Initial Coin Offerings
To understand the definition of ICOs you must first understand some basics of Initial Public Offering or IPOs. To gather capital or funds for expansion small companies offer IPOs, where for the first time stocks are sold to the public. The same can be done by big corporate houses as well to raise funds and become publicly traded.
Digital Counterpart of IPOs
Initial Coin Offerings are the more or less similar to IPOs with some basic differences like-
? IPOs payments are in fiat currency, unlike ICOs which have Cryptocurrencies, and fiat currency both as for mode of payment.
? Duration of IPOs is lengthy while that of ICOs are shorter.
? IPOs are exclusively offered but ICOs are completely open for all.
In short ICOs are ways and means of raising funds for a new Cryptocurrency campaign. This is an unregulated way of augmenting funds for a new Cryptocurrency and few percentage of the currency, termed- tokens, are sold to initial supporters of the venture. The exchange of the new altcoin is made against legal tenders or other Cryptocurrencies, usually-Bitcoin or Ethereum.
Evolution of ICOs
Exactly on 31st July 2013, a digital currency-Mastercoin launched a month-long fundraising project, where digital tokens were sold to the public. The objective was the investor could reap the profits by selling these tokens when they become valuable. Amazingly, more than five hundred people invested and approximately 5000 Bitcoins, worth US$500,000, were sold.
Thus, the birth of ICOs happened which was followed by similar ICOs like in April 2014, when Ethereum ICO fund-raising established a token sale of 3700 BTC, worth $2.3million within the first 12hours of its launch.
Unlike IPOs, ICOs are launched by Cryptocurrency Start-ups to raise funds. Why is it that ICOs are the first choice of entrepreneurs in Cryptocurrency? The following are few reasons for selecting ICOs.
? The Pre-funding documentations in ICOs are generally limited to designing a detailed white-paper, structuring a blueprint or route-map for the Cryptocurrency project, and sharing complete detail about the venture on the website. The details must include ? the output of the project, funds required for the assignment, how many tokens are kept with the founders, the duration of the campaign and the accepted legal tender for tokens.
? All these are uncomplicated and are not regulated by any governing body or authority. In contrast, IPOs or VCs are highly regulated by governing bodies and need to undergo a comprehensive pre-funding audit as well.
? As an entrepreneurial venture takes, time and money ICOs are the best keeping in mind the above. Also, they are open to all, unlike other options which are accessible to limited people.
? The investor?s reasons to choose ICOs are numerous; from getting liquidity, trust in the form of smart-contracts, and the potential to certainly grow exponentially in future.
Merits of ICOs
The blockchain technology in the ICOs gives the early investor hope and chance of an exponential increase in the value. The value can be multi-fold resulting in huge profits for them. The same can be understood by the example of Ethereum project. The token value for an investor during the launch, in 2014, was $0.40 per Ether. This rose to a whopping $14 per Ether in 2016.
Unlike shares in IPOs, they are not bound by rules and regulations and the investor has the freedom to use the tokens as per smart-contracts. Also, the values of shares in traditional offerings depend on the performance of the company; whereas the value of the token depends on the performance of the product.
Similarly, tokens can be traded across the globe at Cryptocurrency exchanges, which is not possible in IPOs. This feature gives tokens the required liquidity. The return horizon in traditional fundraising is from 7 to 10 years, in contrast to ICOs 1to 5years.
Cautions on ICO
No doubt there are numerous examples of successful ICOs and that is one of the reasons that currently approximately fifty ICOs are available in a month. There are nearly twenty websites who track various ICOs and by October 2017 ICO coin sales touched $2.3billiion which is ten times as much as sold in whole of 2016.
You must, though, be vigilant while participating in an ICO as the chances of fraud initiatives are possible. As they are not governed by any regulatory body or financial authorities, investors might lose money if they venture in dishonorable campaigns.
Exponential Growth Confirmed
This is for sure that initial coin offerings are sure-shot profitable prepositions, even when compared to Cryptocurrency investments; as there are chances that Cryptocurrency returns may take some time and yield high after some time, but ICO will surely fetch huge returns, possibly within seconds.