Do you wanna know why investors are still investing their money in ICO, how profitable this activity is and what is gonna be next for the ICO market in the nearest future?
We have prepared the answers to the top 5 questions about ICO.
1. What’s ICO?
In order to understand what happens with ICO, it’s imperative to understand the definition. ICO stands for Initial Coin Offering.
Startups are using ICO to raise funds for the launch and development of their project using cryptocurrencies and sometimes fiat money. In exchange, the startup offers tokens of their project to the investors. These tokens could then be spent for goods or services of the company, or for a sale on cryptocurrency stock exchange.
2. The differences between ICO, IPO, and crowdfunding
ICO is often compared with crowdfunding and IPO. Let’s see what’s the difference.
IPO is Initial Public Offering, meaning the sale of company shares. In order to hold IPO, one would require to register a legal entity and undergo a number of government procedures for issuing the shares. These shares are considered securities, and their owners have the right to participate in the company management as well as distributing the profits. The more shares an investor has, the more income he has, and his vote also gets more important.
Crowdfunding is a voluntary donation for the realization of an idea. So a startup raises funds for releasing a product, and people are giving out money simply because they love the idea, and they would love to help it come true. In this system, the investors don’t get to influence the decisions of the company, and they don’t profit from the idea too.
Now, ICO is something between crowdfunding and IPO. On one hand, a project doesn’t have to undergo registration and the investors don’t get any rights. On the other hand, ICO investors may receive profit from trading their tokens.
3. What’s with the hype around ICO?
Why is it that everyone talks about ICO, and can you really profit from one? You see, the Internet allows people to communicate throughout the whole world, while the cryptocurrencies are erasing the financial borders between the countries. That is why given more or less marketing, it is possible to attract a large amount of investments in a short time period. And if the company is truly influential in the industry and can propose a truly worthy project, then they may raise hundreds or thousands of million dollars in a few days.
The hype around ICO was contributed by the first successful projects which have seen the raise in price of their tokens ten, hundred and even more times the initial cost. Seeing such wonders, some investors started chasing after ICOs in hopes that their tokens will grow in price.
4. Why investments grow in ICO?
Despite the fact that around 90% of ICO projects do not reach their final product stage, and their tokens drop in price, and the market is getting crowded with scammers who never planned to realize the project in the first place and...well despite all of that, people are still investing in ICOs and in the first half of 2018 there were already more investments than during 2017.
The thing is, this market has always been about high risk. Regardless, it is still open for entrance and high incomes. Many investors are aware that the majority of the purchased tokens will depreciate in value, but they are hoping that one of the projects will shoot with hundreds of zeros that will overcome all the previous expenses.
5. How will ICO market change?
The main problem is that many entrepreneurs view the raised funds during ICO as irresponsible money. But the unlimited generosity will not go for long.
Investors are getting more cautious, thoroughly researching projects before buying the tokens. On another front is the government institutions that do not like when someone makes money out of thin air, while the unsatisfied investors come down knocking on their doors.
That is why in the nearest future, ICO will become more transparent and regulated, although less profitable. You’d always have to pay a potential reward for a stricter security of investments.