Recently, startups around the globe are raising millions of dollars by using digital coins, which is the new trend that is simultaneously putting people into a mix of excitement and concern.
ICO, or Initial Coin Offering,is the new model of funding, similar to a token sale or a crowdsale. ICOs are a hybrid combination of crowdfunding pre-sales and stock IPOs that work with the help of blockchain technology. Many companies are raising a lump sum amount of money, and the speed at which they raise the money is exciting.
Startups that pioneer the usage of blockchain technology gain mainstream attention pretty fast. These startups have a different way of tracking things, storing data, sending it, and, altogether, they have a new method of raising the capital.
By using ICO in their business, they exchange token and receive either Bitcoin or Ethereum and uses the raised funds to cover the future expense and pay the team. To date, the new fundraising model has been in trend and creating success in all ways. For example, Sportyfi offers a crowndfunding platform for athletes, teams, or sports organizations. The blockchain-based system uses smart contracts to safely connect investors to anyone who is related to sports.
Are ICOs legal?
Unfortunately, there is no proper answer to the question, “Is ICO a legal funding model?” People have a different opinion when it comes to ICOs, and most complain that they don’t possess any investment nature. The truth is thatICOs are like any other cryptocurrencies. They don’t fit into the traditional funding model, and there is no point in comparing with the two. Even the ICO enthusiasts admit that they do have a specific element of uncertainty.
In reality, ICO is similar to a public offering; the only difference is, instead of stock, cryptocurrency tokens are the selling unit. There is a time limit on every sale, and the maximum number of tokens available for sales will also vary. Once the limit reaches to the set marks, the sale ceases there, and the owners are free to use the token the way they like.
However, tokens are not similar to shares in every aspect. Unlike stocks, ICOs have value and can trade. ICO is identical to initial public offering, or IPO, meaning primary users can benefit from the early spike in value. The only difference is ICO token doesn’t give the owner the ownership over a part of the business that issued the tokens.
Bitcoin or Ethereum
Bitcoin was the earlier hype, but it has now reached its highest value ($1500), and now one of its competitors, Ethereum, is catching up fast. Bitcoin is a universal digital currency, but Ethereum is much more than that. It allows users to have money whenever the currency isaccepted by the trader.
Trading is done on a smart contract. When traders meet the conditions, it changes hands. Recently, Ethereum’s trading volume went up higher than the Bitcoin market. Compared to the past years, its value has multiplied by seven times.
Developers are even utilizing the cryptocurrency to help in building apps for security, crowdfunding, and microfinance. The smart contract nature of Ethereum decreases the risk of developers and allows them to distribute funding. It alsohelps in confirming identity through the decentralized system.
As Bitcoin gained many enthusiasts, slowly other cryptocurrencies also leaped in and became famous. Among those, Ethereum was the one who had instant popularity due to its unique nature.
Let’s look into some of the benefits of Bitcoins:
Safe and private
When people think about cryptocurrencies, in general, Bitcoin comes as a forerunner. However, you have to take some general security measures like not linking your personal information to the Bitcoin wallet. As Bitcoin follows blockchain technology, each transaction will be part of a chain of actions. When you connect one deal to the other, it continues its voyage. Just because of the nature of the technology, it is difficult for attackers to penetrate into the network easily. It is something similar to untangling your tangled headphones wires; you cannot disentangle from the middle, you have to start from the root.
Bitcoin, like any other cryptocurrency, is a highly efficient form of exchange. Though it is not able to be transferred likemoney, generally Bitcoins are easily movable from one network to another. These days, even money transfers are not easy as there are transaction charges and other extra fees included. Considering these facts, Bitcoin can be a lot easier than traditional money.
If you want to gamble, then ICOs aren’t a bad option, as you can shoot for the stars. The platforms of ICOs are still developing, and though all investments do have an element of risk, it is a free investment. In a technical point of view, ICO is an advanced technology with a considerable degree of flexibility when compared to initial public offering. Businesses can choose between variable and flexible tokens. Unlike the stock market, where everything is static, ICO offers a lot of flexibility for trading.
Free from government intervention
The main issuefacing financial systemsis the intervention of government upon the decisions on managing and trading cryptocurrencies. However, Bitcoin is free from government control, and hence, people are free to make decisions on their financial transactions involving Bitcoin.
In general, Ethereum and Bitcoin are great in terms of transaction innovation, and it has the immense potential to change the financial transactions. The impact will be tremendous, and it will influence the broad transaction process. These projections are based on the transaction technology used by cryptocurrencies because they are free of many of the flaws that the existing trading technology still has.
Ethereum is a decentralized platform that has the power of smart contracts. Smart contracts use decentralized immutable blockchain technology to keep the records. This kind of network also eliminates the need for third-party services as well. As of now, there are a lot of exciting things happening in the cryptocurrency world. There are a lot of promising things coming up in the future through various channels. However, it is better to do your own research if you want to invest in digital assets. You can also understand the fantastic potential of blockchain technology that can transform your business.
What exactly is the fact with ICOs?
To an extent, ICOs have opened new windows to have more access to capital market. It gives tremendous opportunity to raise capital by deviating from the traditional ways. It is a new way of life to generate funds for investments.
The final goal of an ICO is to support startups in raising capital. ICOs are a highly advanced crowdfunding platform, giving tremendous hope for the investors and prompting them to believe that these startups will transform into a successful venture and coins will have an incredible appreciation. Unlike traditional VC investment, ICO investors become the financial backers. The coins’ value of appreciation is expected to grow over the years, depending on the product and service.
Comparing IPOs and VC systems, ICOs are also not free of business risks, and the main apprehension is that it has no regulation to protect the interest of investors. However, the business model is more attractive to generate funding for the startup. Cryptocurrency is not for people with adverse thoughts, but it is for people who love to enjoy the element of risk.
This post is part of our contributor series. It is written and published independently of TNW.