ICO is a way of raising funds in an unregulated way for various cryptocurrency ventures. 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 certain percentage of the cryptocurrency is sold to project applicants very early for other cryptocurrencies or legal tender.
How do you do that
When a company wants to raise money using an initial coin offering, there must be a plan on white paper outlining the details of the project. It should indicate what the project is about, what the project needs, what its goal is to complete. It should also list the money that will be needed to undertake the entire venture and how many pioneers it will keep.
The plan must also mention the type of currency being accepted and how long it intends to campaign. During such a campaign, supporters and enthusiasts of the initiative will buy cryptocoins using virtual currency or fiat. Coins are called tokens and are very similar to company shares sold to investors during an IPO. If the minimum required funds are not reached, the money is returned and the entire ICO is then considered unsuccessful. When the requirements are met within a certain time frame, the money can be used to start the scheme or even to complete it if it is still advanced.
Investors who participate in the project early are mostly motivated to buy crypto coins hoping the plan will be successful and after launch they will get more value from it. There have been very successful projects of this kind in different economies and this is one main thing that motivates investors.
ICOs can be compared to crowdfunding and IPOs. Just like IPOs, a stake must be sold by a startup company in order to raise funds to help run such a business. The only difference is in the fact that IPOs deal with investors, while ICOs work closely with supporters who are very interested in new projects, just like a crowdfunding event.
However, ICOs differ from crowdfunds in the sense that ICO supporters are usually motivated by the fact that they can get a large return on investment. Funds raised through crowdfunding are basically donations. For this reason, ICOS is called widespread sales.
There have been many successful transactions so far. ICOs are an innovative tool in our digital age. However, it is important for investors to take precautions because there are some campaigns that can turn into fake ones. This is due to the fact that they are very unregulated. Financial authorities are not involved in this and if you lose funds to such initiatives, it is difficult to follow measures to get compensation.
In this sense, 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 sure.