ICOs (Initial Coin Offerings) are one of the hottest topics of the year because it’s an easy way to raise cash. An ICO allows businesses to raise capital. In an ICO, Businesses sell virtual tokens to supporters that can be exchanged and traded for other currencies or used to buy goods or services from that business at a later date. A new way of fundraising enabled by digital currencies and Blockchain technology where participants invest fiat currencies and receive ‘‘tokens,’’ digital assets in return.
ICOs are widely seen as an innovative fintech alternative to traditional initial public offering of stock (IPO) as a means for start-up businesses to raise capital. A person, project or company in need of capital creates a new kind of digital coin and sells a tranche of them for fiat currencies on a digital trading platform or exchange.
Prior to an ICO, a business would typically release a “whitepaper” which provides investors with an explanation of their proposed project, the rights behind the virtual tokens they would be issuing, the risks of the investment and details of the ICO itself.
The rights behind the digital tokens can vary considerably, and many tokens are not intended to grant the investor an ownership stake in the business, unlike stock.
A token’s value is determined based on the demand for the token which may be denominated in a highly volatile virtual currency the underlying company’s financial performance. Currently, there isn’t a standardized way of determining a token’s value. The motivation of an ICO investor is the expectation that the token’s value would uptick after the ICO, and the investor would sell it to make a tidy profit.
As regulations fall on ICOs around the world, it opens the doors for institutional investors to partake in ICOs of companies that may have a global footprint from a business, technological and legal structure standpoint. This requires sophisticated evaluation of all ICO related risks in all jurisdictions the company operates.
A number of governmental authorities of the world and prominent figures in finance have divided the world into two with their views on ICO investments in last months, for example : Canada and Russia think that “ ICO development has a huge potential “ , but ICOs are completely banned in China and South Korea with authorities deeming them an “illegal’ practice that has “seriously disrupted the economic and financial order”. So now what?! Hopefully, ICO will take a rightful place in the world for the next month. Keep the eyes on the ICO !!
