What is an ICO?
ICO (Initial Coin Offering) is an instrument for fundraising which is used by start-up projects. The main idea of ICO is that to attract the investments new companies issue their own cryptocurrency (tokens) and then sell them to investors in exchange of cryptocurrency or fiat currency as an option.
If a new project proves to be successful and profitable the value of the tokens raises significantly. It motivates potential investors to purchase tokens to get profit in future. ICO organizers also offer the participants other benefits such as discounts for the new products, the right to use the new services for free and so on.
In some way ICO is similar to an Initial Public Offering (Initial Public Offering) in which investors purchase shares of a company. Future benefits which are promised to ICO participants are nearly the same as dividends (gain on shares) which are offered to the owners of the shares.
A fundamental issue with ICOs is the fact that most of them raise money pre-product. That’s why investing in ICO is quite a high-risk — more so than traditional startup investing — but is motivated largely by the potential explosive growth in the value of tokens issued by start-up projects.
On the one hand ICO is not regulated by any official laws which makes the certain risks higher but on the other its free from any kind of red tape and restrictions. As distinct from IPO Initial Coin Offering gives everybody an opportunity to become an investor and to gain significant profits.