ICO stands for Initial Coin Offering which is one of the most demanding and revolutionary terms in this edge of cryptocurrency and being used frequently by the cryptocurrency traders. ICO is basically a kind of digital token which is created to be used by the crypto traders for an exchange of other existing cryptocurrencies such as Bitcoin or Etherium. A certain amount of digital tokens are generated under a project using ICO and accordingly sold to the traders following several benefits offered under ICO. Some units of this digital token (ICO) are offered to the traders for exchanging against the already existing currencies as mentioned above. Digital tokens achieving the special sales are also listed on the exchanges where the already existing initial buyers can sell their holdings and the new buyers can arrive at any time. Taking the form of a digital crowdfunding, token sales enables the startups not only to raise the funding amount without giving up the considered equity but also to revolutionize the project’s acceptance by incentivizing it’s used to the digital token holders. ICO has developed a new scenario of crypto trading mechanism in front of the traders worldwide following the convenience offered in terms of currency exchange. So far as the issues of benefit to the buyers are concerned, they are instantly get benefited by access to the facilities which the digital token confers and even by selling the digital token in an exchange of the other famous cryptocurrencies.
Soon after the launch of the first cryptocurrency distributed by an ICO named Ripple in 2013, the company created around 100 billion XRP tokens and started to sell them to fund the overall development of the ripple platform. In the later 2013, the Mastercoin started to get expanded all over and created a layer above the Bitcoin to execute the smart contracts and tokenize the Bitcoin transactions. Following the development and expansion of these cryptosystems, several other cryptocurrencies evolved including Lisk and Etherium out of which Etherium became most famous in the year 2014 and the Etherium foundation sold ETH against 0.0005 Bitcoins each. As a result, nearly $20 million was received with the currency trading which became one of the largest crowdfunding in the history of crypto trading and served as the capital base for the further development and trading of Etherium. Going on further in the development and trading, the year 2015 raised a total of $9 million with the largest Augur collecting just over $5 million. The year 2016 witnessed a sum total benefit of Rs.$256 million which went on increasing continuously and finally the year 2017 witnessed the almost net benefit of $5.4 billion and automatically thrust the concept of the forefront of the blockchain innovation.
Benefits of ICO to the Issuer
1. An opportunity of creating a new and decentralized business model for getting a quicker market response.
2. Promotion of seed funding mechanism providing more benefits over venture capital route.
3. Until and unless the digital tokens stipulated ownership sharing, there is no loss of equity in the project.
4. Considering the issue of arbitrary limits, there are more provisions in this regard to the total collected amounts.
Benefits of ICO to the Token Holder
1. Faster and quicker access to a more innovative service.
2. With respect to the considerable increase in the token price, there is a more possible gain.
3. Feel of being participated in a totally new concept resulting in an important role in the development of more advanced technology.
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Risks Involved Under ICO for the Issuer
1. Improper and uncertain regulation leading to leading to possible post issue clamp down or even sentencing.
2. Imbalanced and unstable investment quickly affecting the token price and the viability of the project.
3. Unlike the well settled and established shareholders, there is even the little idea for the existing token holders.
Risks Involved Under ICO for the Token Holder
1. There is no any surety or guarantee of the project to be developed.
2. Investment is completely under risk because of no regulatory protection.
3. Token holding structure holds a very little transparency resulting in abnormality.
Tips To be followed for Investing In ICO (Initial Coin Offering)
1. There are several essential tips which must be followed before successfully investing in ICO. The following list of points focuses the same:-
2. Beware of crowdfunding events because of being risky which strategically targets the people curious about buying the digital tokens and makes a fraud.
3. Beware of the digital token values as they simply use to lose their values compared to the current ICO price. However, some of the well popular ICO projects often use to die and some of them are never at all beneficial to get started for being successful.
4. ICOs typically involves frequent trading of ‘Ether’, a currency of Etherium which is a platform for a large collection of ICOs and therefore anyone can easily be phished and suffered in lieu of the procured digital funds.
5. Carefully examining the project’s depth including the essential terms and conditions involved before investing in terms of the versatility and vulnerability. Merely investing by seeing an advertisement in social media platforms or with a friends’ recommendation is not at all suggested.
6. Reading the listed information in detail on the project’s website and checking out the team of advisors for their capabilities before investing.
7. Carefully checking out the backgrounds and authenticity of the outside investors under the project to be aware of future frauds.
8. Staying updated with the social media connectivity, blogs, and their concerned video channels and by examining the frequency of regularity. If a case of continuous update activities and facts, they may be treated as genuine subject to future analysis.
9. Going along and evaluating the whitepaper of the project. Too many technicalities under the paper need to be monitored and evaluated by a technical expert before the investment procedure.
10. Evaluating the roadmap of the project and getting assured whether the route inside the map appears realistic or a simple fake. To further investigate the authenticity, several web forums, question-answer websites including Slack, Quora, Reddit, Telegram etc. needs to be overviewed for getting the right feedback from the people.
11. Being over cautious before sending the funds as there are several phishing experts over Slack etc who use to send the fake addresses and finally perform a major act of fraud leading to the financial loss.
I can’t stress 2. and 3. under “Risks Involved Under ICO for the Token Holder”. Because of the nature of ICO’s and the lack of regulation, any sort of trading between parties can result in chaos very quickly.
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