Also known as ICO, an Initial coin offering is a mechanism that is adopted to raise funds to finance ventures related to cryptocurrencies. Oftentimes, it is used by startups to evade the regulated capital-raising mechanisms adopted by venture capitalists or banks.
The resulting coins in ICO are referred to as tokens. These can be equated with a company’s shares, which are sold to the investors. The blockchain community has been dominated by ICO in recent times, with many believing that ICO projects are securities that are unregulated.
Through this, the funders can raise the capital that is needed to carry out a specific crypto venture. Besides this, crowdsourcing can help in eliminating the hustle that is often common in the capital venture process. For all ICO projects, a specific percentage of cryptocurrency is sold to the initial funders of the project, which serves as an exchange for another cryptocurrency or legal tender.
Since the venture has just a few restrictions, it is open to anyone. With respect to the common pool that several investors find themselves in, ICO represents a way to raise a significant amount of profits if things go as planned.
How Do Initial Coin Offerings Work?
ICOs can be perceived as a refined form of crowdfunding, which has some distinct features from the common financial system. With this method, companies can carry out huge projects, thanks to the cryptocurrency version of crowdfunding that can help them raise funds for their projects.
ICO events can extend up to one week or more. Everyone is allowed to purchase new tokens for any known cryptocurrency, including Bitcoin. Every ICO comes with certain objectives for the project funding. As a result, the tokens have a preset price that cannot be changed during the initial coin offering period. With this in mind, the supply of the token remains static.
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What is an ICO Presale Period?
ICO presales ensure that investors can purchase tokens before the start of the official sales. This sale is often based on a smart contract that ensures that the funds are kept separate from any official sale. This prevents confusion and promotes trust. Usually, this period is characterized by gathering few funds since the ICO tokens are put up for sale at lower prices, besides the bonuses investors enjoy.
Why ICO Presale is Beneficial
ICO presale supports liquidity. Instead of fixing up a specific value in equity of a certain institution, it is possible for investors to trade tokens in secondary markets.
Besides this, an ICO presale can also promote the distribution of capital. A well-organized ICO presale will provide good options that ensure the allocation of capital. There is no geographic or demographic barrier when it comes to ICOs and everyone can participate in them.
In addition, a crowd-funded ICO is not in shortage of supporters. Many enthusiasts can be incentivized to partake in the project, helping the company gather many committed supporters.
Concerns About ICO Presale
Scams and frauds can be a cause for concern. In many cases, people with illicit intentions often capitalize on these opportunities to raise money illegally and certain people receive the money, instead of the project.
The restrictions and risks associated cannot be ignored. Economists have always posited that a greater margin of risk often results in greater rewards. It is no strange fact that most high-risk investments often offer huge returns. For this reason, investors must be careful when dabbling in such a risky investment, especially when companies do not refund the investors.
Conclusion
An ICO is considered by many an effective way to raise funds for huge projects. However, before considering it, ensure that you acquaint yourself with how it works, as well as the benefits and concerns associated with it.