Recently, the concept of Initial Coin Offerings (ICOs) has become quite popular in the blockchain world. This is primarily because they provide an opportunity to get in on the ground floor of new cryptocurrencies and they are an incredibly outstanding way to raise money in the crypto sector. Initial Coin Offerings (ICOs) are getting popular in Luxembourg where international blockchain companies launch their ICOs to get fundraise for their crypto investment fund.
As ICOs emerge everywhere, questions are arising about what they are and what are their uses. Below are simple details on what ICOs are.
What is an ICO compared to an IPO?
An initial coin offering (ICO) is a circumstance where a company sells a new cryptocurrency to generate money. Investors collect cryptocurrency in exchange for their financial contributions.
ICOs are frequently compared to IPOs (initial public offerings), a new stock offering by a private company. Both ICOs and IPOs enable companies to raise funds. In several ways, an ICO is the cryptocurrency version of an IPO in the stock market.
Aside from both being fundraising tools, the likenesses of both tools are very limited. As opposed to IPOs that are highly regulated, ICOs so far are restricted by virtually no regulations. Instead of issuing shares or bonds that entitle the holders of certain rights, tokens are allocated against existing and tradable cryptocurrencies, and such tokens give their owners the future privilege to perform transactions on a new decentralized application, whereas the funds raised are used in financing the development of the project.
The major difference between the two is that IPOs involve selling securities and are subject to stricter regulations.
The Advantages and disadvantages of ICOs
Here are the main advantages ICOs offer:
- ICOs offer high profits if you can specify which cryptocurrency is a decent investment.
- ICOs are an ideal funding tool to utilize especially for startups.
- ICOs appear to be easy to operate with limited regulation to observe
- ICOs provide faster financing than regular bank loans or venture capital funds.
- ICOs are available to anyone.
The disadvantages associated with ICOs:
- Because of the lack of regulation and enforcement of securities law, ICOs have been the vehicle for scams and fraud.
- Due to the volatility of cryptocurrency projects, there’s a serious risk that the token will lose value.
Regarding this, a clear knowledge of the protocols of the project, certificates of the team members and ICO organizers, and access to the code are some of the aspects that should be analyzed thoroughly.
How do ICOs work?
At the most fundamental level, when a company concludes to have an ICO, it announces the date, regulations, and buying procedure in advance. On the date of the ICO, investors will be able to buy the new cryptocurrency.
During the ICO process, you’ll take the following steps:
- Step 1: Presentation of the project in a whitepaper emphasizing the purpose.
- Step 2: A roadmap with short and long-term goals
- Step 3: Issuing price
- Step 4:Duration of the crowd sale with some caps – distribution rules of the tokens
- Step 5: A website and social media presence for a marketing campaign
- Step 6: Collection of funds in cryptocurrency
- Step 7: Finalizing the ICO and project launching.
If you want to launch your ICO for your new Luxembourg crypto fund, contact your Damalion expert now.
