An ICO (Initial Coin Offering) is one of the easiest and widely used methods to raise money for cryptocurrency startups. It can be used to fund new coins, apps, and even other services. The underlying principle of ICO is quite similar to that of Initial Public Offerings, where the firms decide to go completely public, raising their funds from the interested investors. The idea of crowdfunding basically encompasses this. But at this point, we have to remember that crowdfunding is not the same as ICO. When it comes to crowdfunding, the investors are mainly supporters of the firm and don’t expect any profit in return. But in ICO, the investors are looking forward to receiving a certain amount of returns. Hence, it is often known as Crowdsale.
ICO has become the most opted method to raise funds for startups and other financially deficient organizations. There are many reasons for this. Initial Coin Offerings are highly decentralized and use the same technology of distributed ledger for its functions. Since it is decentralized, an associated feature that comes along with this is the lack of regulation. There is no higher authority or banks that regulate the activities of ICO. This makes the process much hassle-free and easy. The legal hurdles are pretty low and the registration process is also not so tedious. All these factors make ICO the most favorite method to raise funds.
The structure of ICO is pretty much flexible and free. It can be shaped according to the terms of the startup. There are mainly three types of structures for an ICO. In the first structure, there is a limit set for the number of tokens generated, and each token has a definite value. Other structures have either dynamic value for tokens or a dynamic number of tokens generated. The first step in an ICO is to generate a white paper stating in detail, all the information regarding the startup or firm. The investors have to go through this thoroughly and understand the nooks and corners of the firm and their need. In return for their investment, the firm rewards them with a token, which might be in the form of Bitcoin or Ethereum coin.
It is an established fact that an ICO is highly decentralized and unregulated. This leads to a higher amount of risk due to the presence of hackers and frauds. Investors take a higher amount of risk to get a higher profit. If the token receives a price higher than the already fixed price, the investors get a double profit; there is an equal chance for things to go wrong too. It is the responsibility of the investors to be informed. In order to invest, they need to have a cryptocurrency wallet with tokens enough to make a decent investment. The bottom line is that ICOs are a great method of investment and a better way to raise capital, provided we are ready to bear the risks.