What is Initial Coin Offering (ICO) and how does it work?

What is Initial Coin Offering (ICO) and how does it work?

Have you heard about ICO at the moment? Why today whoever you look at wants to know about this term ICO. Friends, as we know that Cryptocurrency is trending on the internet these days.

The best example of cryptocurrency we all know is Bitcoin. Because of the rapid rise in the price of Bitcoin, people have shown more interest in this regard. In this way, people are slowly becoming more inclined towards all Cryptocurrency and all things related to it.

Today, there is a new thing to be seen on any Bitcoin or cryptocurrency related website on the Internet, which is called Initial Coin Offering (ICO) or its translation in Hindi is "initial coin offering". ICO has become a very hot topic on the internet these days. But people are not getting accurate information about ICO.

So today I thought why not give all the information about what ICO is and its benefits so that it will be easy for you to understand it. So what exactly is ICO and why everyone is talking about it so much, let's know.

What is an ICO?

ICO is used as an alternative to crowd funding to issue a new cryptocurrency.

Whenever money is collected through crowd funding for any crypto currency, in that process, the company provides a token to its investors who have helped the company in raising money, instead of a share in their company. Investors can use this token however they want.

The investor can sell this token issued by the company to anyone. Or you can keep it with you and wait for its price value to increase. You can use this token to buy bitcoins using bitcoin, Ethereum or any other crypto currency. These tokens can be used everywhere.

History Of ICO initial coin offering

With the first token sale held by Mastercoin in July 2013, Ethereum raised 3,700 BTC in its first 12 hours with a token sale in 2014, which was equivalent to approximately $2.3 million.

ICOs and token sales have become extremely popular these days. ICOs have attracted a lot of people's attention due to the profits made in it.

Why is ICO used?

Whenever a company starts, the first thing it has to do is raise funds for its product. He has three main ways of raising funds-

1) First, he should give shares in his company to the investors.

2) Second, he should take interest (loan) from a bank to fund his company. In this case, the company will also have to pay interest to the bank.

3) The third and last way is to take orders before making the product and collect money from it to make and sell the product.

ICO is one of the best and easiest ways for a person or company to raise funds for their projects, and not only companies but also people invest in their projects.

Whenever a company wants to raise money for its project/start-up, it uses ICO i.e. Initial Coin Offering. In simple words, the process of raising money for the company's product through crowdfunding is done through ICO.

According to a report in November 2017, about 50 offerings are being made every month. Which is a very big number.

How does ICO work?

Whenever a cryptocurrency startup firm wants to raise funds through ICO, that company makes a plan before raising funds. The company writes all the information related to the project on a whitepaper. In which it is told how much money will be taken in the project and how much money the firm needs?

How much time will it take to fund raise the firm? How long will this ICO campaign last and what will happen if the amount raised is less than the planned amount. All this information is written on that whitepaper. The whitepaper is a very important document of the ICO.

What is Bitcoin and its history

What is Bitcoin mining and how is it done?

Due to the fact that equity is not involved in most cases of ICO, investors are more interested in buying Crypto currency at low rates during ICO. In the beginning, the ICO is available at a low rate, but as the company grows, its price value and market value also increase.

Investors invest in ICOs with the idea of ​​buying at lower prices and selling at higher prices. When the ICO comes on the exchanges, the investors get a lot of profit. Bitcoin recently crossed $1000. While in 2011 it was only one dollar.

Types of ICOs

ICOs can be divided into different types. For project funding in ICO, there may be a fixed limit of time or target which cannot be changed. Alternatively, each token in an ICO is given a pre-determined value that is never changed during the ICO period.

In this case the token supply is kept permanent. It includes a moving money target. In this case, tokens are distributed according to the funding received. If your project gets more funding, the value of the token increases. This helps the company to raise more funding.

Advantages and Disadvantages of ICO

ICO has many advantages. As with every good thing there is always a bad thing, so ICO has some disadvantages along with its advantages. Let's know the advantages and disadvantages of ICO.

Advantages of ICO

The main and best advantage of ICO is that through it people are found to invest in the companies that are looking for investors. This benefit is also for those who invest in it. Investors can invest in ICO very easily. ICO is open to all for investment. Anyone can invest in it.

Whenever the project starts, tokens can be bought at a low price. After the project is successful, their value increases significantly. And then by selling them you can earn a lot of money.

Liquidity in ICO tokens is the reason why it is so popular. Liquidity in tokens and transparency in financial matters make it better than traditional investment schemes.

Disadvantages of ICOs

ICO is not only good but also has some disadvantages. The liquidity provided in the token has its place, but before investing in it, you should have complete information about the project and if you invest without complete information, you may suffer a lot of losses.

Because if the project is not successful then you have to decide what will happen to your money. So get complete information first.

Considering its popularity, nowadays many companies are also doing fraud in the name of ICO. She runs away with the invested money. Therefore, before investing, gather all the information about the company and invest only when you get everything right.

The volatility of tokens is also a hot topic in ICOs. If a token is running well today, then what if its price is reduced further? This is possible due to many reasons. So the volatility of the token cannot be ignored while investing.

Difference between ICO and IPO

Many people compare an ICO with an IPO (Initial Public Offering), but let us tell you that there is a big difference between the two. Unlike an IPO, an ICO does not give you any share or ownership in the company.

In an IPO where the investor is given the right to vote in the internal affairs of the company. There is no such thing in ICO. In an ICO, the investor has the right to use only the tokens he has.

Only established companies that have been in operation for some time issue IPOs while ICOs can be used to raise capital for a new start-up. In fact, most of the companies issuing ICOs do not have a market-ready product. Most of them only have a white paper that describes the information related to the product.

IPO is done after the establishment of the company. Whereas ICO is done to raise funds for the company or the product before the product is launched in the market. ICO is issued in the initial stage of the company while IPO is issued after the establishment of the company.

The future of ICOs

The way ICO has gained so much popularity in such a short time, it seems that this method of investing and raising funds is going to remain in the market for a long time. The increasing faith of people towards it and the increased offerings seem to indicate this.

It is too early to say anything about the ICO, but according to the current trend, it is a far-reaching plan.

What is the meaning of ICO?

ICO is called Initial Coin Offering.

Is it safe to invest money in ICO?

Yes, you can invest money in ICO, but before that, do your own thorough research. Don't invest big money in someone's deception.

What did you learn today?

I hope you understand. When the startup does not get the money according to its needs, then the invested money of the investors of the firm has to be returned to them and in this case the ICO is considered a failure.

This is good but while investing, be careful where and how much money you are investing. Stay away from fake companies doing scams in the name of ICO. Make a list of companies that indulge in these scams.

I request all my readers that you also share this information with your neighbors, relatives, friends, so that there will be awareness among us and everyone will benefit from it. I need your help so that I can deliver more new information to you.