The Initial Coin Offering (ICO) is a type of fundraising technique in which a corporation offers "tokens," or digital coins based on blockchain technology, to investors in order to raise funds for the creation of a cryptocurrency. This approach resembles an IPO in many ways, but there are two significant differences: when investors buy tokens of this cryptocurrency, they aren't buying shares in a future company, and the tokens must be tied to the blockchain in some way. Ethereum, NEO, and IOTA are examples of cryptocurrencies that began with an ICO and were able to use the funds received to further their projects. You can potentially benefit from this by establishing your own cryptocurrency-based initial coin offering (ICO). However, hiring an ICO development company to get ICO development services to launch your own ICO is the ideal alternative.
What Is An Initial Coin Offering (ICO) Token?A token could be considered the investor's initial investment in an ICO. The logic is simple: the more money an investor puts into the project, the more tokens he will earn. Many people wrongly believe that tokens are the same as shares, however, this is not the case because, unlike in the stock market, the investor in the former does not own a piece of the company. With the chosen tokens, the investor will be able to purchase future services from the company as well as sell them. Some tokens need the creation of a Private Interest Foundation, which lends credibility to the ICO; however, other tokens can be presented through traditional commercial legal entities such as anonymous firms or corporations. Another key legal step before the token's introduction is the Foundation's or offshore Company's completion of Know-Your-Customer (KYC) processes in order to comply with anti-money-laundering regulations. If these steps are not follow, the implications might be devastating, as the people behind the Foundation or offshore corporation risk breaking the law and thus facing prison. On occasion, ICO proponents attempt to persuade experts to accept tokens in exchange for services required for the offer, such as advising and programming; however, this does not always work because professionals do not typically accept tokens that have no market value at the time. A smart contract is a technique of regulating the agreement in the ICO between the Foundation or Company that is launching the coin and the token holder. This form of agreement is based on software that is configured to execute the answer automatically if a certain agreed-upon action occurs.
The Difference Between An Initial Coin Offering (ICO) And An Initial Public Offering (IPO)
The ICO shares characteristics with both the IPO and crowdsourcing.
- Before contributing your shares through an IPO, a company must meet a number of conditions, ranging from minimal earnings to a track record free of outstanding conflicts. Because of the intricacy of the legal procedures that surround this operation, the IPO can take a long time to resolve issues. Another criterion for a company in an IPO is the publication of a brochure with detailed information about the current state of the company to aid investors in their decision-making. In this process, working with lawyers and banks is critical.
- The procedure is substantially faster because ICOs are not bound by any regulatory framework or legal protocol. Unlike the IPO brochure, the ICO's "White Book" has no set format.
- In an ICO, all you need is Internet connectivity to purchase tokens for any project, from anywhere in the globe.
- It may appear that initial public offerings (IPOs) are safer; yet, these enterprises can go bankrupt, and the investment will be lost; however, when faced with an investment, it can be much more profitable and with less bureaucracy.
- There are also distinctions in terms of crowdfunding. The fundamental reason for investors in an ICO is the potential for a return on their investment, whereas cash raise through collection campaigns is effectively-regard donations.
The Benefits Of An Initial Coin Offering (ICO)
- For both the foundation or company that is commencing the operation and the investors, the ICO offers a number of benefits.
- The foundation or company benefits initially by obtaining the funds it requires without relinquishing control of the firm.
- They are offering a future service to an investor rather than dividing shares with him in an ICO.
- Also, when regulations are lift, an ICO can raise money right away from anywhere in the world because it doesn't have to deal with the huge amount of red tape that usually takes months to clear up.
- ICOs have caused a big change in the financial world because they allow people who weren't able to invest before to do so now.
How to start an ICO (Initial Coin Offering)?
- Assume that the project will be manage by a legal entity (such as a private interest foundation or an offshore company).
- Use an intelligent contract to manage and distribute the tokens.
- Create a countdown landing page to pique people's attention.
- Make a white paper out of it. This document contains clear and specific information about the project: the problem it aims to solve, how it will be solve, the various financing stages, the number of tokens to be offer, the type of money you will accept, the length of the ICO campaign, and the project's roadmap.
- Count on a team of programmers, marketers, lawyers, and economists to develop the project and produce your tokens, which are the cryptocurrencies that will allow you to launch a crowdfunding campaign, or collect funds in cryptocurrencies.