What Is Initial Coin Offering?
ICO, an acronym of Initial Coin Offering, denotes a type of crowd sale or crowdfunding with the utilization of crypto as a source of enhancing the capital collection for the firms in their early phase. It is similar to an IPO (Initial Public Offering) in the traditional market. A firm looking to gather funds to establish an exclusive service, application, or coin, can introduce an Initial Coin Offering (ICO) to raise capital. Interested investors can purchase an ICO to obtain a unique crypto token offered on behalf of a firm. There may be a utility of the respective token concerning the service or product the firm offers, or it may only represent a stake in the project or firm, sold to investors as investment contracts.
History Of ICOs
The history of ICOs is also important like the definition initial coin offering. Since 2017, when ICOs – emerging as a substitute for IPOs – were gaining popularity, several objections have been raised against the initial coin offerings as the market manipulators or scammers can utilize them. A few projects have additionally undergone penalties from the United States Securities and Exchange Commission (SEC) due to the accusation that they were selling unregistered securities. Still, the initial success of ICOs propelled the crypto scene into the mainstream as projects cumulatively raised billions without requiring middlemen or complying with existing regulations. The popularity of ICO Initial Coin Offering was responsible for the hysteric rise of Bitcoin and Ethereum prices in Q4 2017.
How Does An ICO Operate?
Generally, an ICO commences by introducing a whitepaper that elaborates on the project’s objectives, tokenomics, and distribution. In some situations, early investors receive discounts for offering financial support to the firm. Discounts may also be offered using crypto rather than fiat currency to make purchases. The coins retailed via an ICO may provide utility, signifying that the owner can exchange them for some service or product. In exceptional cases, they may represent an ownership stake in the venture that introduced the listing.
Who Can Introduce An ICO?
To offer an ICO, any project or firm can proceed with a slight regulation within the United States, with access to the adequate technology required to introduce unique crypto. However, the deficiency in regulation indicates that a project might make substantial efforts to tempt the people into believing that they offer an authentic ICO and, after that, run away with the funds. Among the possible ways of funding, the presumably most convenient is an ICO to organize a scam. As it turns out, most projects in 2017 were scammed, costing investors billions.
5 Advantages Of Initial Coin Offering
Buying ICOs has multiple advantages and benefits. 5 of them are given below to give you clarity of mind.
Everyone Can Buy ICOs
At an initial coin offering, everyone can buy the tokens because there are no limitations. Most of the ICOs are purchased anonymously. No limitations mean that 100% of the population is eligible to purchase ICOs.
ICOs Are Sold to Global Fan Following
In the case of ICO sales, the accounts are open for international payments. Anyone can buy the token without the fear of account freezing.
Token Economy Liquidity Premium
Every token in an ICO event has a fixed value. This value remains constant all over the world whenever a holder sells it. The shareholders have the liberty to participate in new ICOs with the same funds.
No Barrier For Entry of New Entities
The biggest problem new entities face is the availability of funding. With ICOs, this issue has also been resolved as entities can raise funds without any geographical restriction.
Once a cryptocurrency is launched, it becomes available in the market for selling and purchasing. It means that after buying ICOs, you just need to wait for the launch.
Criticism Of ICOs
In recent years, almost a permanent place has been occupied by the ICOs in the news headlines because of being considerably hazardous investments. A label of exit scams has been put on a few of them as well. The chief criticisms include that they can be introduced without regulatory oversight, trapping novice investors. The SEC has been active in taking action against a few projects, taking into account Telegram – which received the penalty to compensate the investors with a huge amount of $1.7B that it collected for Telegram Open Network.