Introduction To ICO.
1. Raising Funds.
For traditional companies, there are a few ways of going about raising funds necessary for development and expansion for ICO.
- A company can start small and grow as its profits allow. Only remaining beholden only to company owners but having to wait for funds to build up.
- Companies can look to outside investors for early support, providing them a quick influx of cash but typically coming with the trade-off of giving away a portion of ownership stake.
- Another method sees companies go public, earning funds from individual investors by selling shares through an Initial Public Offering (IPO).
2. Act As Fundraiser.
An Initial Coin Offering (ICO) is the cryptocurrency space’s rough equivalent to an IPO in the mainstream investment world. ICOs act as fundraisers of sorts;
- A company looking to create a new coin, app, or service launches an ICO.
- Interested investors buy in to the offering, either with fiat currency or with preexisting digital tokens like ether.
- In exchange for their support, investors receive a new cryptocurrency token specific to the ICO. Investors hope that the token will perform exceptionally well into the future, providing them with a stellar return on investment.
- The company holding the ICO uses the investor funds as a means of furthering its goals. Also launching its product, or starting its digital currency.
- Startups use ICO to bypass the rigorous and regulated capital-raising process required by venture capitalists or banks.
History Of ICO.
Mastercoin held the first token sale (also known as an ICO) was by in July 2013.. Ethereum raised money with a token sale in 2014, raising 3,700 BTC in its first 12 hours. Its equal to approximately $2.3 million at the time.
ICOs and token sales became popular in 2017. There were at least 18 websites tracking ICOs before mid-year. In May, the ICO for a new web browser called Brave generated about $35 million in under 30 seconds. Messaging app developer Kik’s September 2017 ICO raised nearly $100 million. At the start of October 2017, ICO coin sales worth $2.3 billion had been conducted during the year. Thats more than ten times as much as in all of 2016. Amy Wan, a crowdfunding and syndication lawyer, described the coin in an ICO. As “a symbol of ownership interest in an enterprise—a digital stock certificate” stating that they are likely subject to regulation as securities in the U.S. under the Howey test.
Ethereum is (as of February 2018) the leading blockchain platform for ICOs with more than 80% market share. Tokens are generally based on the Ethereum ERC-20 standard. On January 30, 2018, Facebook banned advertisements for ICOs as well as for cryptocurrencies and binary options. Not only in Facebook, but ICO advertising also has been banned in Twitter, Google, and MailChimp starting April 9, 2018. Facebook has since changed their mind and June 26, 2018 announced to reopen for approved advertisers.
How Exactly It Works?
Imagine this: You’re a Silicon Valley startup with a great idea for a new cryptocurrency system. Perhaps you want to streamline the Parent/Babysitter payment system so that it can be digital and encrypted. What a great idea! Let’s call it BabyCoin. The only problem is you need people to give you money so you can actually make the currency. Now, you could go to a bank or try getting venture capitalist investors. But what if you could raise money without having to give up any of your ownership of the company? Enter ICO. You create a document essentially detailing exactly how the system would work (usually called a white paper), make a pretty website. Then, explain why it’s a great idea that could be very useful.
Then, you ask for people to send you money. In return, you send them back some BabyCoin. They hope that BabyCoin will get used a lot and be in high circulation. Which would raise the value of the currency. It’s important to note that, unlike an initial public offering (IPO), investing in an Initial Coin Offering (ICO) won’t result in you having an ownership stake of the company you’re giving money to. You’re gambling that the currently worthless currency you pay for now will increase in worth later and make you money.
The Basic Of An Initial Coin Offering.
When a cryptocurrency startup firm wants to raise money through an Initial Coin Offering (ICO). It usually creates a plan on a whitepaper which states what the project is about, what need(s) the project will fulfill upon completion; how much money that the venture will using; how much of the virtual tokens the pioneers of the project will keep for themselves; what type of money is accepted; and how long the ICO campaign will run for.
During the ICO campaign, enthusiasts and supporters of the firm’s initiative buy some of the distributed cryptocoins with fiat or virtual currency. These coins are referred to as tokens and are similar to shares of a company sold to investors in an IPO-type transaction. If the money raised does not meet the minimum funds required by the firm, the money is returned to the backers and the ICO is deemed to be unsuccessful. If the funds requirements are met within the specified timeframe, the money raised is used to either initiate the new scheme or to complete it.
Who Can Launch An Initial Coin Offering?
Literally anyone can launch an ICO! Right now cryptocurrency as a whole is kind of like the wild west; there’s gold in the hills and relatively little law to speak of. Of all avenues of funding, an ICO is probably one of the easiest to set up as a scam. Since there’s no regulation there’s nothing stopping someone from doing all the work. In order to make you believe they have a great idea, and then absconding with the money.
The first thing to do is make sure that the people putting up the ICO are real and accountable. Some things to look for: What history do the product’s leads have with crypto or blockchain? If it looks like they don’t have anyone with relevant experience that can be easily verified, that’s a bad sign.
How Do I Start My Own ICO?
In an ICO, there are no shares to speak of. Companies raising funds via ICO provide a blockchain equivalent to a share: a cryptocurrency token. Investors pay in a popular existing token like bitcoin or ether. Then receive a commensurate number of new tokens in exchange.
It’s worth noting just how easy it is for a company launching an ICO to make tokens. Investors should keep this in mind when remembering the differences between a share of stock and a token; a token does not have any inherent value. ICO managers generate tokens according to the terms of the ICO and receive them. Then, distribute them per their plan by transfering them to individual investors.
Early investors in an ICO operation are usually motivated to buy cryptocoins. They hope that the plan becomes successful after it launches. If this happens, the value of the tokens they purchased during the ICO will climb above the price set during the ICO itself. Next, they will achieve overall gains. This is the primary benefit of an ICO: the potential for amazing returns.
Related article : What is Litecoin? And How It Works?.
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