is continously rising. There were 435 ICO’s last year and the total amount of the capital raised by these projects has passed $5.6 billion. On average, a single project was able to raise more than $12 million. Most of the ICO tokens use the Ethereum technology.
Why should you invest in ICO
By investing in ICO tokens you help to finance the development of the selected project. In time, the tokens possessed may bring you substantial profits. Most of the tokens should get listed on exchanges in time, giving a possibility of trading end earning on them.
Getting listed on an exchange is not a simple thing as most of the exchanges implied strict criteria the token needs to meet in order to be listed on a particular platform. This is why it’s so important to go through all the documentation and whitepaper published by the project founders.
Currently there are no legal regulations regarding the ICO’s in most of the countries. The U.S. and a number of other countries claim the ICO have a structure close to securities and should be regulated in the same manner. The ICO’s are getting more and more popular, and as the whole cryptocurrency market is constantly expanding, the regulations cannot catch up with it. This is why one should realize that a big part of the startups won’t probably succeed, same as most of the traditional startups fail. In some cases, the venture behind the ICO has a working product or service and the ICO is used to speed up the expansion of the company, therefore investing in such an ICO would be less risky for the beginner investors.
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