Initial Coin Offering- How It Works
Initial coin offering (ICO) is a modern method of raising capital that is used by the start-up companies which wishes to offer product and services that are related to the blockchain and cryptocurrency. The company that wishes to raise money create a new coin or appl and launches the initial coin offering; it is similar to the initial public offering. If you are interested in the investment, you are can buy the coin hoping for the future. The investment can either perform poorly or give you a huge return. It is recommended that every person who is investing in the ICO to underhand the cryptocurrency wallet and the exchange.
For the company that want to raise capital, the first step involves creating the white paper. The whitepaper has many components like the description of the project, what the project shall achieve, how long ICO shall run, capital that the startup intend to raise, and the type of payment that shall be accepted. The final version of the white paper is offering. The offer has the details of the project. The ICO date is announced and marketing campaign begins once the offer has been signed. Proper marketing is essential as it will ensure that the company is able to raise enough capital. After marketing campaign is complete buying and selling of the token will be done.
For the companies that raise funds through the ICO, there are many benefits that are going enjoy. The project is not taxed. As compared to IPO, this an advantage. Few intermediaries are involved when you are raising fund using this method. As a result, the person who is investing makes the decisions based on the white paper that is provided the company. The investor is charged fee in IPO but for ICO no fee is involved.
The number of ICO in the market is increasing every day. Every week, there are many companies that are successful. However, it is vital to note that those ICOs that offer higher return have also a higher risk. Unlike the IPO where an investor is tied for many years, ICOs allow you to cash in and out at any time that they like.
Since 2013 when ICOs was introduced, it has been regulated as a method of raising capital. Lack of the regulations has been associated with fraud and failing of the companies . Many people have called for the registration of ICO as security for better disclosure. Financial professionals such as Chris Brummer have explained ways through which ICO should be disclosed. The financial professionals have also tried to find remedies to the many shortcomings of the ICOs.
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