What Is an ICO and How Does It Work?
Also known as Initial Coin Offerings, ICOs offer safe passageways for new business startups seeking investments through crowdfunding. ICOs are one of the most advanced investment solutions leveraged by businesses who are seeking digital currency means as a way of funding their business. Being new to the world of ICO can be quite terrorizing because of the extensive use of new terms and availability of vague explanation. To counter this problem, top ICO listing websites have stepped up to spread awareness regarding the availability and nitty-gritty of present ICOs. Here is everything which you need to know about Initial Coin Offerings:
As an owner of a new business startup, you are constantly looking for investment to get your business in the market. An ICO is what can save you in this regard. Being a form of crowd-funding, ICO involves the selling of a new digital currency to an investor. The investors are usually given discounts and special bonuses on these “tokens”. Funds are raised for business as the investors buy these tokens. The success of this strategy lies in the success of digital currency in the market. If the cryptocurrency gains great market value, which is often based on mere speculation, the investors gain profit- same as in stock markets.
Apart from the advancement and quick collection of funds associated with ICOs, the major advantage of ICOs is that the business companies gain funding without having to entitle any business ownership or cash flow to the investor. The buyers can range from less wealthy cryptocurrency zealots and family offices to established large-scale venture capitalists.
How does ICO work?
Before a business launches an ICO campaign, whitepapers are crafted and documentation is done in order to better represent the vision and need of business. The investors get an idea regarding the income potential and acquaint themselves with the business prospects. The whitepapers specify everything related to ICO campaigns including payment timelines, types of cryptocurrencies accepted, key team members and budget for the project etc.
Once the whitepapers are published, it is time to seek investors. Initially, the ICO campaigns offer token discounts and bonuses to first-hand investors in order to establish credibility by raising initial funds.
Limitation of tokens:
The key feature which enthralls the investors is the limited availability of cryptocurrency tokens released by the company during an ICO campaign. The limited amount of tokens represents the confidence of the company in his project and attracts more investors.
Depending upon the progress curve and goals of an ICO campaign, the founders can fluctuate the token prices in order to meet the desired goals of the campaign.
The role of Escrow payments:
Although investment in digital currency is quite high-risk, investors cannot simply ignore it because of its explosive growth. So how can the investors circumvent any compromises on investment? The solution lies in the use of Escrow as a payment mediator.