Initial Coin Offering ICO
ICO – hot topic in many disputes over creating cryptocurrencies and financing such projects.
Without an ICO we would probably never see cryptos such as Ethereum or Dash. How exactly ICO works? Let’s take a look at the whole Initial Coin Offering process.
ICO and crowdfunding
The Initial Coin Offering process is very similar to any regular crowdfunding process since its main function is raising funds. It all starts with the project.
For the last ten years, the world is observing a real start-up boom. Young people keep coming up with ideas for services and products that may make the users’ lives easier. Usually, it’s some complex technology, that takes a lot of money to develop. That’s how new cryptocurrencies are created. Here comes the crowdfunding, which in this case would be the ICO.
How does it work?
ICO is a pre-sales of a new cryptocurrency in reduced price with a promise of rising exchange rate. At the beginning ICO tokens are not worth much – they start gaining value once they hit the market. Then, investors and traders can operate on them – buy, sell, hold…
While creating an ICO you have to think of it as a project, which has a future, that will be reliable for your future investors – in the end, people buying tokens are your investors. Firstly, you have to create a business plan, in which you prove that your project is not only an idea, but it’s a thought out plan, that has some real chances to succeed. Then, you start issuing the tokens, which represent a specific resource or tool that is usually at the top of another blockchain block. Money collected while the token sell-out will help you develop your projects, and soon your investors will be holding not tokens but a cryptocurrency that they can trade.
As proved, ICO can be a great way of raising funds for your project. It has a lot of advantages for both creators and investors, but it’s not the perfect solution yet. Since ICO operates on cryptocurrencies it might be hacked, so your funds are exposed to theft, especially when you collect money from some uncertain or difficult to verify sources. Another problem is that in ICOs you can raise money in cryptocurrencies. After that, of course, you can exchange it to fiat, but due to huge rate fluctuations, it might be problematic.
No regulation yet
At the moment ICOs are not legally regulated in most of the countries. This, on the other hand, exposes investors to different types of scam – it’s not only ICO problem, but it also happens in regular crowdfunding. It is still a great way for financing startups for both sides – investor and creator.