An initial coin offering is very similar to an initial public offering, in which a company offers shares of the business to raise capital. In essence, it’s a way of raising money for the team behind it by selling cryptocurrencies BTC Pricing.
ICO investors buy tokens. Some of these tokens are primarily designed to be traded just like a security or a currency, while others act as a digital representation of an entity like a share of a diamond. Other tokens are utility tokens, which grant you the ability to use a product or service once you own it.
One major difference between IPOs and ICOs is that the latter are decentralized and are not regulated in many jurisdictions. One good thing about this is that there is less red tape. There are also fewer delays. However, there are also many disadvantages and one may say risks, like scams and other such schemes.
Conducting ICOs is relatively new concept, which basically fuses IPOs and cryptocurrencies.
The very first ICO was conducted in August 2013, after a white paper by a developer named JR Willet. Willet proposed a “Trusted Entity” that would act as a layer on top of Bitcoin Crypto Market and issue “Mastercoins,” which will enable decentralized applications.
It was able to raise $500,000 in Bitcoins but it was not as effective as Willet has hoped, because it was limited by Bitcoin script language, which doesn’t have all the necessary features for Willet’s vision to come true.
One year later, VitalikButerin published a white paper about Ethereum, which is an alternative blockchain protocol that was created specifically for dealing with the aforementioned problem, serving as a foundation layer for decentralized applications. Ethereum managed to raise more than $18 million in 42 days, starting September 2014.
The increasing popularity of ICOs has paved the way for a revenue stream for startups. ICOs made it possible for them to raise huge amounts of money in very short periods of time.
The team or organizers behind the ICO lay out their plans in a white paper, which elaborates and articulates what the project is, how it works and what buyers will get if they start investing in the cryptocurrency. They will point out the date of the ICO and the tokens’ price for those who intend to buy.
Potentials can scrutinize the white paper and assess the credentials of the ICO organizers. They can then join the project by sending Ether, Bitcoin, or other cryptocurrencies to the ICO creators. The creators often use a smart contract to manage the receipt of the funds. The smart contract will store the funds and will be issuing the new tokens once the smart contract’s conditions are met.
And then, depending on the nature of the ICO, investors will have to wait for the realization of the project, since many ICOs are meant to raise funds for projects yet to be finished. Meantime, their coins’ value may rise if more people decide that the project is a worthy investment.
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