Rise of an Initial Coin Offering(ICO)
We now have a new participant in the fund-raising business called Initial Coin Offering (ICO), which has recently gained a lot of attention due to its high returns on investment (ICO).
If a company has to obtain funds, there are three options: a bank loan, an angel investment, or an Initial Public Offering (IPO). These approaches have been utilized for centuries and have shown to be quite beneficial; in fact, every wealthy firm is still built on them.
Since the inception of blockchain technology and the notion of Defi (due to Satoshi Nakamoto), various new currencies have emerged, including Bitcoin, Ether, BAT, and others. We now have a new participant in the fund-raising business called Initial Coin Offering (ICO), which has recently gained a lot of attention due to its high returns on investment (ICO).
What is an ICO?
ICO(Initial Coin Offering) is a cryptocurrency equivalent to an IPO(Initial Public Offering). In IPO you get a stake in the company, but in ICO, you get a cryptocurrency token which can be utilized for using services/product of the company or maybe stake of the company.
ICO is typically a fundraising method by crowdsourcing, the only difference is here funds raised are an investment instead of a donation. In order to take part in an ICO, you must possess a cryptocurrency together with a cryptocurrency wallet and you must comprehend safe crypto transactions.
How does an ICO work?
ICO is only filed by companies that are leveraging blockchain as their underlying technology, that’s why they issue token/coin. When such startups have to raise funds for their products, they create a white paper document clearly defining how the investment will be used, the number of coins offered with their utility, minimum funds required, etc.
Interested investors go through this white paper very carefully and if they find the product valuable, they buy some of the coins issued by the company in exchange for digital currency.
If funds raised are not enough, then the money is returned back to investors, and it’s declared as failed ICO.
Benefits of an ICO
The benefits of ICO are numerous, making it a great choice for investors and fundraisers.
- Scalability: Anyone can invest in an ICO, regardless of their age, gender, country, etc. and these coins can also be sold worldwide. This gives fundraisers and currency holders tremendous opportunities with very little effort.
- No interference from 3rd party: Since digital currencies are used, ICOs go through peer-to-peer transactions completely free of any third party involved. Yes, not even the government, which means there are no taxes involved. But, this also raises security concerns, one has to be very sure of the company before buying its coin.
- Hefty Returns On Investment (ROI): Because of instant buy-in, and 24x7 trading, these coins can grow in value exponentially, giving huge ROI to their investors, e.g. Ether tokens sold for $0.31 each during its ICO, and the token now sits just under $2,470 as of April 2021, providing tremendous ROI. Although this is not always the case.
To know more, check this.
As ICOs became popular over time, their market space is getting bigger too, and so does the funds raised by it. There have been substantially successful ICOs and completely failed too, fraud ICOs and government intervened ICOs too. In fact, >70% of 2017s ICO were found to be scams.
“Some ICOs have yielded massive returns for investors. Numerous others have turned out to be fraud or have failed or performed poorly.” — Investopedia
Ethereum’s ICO is considered one of the most successful ICO of all time. In terms of market capitalization, Ether is the second-biggest cryptocurrency. It is the foundation of Dapps that makes use of smart contracts.
Ethereum was started by raising nearly $5.2 Million in its ICO by selling more than 1 million ether tokens at $0.31 each. (Currently valued at $2,470 per token)
Telegram visioned to build the TON (Telegram Open Network), a platform that brings decentralized internet to life. It raised $1.7 Billion in its ICO and was supposed to be the record-breaker ICO of all time.
Later SEC (Securities and Exchange Commission) intervened in this ICO for unfair means and fined Telegram $18.5 Million and asked to return all money collected. Read more: here
Future with ICO
ICOs are particularly famous because of high returns, and blockchain-based companies can only raise funds through this method. Many fraudsters have also gained a large sum of money by making use of peer2peer transactions and no controlling authority in their transactions.
ICO is certainly groundbreaking, but will it last as IPOs in the long run? Right now, that’s a hard question to answer. I believe in the notion, I’d want to see it developing, that’s all I can say now.
NOTE: This article is for education purposes only, I don’t intend to advise/encourage for investing or not investing in an ICO.
By now, I am hoping you have a good idea about what ICO is and how it is changing the world.
What’s your thought on ICO? put them down in the comments below.
Keep learning, keep growing. Have a nice day.
Simple guy in complex relationship with books, computers and money.