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Summary
- With the price of Bitcoin surging to new heights every other day, more investors are trying to nudge their way into the whole digital coin scene.
- One way to go about it is exploring an initial coin offering (ICO).
- An ICO can be a public crowdfunding, or a private one.
The world of cryptocurrency is changing by the minute. With the price of Bitcoin surging to new heights every other day, more investors are trying to nudge their way into the whole digital coin scene.
So, how do you do it? How do you get a slice of a fresh cryptocurrency while it is still on the ground level? Well, you may have to start looking at exploring an initial coin offering (ICO) then.
What Exactly Is An Initial Coin Offering?
The simplest way to understand an ICO is to remember the workings of an initial public offering (IPO).
In an IPO, a company generally looks to raise capital as it launches its shares in the public equity market. In a similar way, an ICO is when a company is seeking to generate funds for a new digital coin, an app, new services, etc using cryptocurrencies.
An ICO can be a public crowdfunding, or a private one. In it, an amount of cryptocurrency is offered to interested investors in the form of ‘tokens’ or coins in exchange of legal tender or other cryptocurrencies.
©Kalkine Group 2021
Is An ICO Safe?
All sorts of investments come with their own share of risks. In case of an ICO, the risk is the future value of the token in question.
With the agenda of the ICO being raising money for a future cryptocurrency, the tokens offered in it are not yet functional units of currency. The promise made at an ICO is that the tokens will become functional if and when the project successfully launches.
While the rising popularity of cryptocurrency and the inflated price of Bitcoin has triggered a substantial investors’ interest in ICOs, one must understand that these offering are sometimes considered highly risky and even come with a strong threat of scams.
©Kalkine Group 2021
How Does An Initial Coin Offering Work?
A company planning to launch an ICO generally puts out an outline explaining the project – what it is raising the capital for, what the project promises upon completion, how much proceeds it plans to raise, how many tokens it is offering, etc.
Those interested in the project can purchase some of the offered tokens, which may represent a stake in the offering firm or the project.
If the company fails to raise the minimum funds, the ICO will be considered unsuccessful and investments may be given back to the backers. If the funding round is successful, the proceeds raised are used to take the promised project ahead.
As of now, ICOs are reportedly not regulated. Nonetheless, government-run regulatory bodies can intervene in case of a complaint, suspected illegal activity, etc, like it did in the case of Telegram’s ICO in 2018-2019.
