As cryptocurrencies become increasingly popular, many forms of their application are evolving, including their consumption and investment.
What is an Initial Coin Offering (ICO)?
The Initial Coin Offering, in some cases also called the Initial Currency Offer is a type of financing mechanism commonly used for cryptocurrencies projects. ICOs are popular fundraising methods primarily used by startups looking to offer products and services, usually associated with a cryptocurrency and blockchain eCommerce technology. To participate in ICOs, you will need to buy digital currency and be able to use them.
What are Tokens?
Tokens are coins that are offered during an ICO and would be considered an equivalent to shares purchased in an IPO and are also referred to as cryptocoins. Tokens themselves have value.
What is the difference between an IPO and an ICO?
There are a number of requirements that a company must meet before listing its shares through an IPO, such as minimum earnings, good results and a prospectus. The prospectus is a statement of its intention to issue its shares to the public and must contain key information about the company and its upcoming IPO to assist potential investors in making decisions. For an IPO you need lawyers, banks and patience.
ICOs do not require compliance with any regulatory framework and legal protocol, most of them don’t have records. The whole ICO process is much shorter. Usually the ICO project also issues a white paper, but, unlike the IPO, its format has no standard. It’s simple: You just need an internet and developers- that’s it.
What are the advantages of an ICO?
- It’s a great way to invest/save/secure your cryptocurrencies
- Anyone can buy tokens Launching a token is different from selling capital in an initial public offering and launching tokens can be equated with selling digital keys. Participation in an IPO is usually limited to accredited investors with over one million dollars net worth. Although, tokens sold in the initial coin offering can be sold to anyone, as most purchases are anonymous. Very few people reach over a million dollars net worth in the USA, but since this is not the only prerequisite for buying tokens- anyone can buy them.
- Instant Buy-In, no Middleman There are no blocks or intermediaries that exist between buyers and sellers of coins. Once a cryptocurrency is created and launched, it can be sold immediately in the cryptocurrency market. This is a fast and efficient process for companies. Shopping at ICO is as simple as getting the right currency to buy and waiting for the launch.
What are the disadvantages of an ICO?
- The large number of scams
Many investors buy ICOs in the hope that they will quickly get back what they invested. The most successful ICOs in the last few years represent a kind of hope, because they have really brought a huge return. Because they are largely unregulated, ICOs are scams and poorly informed investors are victims of this scam. What is perhaps the biggest drawback is that funds lost due this scam won’t be returned.
- They are easy to hack
How to avoid ICO scams?
- Investors should strive for 100% transparency of the company that runs the ICO.
- Be sure to keep ICO funds in your escrow wallet. This is a very safe place and it requires multiple keys to access it.
ICOs are very similar to IPOs, except for the digital currency being sold. So, this can help you with some basic information about ICO and maybe encourage you to buy your own tokens.