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

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

Have you recently heard about Initial Coin Offering? Why today, whoever he wants to know about this Term ICO. Friends as we know that Cryptocurrency is doing quite a trend on the Internet nowadays. The best example of cryptocurrency is that we all know that Bitcoin can be called. Because of the rapid rise in the price of Bitcoin, people have shown more interest in this regard. In such a situation, people are gradually becoming more inclined towards all the cryptocurrency and all the things related to it.

Nowadays, a new thing is being seen on any website related to Bitcoin or cryptocurrency on the Internet, which is called Initial Coin Offering (ICO) or in it is translated as "Initial Coin Offering". Nowadays ICO remains a topic of great discussion on the Internet. But people are not getting the right information about ICO. So today I thought why not give you complete information about what is ICO and what is its use, which will make it easier for you to understand it. So what is ICO and why is everyone talking about it so much, let us know.

What is Initial Coin Offering

ICOs are used as an alternative to crowdfunding to issue a new cryptocurrency. Whenever funds are raised through crowdfunding for a cryptocurrency, in the process, the company provides a token to its investors who have helped the company to raise money instead of a share or share in the company. The investor can use this token as he wants. 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 cryptocurrency. These tokens can be used everywhere.

History Of ICO initial coin offering

The first token sale was conducted by Mastercoin in July 2013, with Ethereum raising 3,700 BTC in its first 12 hours with token sales in 2014, equivalent to approximately $ 2.3 million.

ICO and token sales have become very popular today. ICO has attracted the attention of many people due to its profits.

Why is ICO used?

Whenever a company starts, it has to first raise money for its product. He has three main ways of raising money.

1. The first is to give investors shares in his company.

2. The second is to fund his company by taking a loan from a bank. At this stage, the company will also have to pay interest to the bank.

3. The third and last way is to make and sell the product before making the product and depositing money from it.

ICO is one of the best and easiest ways for an individual or company to raise funds for their projects, and along with that not only companies but also people invest in their project.

Whenever a company has to raise money for its project/start-up, they use the initial coin offering of ICO ie. Simply put, the process of raising funds through crowdfunding for the company's products is done through the ICO.

According to a report, in November 2017, there are about 50 offerings every month. Which is a very large number.

How ICO works?

Whenever a cryptocurrency startup firm wants to raise funds through the ICO, the company makes a plan before raising the fund. 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 does the firm need? How long will it take for the firm to raise the fund? How long will this ICO campaign last and what happens if the raised amount is less than the planned amount? All this information is written on that whitepaper. A whitepaper is a very important paper of ICO.

Investors are more interested in purchasing Cryptocurrency at lower rates during ICOs as equity is not involved in most cases of ICOs. Initially, ICO gets at lower rates but as the company grows its price value and market value also increases. Investors invest in ICOs with the idea of ​​buying low prices and selling them for more money. When the ICO comes on the exchanges, the investor makes a lot of profit. Bitcoin has recently crossed $ 1000. Whereas in 2011 it was just one dollar.

Types of ICO

ICOs can be divided into various types. For project funding in ICO, either there may be a set time limit, which cannot be changed. Or furthermore, each token in the ICO is given a pre-fixed value which is never changed during the ICO period. In this case, the token supply is kept permanent. It includes a dynamic wealth goal. In this case, token distribution is done according to the funding received. If your project gets more funding, the value of token increases. This helps the company to raise more funding.

Advantages and Disadvantages of ICO

ICO has many advantages. Just as bad thing is always associated with every good thing, in the same way, there are some advantages of ICO along with its benefits. Let us know about the advantages and disadvantages of ICO.

Advantages:

The main and best advantage of ICO is that through this, people who are looking for investors get people to invest in them. The same advantage is there for those who invest in it. Investors can easily invest in ICOs. ICO is open to all for investment. Any person can invest in it.

Whenever the project starts, tokens can be purchased at a lower price. Their value increases significantly after the project is successful. And then you can earn a lot of money by selling them.

Liquidity in ICO tokens is the reason it is so popular. Liquidity in tokens and transparency in financial things makes it better than traditional investment schemes.

Disadvantages:

ICO not only has its advantages, but it also has some disadvantages. The liquidity offered in the token is in its place but before investing in it you should have complete knowledge about the project and if you invest without full information then you can read to bear a lot of loss. Because if the project is not successful, then you have to decide what will happen to your money. Therefore, get complete information first.

Considering its popularity, many companies are also committing fraud in the name of ICO. She runs away with the money invested. So before investing, gather all the information about the company and only when you feel right, make money.

Token volatility in ICOs is also a discussed topic. If a token is going well today, then do we know that it will reduce its price later. It is possible that this can happen because of many things. Therefore the volatility of the token while investing cannot be made side by side.

Difference between ICO and IPO

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

In IPOs where the investor is given the right to vote in the internal affairs of the company. ICO has nothing like this. In an ICO, the investor has the right to use only the token he holds.

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

The IPO is done after the establishment of the company. Whereas, before the product arrives in the ICO market, it is done to raise money for the company or that product. ICO is issued in the initial stage of the company, then IPO is issued after the company is established.

Future of ICO

Seeing the way ICO has gained so much popularity in such a short time, it seems that this way of investing and raising funds is going to stay in the market for a long time. People's increasing faith and increased offers towards this are seen to be the same. It is too early to say anything about ICO, but according to the current trend, it is a plan going forward.

Final words on ICO

I hope you have understood what ICO is. When startups cannot get the money they need, the Firm has to return the invested money to the investors and in this stage, ICO is considered unsuccessful. This is its best, but while investing, keep in mind where and how much money you are investing in. Stay away from fake companies scam in the name of ICO. Make a list of such companies who indulge in these frauds.