What is a ICO or initial coin offering and why invest in it?
What is a ICO
An ICO is an event in which a blockchain-based project sells a series of chips to the first users in exchange for cryptocurrencies.
This means that the blockchain project offers investors some units of a new cryptocurrency (their 'token') a change from other cryptocurrencies better known as Bitcoin or Ethereum.
a new way of raising capital
The IPO (Public Offer of Sale, when a company is going to go public) and the ICO have some similarities: both aim to raise capital for your company relatively quickly when reaching a larger audience. But there are some fundamental differences.
An IPO seeks to raise capital by offering shares of its company to the public. An investor who participates in a Public Offer of Sale obtains a part of the entity and has the right to vote in matters related to the company (although there may be exceptions). When it comes to an ICO, it is completely different. An ICO investor will obtain tokens but has no capital or voting power.
In general, IPOs occur in established companies that have been operating for a while and mostly seek long-term capital, while companies that carry out an ICO mainly seek capital to further develop their concept in a very early phase.
Regulation is another aspect that makes a difference between ICO and OPV. The IPOs are highly regulated and compliance is clear, while the legal framework of ICO is not so, as it is still in development.
While some ICOs are subject to regulations and are OPVs in themselves, others make tokens sales and are out of the scope of financial regulation, since they are only a pre-sale of a product or service (appcoins or access tokens).
What is the difference between ICO and OPV?
ICO and OPV
What is the difference between ICO and Crowdfunding?
ICO and Crowdfunding
The first and most obvious of all is the fact that an ICO is issuing a token to its participants, while crowdfunding often offers something related to the product being developed, such as a special edition or a discount on the product.
icos points to keep in mind The difference between ICO and traditional crowdfunding is the market value. When a product tries to raise capital in crowdfunding platforms, such as Kickstarter or Indiegogo, investors know exactly what to expect when the product is completed.
When it comes to an ICO however, investors do not know exactly what to expect, since it is not based on a real world market value, as blockchain and cryptocurrencies are still a nascent technology with no previous history.
ICOs have been dominated mainly & by projects that rely on blockchain technology.
For the time being, most ICOs are in the hands of new companies or startups in early stages that require capital to further develop their product.
The most normal thing is that they only have a beta or alpha version of their products, platforms or protocols. For now, ICOs have been dominated mainly by projects that rely on blockchain technology.
As a funding mechanism, it is still largely confined to the blockchain community and has not yet become widespread.
It is important to study well the proposal of the company that makes the ICO and ensure that blockchain is an essential aspect of the project, which adds a unique value and gives a competitive advantage.
Otherwise, it would mean that you are carrying an ICO for the sole purpose of making money, which is a big red warning sign. It is also important to ensure that the project has a disruptive character, that its core value is what stands out and has the potential to create a viral effect among retail users or early adopters.
This is because it is extremely difficult to overshadow established leaders regardless of the niche and the project should never depend on marketing.
However, some also think that ICOs have the potential to become a new way of raising capital in general, not just serve for blockchain-based startups. The sales of tokens can be organized by the startup itself or in online platforms such as Icofunding, Kickico or Tokenmarket.
Who is behind an ICO?