Reports suggest that Initial Coins Offerings (ICOs) raised an approximate of $5 billion in total in 2017. It has become a route in order to secure initial capital for enterprises that are entirely based on blockchain.
Given the drastic increase in the popularity of cryptocurrencies, ICO has a distinct method of giving rewards to the investors. They are been given digital tokens that can be traded and sold. These tokens are a reflection of performance in company and its value can fluctuate.
What are ICOs?
Briefly, ICO can be defined as a procedure in which an organization produces and issues cryptocurrency tokens. These tokens are sold to the investors then. In return, they receive funding. These funds are utilized to develop the start-up. The tokens are then listed on different cryptocurrency exchanges and can be traded within the market after the ICO.
Why is it different?
Traditional start-up financing models are different. Equity is put up in form of money by the investors and the equity is then given in form of shares. In the case of ICOs, the investors doesn’t change into a shareholder. The tokens are not shares, stakes or stocks in the business. ICO investments equates to the value of token issued by the business. If the token’s value increases after the ICO, the investor makes profit from the investment.
There is a lot of procedures, complexities and formalities to follow in traditional business financing. There are legal regulations that must be taken into account before the funds are received. When it comes to ICOs, there are no such formalities that must be followed.
How are they carried out?
There are multiple ICO listing websites that can be looked forward to, however, the ICO process as transformed a lot since its inception. The entire process begins with a concept or an idea. Entrepreneurs create a blockchain-based solution to cater a specific problem that has occurred in the business sector.
When the project is entirely ready, it moves towards the implementation stage, which then required investment and funding. This can be done through ICO. A white paper is created that includes all the commercial and technical information surrounding the project. This is the actual sales document. Marketing campaigns are then carried out in order to raise awareness.
A website for the project is created as well during the main ICO taking place. Crypto wallet is also present where all the relevant payments are made.
Since the inception of cryptocurrencies, it has been in the limelight. Especially, government agencies are keeping a hard look on it and trying to regulate it as much as possible. Since 2017, the regulations have increased in number. Risks in the model have become prominent since then. For instance, the Chinese government placed a clear cut ban in their country. Similarly, countries like France, Japan and Switzerland have taken this issue seriously and placed different regulations. This has been the same trend in the West as well.