Introduction of ICOs
ICO is an abbreviation of initial coin offering.ICO is very controversial and unregulated mean of crowdfunding by using cryptocurrency. This funding is source of funding for startup companies.In ICO certain percentage of cryptocurrency is sold to investors. The term ICO is analogous with token sale or crowdsale.Token sale or crowdsale method of selling participation in economic system. This process gives access to investors to features of that particular system.ICOs may also sell its royalties or ownership.
The first token sale was first held by Mastercoin in 2013.Ethereum token sale was conducted in 2014 and in this token sale about 2.3 million dollars were raised during first 12 hours. Now token sales are extremely poplar. There were around 50 coins offers in November 2017.New web browser Brave’s ICO generated almost 35 million dollars in 30 seconds.
Legitimacy of ICOs
ICOs have also become a great mean of scam. The US Securities and Exchange Commission warned investors about scams of ICOs.They warned that such kinds of ICOs just do pump and dump. In such ICOs they explain the value of coin and in this way create hype to increase the price of the coin and then dump to get profits. The UK Financial Conduct Authority also warned that ICOs are risky and speculative. They offer no protection for investors. China banned ICOs officially in early September 2017. However US Securities and Exchange Commission admits that some ICOs are lawful investment opportunities.
How ICOs are conducted?
A company who aims to raise money through initial coin offering, they usually publish whitepaper. The whitepaper clearly indicates what the project is about. It describes everything required to fulfill the project. They estimate the total funds required to conduct the whole venture. They have to decide how many virtual tokens will be kept for themselves and what kind of money will be accepted for the project. They have to decide how long the token sale will continue. During campaign the supporters of ICO buy some tokens by using fiat or virtual currencies. The coins are referred as tokens. If the firm remains unsuccessful to raise funds required for the project, then the ICO is considered as unsuccessful and the raised funds are returned to investors. If the fund raising remains successful and the firm get enough funds required for the project, then the raised money is used to complete the project.
Why do people invest in ICOs?
Early investors invest in ICOs with hope that the project will be successful and the coin value will increase much more than the price they actually bought in ICO. The most successful ICO was of Ethereum. This project went live in 2015 and in 2016 its value as high as 14$.The market capitalization of Ethereum at that time was about one billion dollar.