What Is Initial Coin Offering (ICO) - Sourajit Saha

Friday, 5 January 2018

What Is Initial Coin Offering (ICO)

As the cryptocurrency world is becoming more popular, you'll need to become conversant with the words and terms that are related to the industry. One of the most important ones is initial coin offering, popularly known as ICO. So, what is an ICO?

An initial coin offering is an unregulated means used by a new cryptocurrency venture to raise funds. With an ICO, startups can by-pass the regulated and rigorous process of raising capital, which is often required by banks or venture capitalists. In most initial coin offering campaigns, a percentage of the cryptocurrency that's being invested in will be sold to the early supporters of the project in exchange for other cryptocurrencies (mostly Bitcoin) or legal tender. An ICO can also be referred to as an IPCO, Initial Public Coin Offering.
What Is Initial Coin Offering (ICO)
INITIAL COIN OFFERING BREAK DOWN

In order to further understand what an ICO is, we have decided to break it down for you. Now, when a new cryptocurrency firm wants to raise funds via an ICO, what they do is create a plan on something known as a whitepaper. The whitepaper is a document that lets contributors and supporters know what the project is about, the amount needed for the execution of the project, what the project will take care of when it's completed, the time period the initial coin offering will run for, the type of money accepted, and the amount of virtual tokens that will remain in the "purse" of the project pioneers.

During the ICO campaign, supporters and enthusiasts of the firm's project will be able to purchase some of the distributed cryptocurrency with other virtual currencies or fiat money. These cryptocoins that are available during the ICO campaign are known as tokens, and they can be likened to a company's shares being sold to an investor during an IPO (Initial Public Offering) transaction. Now, for an ICO, if the money raised is not up to the minimum amount that's needed by the firm, the money is given back to the supporters and the ICO is considered to be unsuccessful. But if the money is up to the required amount, the funds will either be used to start up the new investment or used to complete it.

ICO supporters are usually of the mindset that the plan will become successful (no one wants to lose their money after all) and after the launch of the cryptocurrency, the coin's value will surge higher than what they actually bought if for before the initiation of the project. One good example of a successful ICO is the Ethereum project. Ethereum had Ether as its coin tokens and those who had supported and invested early in the smart contracts platform are quite profitable now. Introduced in 2014, the Ethereum project kicked off with an initial coin offering where Ether was sold at $0.04 per coin. The project raised a whopping eighteen million dollars in Bitcoin during the ICO and it went live in 2015. In 2016, Ether had a value of $14 per coin from 0.04. Ether is now worth over $700 (in 2017) with a market cap of 92 billion dollars.

THE DIFFERENCE BETWEEN INITIAL COIN OFFERING AND INITIAL PUBLIC OFFERING

As we noted earlier, ICOs and IPOs are quite alike. Both of them are similar to crowdfunding. Just like an IPO, an ICO also involves a part of the company or startup being sold in order to raise money for the operations of the entity. However, ICOs deal with supporters and enthusiasts that are eager to invest in the new project just like crowdfunding, while IPOs deal with investors. But ICO also differs from crowdfunding given the fact that the enthusiasts and supporters of ICOs are expecting returns on their initial investment, while those involved in crowdfunding are actually donating with no prospective returns. These reasons are why ICOs are considered to be crowdsales.

Now, although there have been a lot of successful ICOs over the years, you still need to be careful before investing your money in one. ICOs are considered to be disruptive innovative tools in this technology age; investors need to be careful as some of these crowdsales (or ICOs) are actually scams. Since initial coin offerings are not regulated by financial authorities like the SEC (Securities Exchange Commission), any fund lost to an unsuccessful or fraudulent crowdsale may never be recovered.

As a matter of fact, in September 2017, China's central bank, the People's Bank of China, banned ICOs, claiming that they are disruptive to financial and economic stability. According to the central bank, it claimed that banks cannot offer services that are related to ICOs and tokens cannot be utilized as currencies on the market. This brought about the tumbling down of Ethereum, Bitcoin and other cryptocurrencies, and it has led market analysts to believe that the cryptocurrency world will soon be seeing different regulations. The ban also applies to already complete offerings, which is why it had a major effect on Ethereum and BTC.

SUMMARY


ICOs are a great way to invest in a startup, but you also have to be careful about the ones you choose to invest in. Look for red flags and read the whitepaper well before investing your hard-earned money.

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Sourajit_Saha
Hi, I’m Sourajit Saha, An Online Marketer From Kolkata, India. I Have Been Blogging Since Last Quarter Of 2010. I Started Blogging As A Hobby, And Soon It Turned Into Passion And Later Profession. Click Here To Know More About Me!

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