What is an ICO?
Initial Coin Offering (ICO) is a form of a call for investment based on the number of cryptocurrencies that are gradually replacing the traditional financial system. Recently, this currency became very popular and gradually became the main source of capital for startups.
Since the ICO’s first launch event – hosted by Omni Layer (the founder of Mastercoin) in 2013 and 2014 by Ethereum – the system has now been more complete and has many more features.
The sale of cryptocurrencies to investors alone amounted to more than $3.2 billion this year. This model helps a lot of projects and entrepreneurs find the financing they need to start a business.
Filecoin and Tezos are the two start-ups with the most significant cryptocurrency budgets of $257 million and $232 million, respectively.
How does it work?
Startups make money by creating and selling their own cryptocurrencies under the name of tokens. These tokens have the same appearance and characteristics as other cryptocurrencies such as Bitcoin and Ether.
Creating cryptocurrencies by itself and starting an ICO is not as complicated as it seems. It often takes place on the Ethereum network, the leading data security network (technology that supports digital currencies) and the foundation for ICO.
The software behind Ethereum and Bitcoin uses open source, which means anyone can arbitrarily modify the source code and use Ethereum Smart Contract to create their cryptocurrency.
This is a computer protocol that functions to transfer electronic assets between parties in accordance with agreed commercial terms. If you’re uncomfortable working with hassle codes, companies are always ready to help you for a small fee.
Investors often buy new coins or tokens from Bitcoin or Ether developers – digital cryptocurrencies in the Ethereum network. The purchased tokens will be used exclusively on the developer’s compute service built or pledged to be built.
For example, an online cinema service project can sell tokens to people before it is officially launched and use customer acquisition as an incentive to develop the service.
However, convincing investors to buy your tokens or coins with the promise of a good future is always the hard part, and a lot of startups have gone bankrupt before their coins have any value.
Why do people invest this kind of money?
ICO fundraising organizations commit to continue using online services or platform applications in the future.
They sell tokens to use as a ticket to enter the platform. In most cases, no specific products or services are only committed.
Moreover, people invest in this currency because they hope the value will increase in accordance with the developers’ promises, which increases the demand for tokens.
What is the relationship between IPO and ICO?
Although the idea was taken from the IPO (the first public issue of shares), there was a fear of a difference between the IPO and the ICO.
The ICO does not provide the investor with equity ownership, and most, if not all, of the projects behind the ICO, have no real products or services.
However, ICO is still a cheaper option than IPOs because they are not dependent on the stock market and are bound by paper.
You can use the ICO to make more money as an entrepreneur than depending on stock market ups and downs or as a venture capitalist.
Is it legal or deceptive?
As the law struggles to keep pace with technological developments, gaps in policy reform will inevitably emerge.
This is the case with ICO in most countries, except China and South Korea, where they are completely banned.
Some countries, such as the UK and the US, are strengthening their oversight of ICO regulations in the same way they regulate stocks and bonds. However, ICO fundraisers and investors still have their playing field.
ICO can be used for various activities, from fundraising and financing for entrepreneurs to scams. Ordinary investors may find it difficult to look closely at ICO projects and identify plans that aim to “take the money and run.”
The US Securities and Markets Commission (SEC) has warned investors to be cautious of scammers using ICO to devise “pump-and-draw” schemes.
Here, scammers will pretend to raise the price of tokens they own through lying statements to “pump the price” to sell to investors.
When the mastermind “pulls out” their tokens, the value decreases and costs investors money.
Should I invest in it?
Think very carefully before investing in an ICO. Often, it is not easy to determine the existence of a business and technology project.
A lot of ICO offer unreasonable promises of profit, although in many cases, investors have laughed at the bank when the money they invest rises rapidly. However, according to experts, the market is always subject to significant fluctuations.
That is why some call on the authorities to impose heavy penalties on irresponsible ICO. But because there is not much support. As a result, investors will lose money if the situation becomes complicated.
So be wise, as you are, to never invest more than you have.
DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.
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