What Is An ICO and Who Invests In ICO’s?
You have probably heard of an IPO. This is where a firm offers its shares to investors in exchange for cash so that they can fulfill some of their projects. An Initial Coin Offering is something similar to the IPO in the world of Cryptocurrency. In the world of digital currency, startups use an ICO as an unregulated means of raising cash to undertake certain projects. In an Initial Coin Offer, a percentage of the cryptocurrency is sold to supporters of their project in exchange for legal tender or other cryptocurrencies. An ICO, also known as IPCO (Initial Public Coin Offer) must be able to raise the amount required for the said project to be termed successful.
How An ICO Works
An ICO depends on the support of those who believe in the ideas and the future of the stated projects. The Startup has to prepare a whitepaper that explains what they intend to do and how the project will affect the value of the stated cryptocurrency. On the whitepaper, they have to state exactly how much money is needed to carry out the project.
Just like in an IPO, the pioneers will sell virtual tokens while reserving a given percentage for themselves. In an IPO, these tokens are referred to as shares. On the whitepaper, the firm has to state what percentage of the virtual tokens are they retaining for themselves and what type of legal tender or cryptocurrency is accepted.
When the campaign is opened up, the backers of the firm’s ideas and projects will buy virtual tokens not exceeding the state maximum per individual buyer. For an ICO campaign to be successful, the amount raised during the stated campaign period should be able to meet the financial needs of the state project. If the campaign is not able to raise the required amount, it is deemed to have failed. If an ICO fails, the money raised is returned to the supporters of the project. If the cash meets the financial needs of the said project within the necessary time, then ten cash is used to meet the financial needs of the project and the backers of the project obtain a stake in the cryptocurrency firm.
Why Invest In an ICO
Early investors in an ICO are usually speculators. They look at the future and try to predict positive prospects of the given digital currency. While there is no guarantee that the startup will eventually become successful, people always assume that they can make fortune by investing in such a venture. A good example of a successful ICO is the Ethereum project. Ethereum now offers one of the most sought-after cryptocurrencies. In 2014, the firm raised over $18 million in bitcoins during an ICO, where they sold an Ether at $00.40. In 2016 the Ether value went as high as $14. This gave the initial investors great returns, and in 2017 it became one of the top 3 digital currencies on the market. Since the success of the Etherium ICO, more startups in the digital currency market are trying to simulate the same. If you are an investor, you could look out for good ICO opportunities in the market and invest your money in a venture that shows promise.