Not such a long time ago, an ICO became a real monumental innovation, that attracts attention of many startups. If you have read our last article, we’re sure you know exactly what is Ethereum. Well, Ethereum exists… thanks to an ICO. How did it happen and what is an ICO? We would like to introduce you the ,,Initial Coin Offering" process.
What is an ICO?
An ICO is a shortcut from Initial Coin Offering. As we have already mentioned, it’s a process, by which you can raise funds using cryptocurrencies. In other words, it can be said that it's a tool, which is supporting startups, whose products are based on blockchain technology.
How to use an ICO and when it could be used?
If you're wondering what is currently the most popular way to raise funds, you've come to the right place.
Why do you need to use an ICO?
Let’s imagine that we have our very own small startup and the subject of our research is, for example, some new complex technology. If we want to develop further, we need a lot of money.
So where to get the money from? The answer is from an ICO.
ICO gives us the opportunity to buy cryptocurrency under pre-sales, which is even before it enter the exchange market, at promotional prices. When the new currency hits the stock exchange, buyers can trade it. We can say that an ICO allows you to collect capital through startups, by using cryptocurrencies.
How to use an ICO?
First of all, we must prepare a whitepaper - a business plan. It’s a document, in which all information and details about future activities are collected. Then, here comes tokens, which are one of the types of cryptocurrency. We can say, that they are representing a specific resource or tool that is usually at the top of another blockchain block.
So if you have an idea for the business, but no money, you should create an ICO. Do it by issuing tokens, from which you’ll finance the concept. Then sell it and collect huge funds, even in millions of dollars! Investors buy tokens instead of shares in the project, whose value increases if the project is successful.
Like we said before, Ethereum exists thanks to the ICO. This sale took place in 2014 and for the first 12 hours, the project's creators collected 2.3 million dollars! That’s the best example of creating an excellent ICO.
After selling tokens and earning money, the company has everything to spread its wings and start realizing a business idea.
Some bright and dark sides of using an ICO
The main advantage of an ICO is the opportunity to raise money to refine and complete the project. Creators collect money from sales and investors can multiply the invested funds in a short time. Both sides use the advantages of this project.
But there are also some serious disadvantages. One of them is the possibility of losing money due to the theft. There is a potential opportunity to raise funds from uncertain and difficult to verify sources. Unfortunately, it is an idyll for hackers. For many people, the disadvantage of an ICO is also that we don’t collect cash in it but only cryptocurrency. In most cases, we have to exchange it for one of the fiats. It means that we are exposed to intense fluctuations in the price of the cryptocurrency itself.
ICO as a source of project financing
So far, in many countries, there are no regulations governing the activities of ICOs, but what is for sure, blockchain technology is still expanding regardless of the government. For now, an ICO is an alternative way thanks to which startups gain capital, that they couldn't otherwise obtain. Everyone can invest, but it should be remembered that we are surrounded by fraudsters on the network.
Until now, we can truly say that an ICO is a promising process. Looking at
the success of Ethereum, we are awaiting impatiently for the news from the
crypto world. Check it: