There’s a term in the cryptoworld that’s heard and causes certain rage among the cryptos entusiasts, and that’s the ICO’s. Knowing cases like bitcoin and ethereum, many are the ones that are looking for these hidden gems to duplicate or triplicate their investments with these. But really, what are the ICO’s? In this article we’ll explain it a little. We hope it helps.
This acronym meansInitial Coin Offering. This is a financing system that enterprises that worl with cryptoactives or with the Blockchain (that creat apps based on the Blockchain) to get funds and bring value to a new cryptocurrency that they use on their services or apps. As a reward, investors get cryptos to use in the companys’ services or apps.
The ICO’s creation is based on IPOs or Initial Coin Offering, that is the way companies start in the Stock and offer their actions to possible investors in exchange for money. This way, they have the same goal (get funds) but different functions.
Now that we understood what an ICO means, we can explain what’s their function. Generally, we can divide the ICO’s function in two ways: the financing of a crypto and the financing of a project based on the Blockchain.
When we talk about an ICO that’s created to finance a crypto, what’s intended is to give birth to that cryptocurrency.Why do we say this? Because if they don’t have a base to create it (investment), the crypto cannot be launched. A cryptos’ creation has an specific process: it’s designed, it’s implemented through software, the software it’s placed to disposition. This process has a cost, and that cost is what the ICO finances.
The second way that ICOs can exist is the financing of projects based on the Blockchain. These projects don’t have to be necessarily the creation of a crypto, since the uses of this technology are wide. This way, many applications and means to store and send encrypted information through the Blockchain would enter this classification.
One characteristic that these projects have is the need to created an associate currency, because it’s one of the bases of the technology. This way, people can these tokens, inorder to differenciate them from cryptos. The way to create an ICO for these projects is to exchange or “sell” these pre-mined tokens for money among the first investors.
For companies that are launching these ICOs, the benefits are multiple: they manage to get a financing even bigger than the one they required to launch a crypto or project. They don’t need to request traditional investment, so they don’t get indebted with a Bank. But for investors there are also some benefits.
The first one is to finance innovative enterprises directly, since it’s not normal for these ways of investing to be available for everyone. The same way, it can happen that the crypto or project gets a big value (for example, Ethereum) and the investment not only turns back, but the earning is really big.
As all investments, there’s a high risk when we invest on an ICO. This way, it can happen that the project of crypto won’t survive the international market, because its value doesn’t get that high. Another risk is that you fall into a scam, and maybe never see again your money because you invested on a fraud. So it’s necessary to investigate thoroughly when it comes to making an investment like these.
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