Crowdsale can be understood as a virtual equivalent of crowdfunding. Even though the two have their own distinct features, the basic idea remains the same. Raising money from a large audience to fund a particular project is the objective. When it comes to crowdfunding, the investors are rewarded with shares or equity equivalent to the money invested. But here, the investors are reciprocated with tokens instead of shares. Cryptocurrency tokens can be created according to the type of project the creators are going to build. ICO uses the principle or idea to raise funds for the projects. Initial Coin Offerings have two phases namely presale and Crowdsale. The presale part is when the project is introduced to the public and they can conjure an idea about the project. The latter is when the actual buying and selling occurs.
Crowdsale issues tokens instead of shares, as discussed earlier. This makes a major change in the ways things happen in investments and public participation. There are no geographical restrictions whatsoever when it comes to this. Same applies to ICO too. It enables anyone interested in investing in a project to do so. There are also no financial restrictions either. The status of the investors is not a barrier. There are three components when it comes to Crowdsale. There are the project initiators, investors, and a platform. There are many Crowdsale platforms such as the Ethereum platform that assists the project. Ethereum has its own token known as the ethereum coin to facilitate the applications within the platform.
There are different types of Crowdsale, but the most popular ones are ICO, Reward and Equity Crowdsale. ICO has become almost synonymous with Crowdsale and uses tokens to carry out the dealings. It can be used as a method to measure the interested public has on the project. More the participation, more the interest. Reward Crowdsale is another type where equity is not given to the investors but rewards of sorts are given. In the case of Equity Crowdsale, an equity equivalent to the investment made by the investor is given. Token Crowdsale is the most widely used among the three.
The transaction cost of investments, especially in ICO is comparatively less. The investors don’t have to pay huge fees in order to participate in this event. Also as mentioned earlier, investors add value to the project. If there are fewer amounts of investors, the project is not deemed worthy of investment. When it comes to project initiators or creators, they will have an improved profile as they have started a venture. Like any other investment, this comes with its own fair share of risk. During Crowdsale, the creators have to explain in detail about their project, which may lead to theft of ideas.
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