ICO an abbreviation of Initial Coin Offering, is an unregulated means of raising money using cryptocurrencies. Anybody with an innovative business idea can via ICO raise capital for their business or projects. ICOs provides for an instant method to raise capital without much documentation and regulatory hurdles. Investors who put money in ICOs are allowed to purchase cryptographic tokens which entitle them to a share of revenue generated by the company offering the ICO. ICO Funding is gaining popularity as it offers a decentralised way of raising capital. The cost of raising capital in many times cheaper than conventional IPO route. It enables an ordinary investor to participate in the overall business success.
IPOs, the traditional method of regulatory backed mechanism to raise capital are often initially allocated only to institutional investors like investment banks, mutual funds, endowments etc leaving only a small portion to retail investors who can only buy the stocks once they are traded on exchanges, providing for exclusivity to a select few. In comparison anyone can participate in an ICO if they have funds. This level playing field breaks the exclusivity nature of traditional fund raising, offering masses to participate in investments that can potentially earn them rich rewards. This democratisation of opportunity is what makes ICO all the more alluring.
ICO do not use representative currencies but employ the use of crypto currency to offer their tokens/coins to conduct the transaction. However the initial starter purchase of these crypto currencies are conducted in regular representative currencies. ICO investors trade these tokens on cryptocurrency exchanges. Most of the ICOs are offered at discounted prices during pre-ICO launch period.
Unlike traditional IPO, acquisition of ICO based token of the business does not grant ownership of the business or the project, though some may grant voting right for development of the business. The gratifications offered to the ICO investors depends on how the token is structured and its value arrived with its perceived utility.
ICOs do not require adherence to any regulatory framework, nor have to offer accepted legal protocol or are allowed by market regulators to securitise their shares. Adequate KYC/AML/ATF clearances /filtering is required for participating in the popular ICOs/
Crypto-market volatility, complex dynamics such as over-capitalisation, terms controlled and amenable at the discretion of the company offering ICO, lack of control makes assessing their fundamentals difficult only relying on project’s future expectations rather than its past history since there may be none. This is the main reason why investing in ICOs is considered risky. However once can extract some form of credibility by looking at the innovation, team experience or business potential.
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