The digital currency systems have revolutionized the financial world. The market capitalization of Bitcoin has boomed from $11 billion to $47 billion from June 2016 to June 2017.
Another positive development for digital currencies (crypto coins) was recognition paid to Bitcoin by Australia, Japan, and Russia. Correspondingly, the market is being transformed by a phenomenon called as ICO (Initial Coin Offerings).
As per May 2017, more than $380 million has been given to ICO’s as an investment. Many companies are eliciting millions of dollars using nothing other than a crypto coin and a white paper. One year back, 80% of market capitalization of cryptocurrencies was through Bitcoin, but this has fallen to 50% currently. This reveals a rise in ICO coin sale of other types.
What is an ICO?
The idea is that with ICO, you can create a token or digital coin. Provide this coin or token for sale during the initial offering. Thus, ICO resembles an IPO (Initial Public Offering). The aim of both is to raise funds but as opposed to stock, your ICO purchase provides you a new token or coin which is an asset, rather than a security.
This token may be of value or represent some value. An ICO may involve attribution of equity to a token such that ownership provides you voting privileges and access to dividends. Typically, with regard to a token issued in an ICO is the creation of an asset, which provides access to features of a particular project.
In place of cash or Bitcoin, to purchase services and goods from the conductor of ICO, you can use their tokens. Tokens may be considered as a loyalty point for a specific store, something you can buy with a digital currency of a general use, at a specific location.
What makes such loyalty points so important? The reasons may be utility in decentralized applications and tradability.
Since these token loyalty points are included in a public blockchain, the points are not limited to being a trade for services of the same platform but can be traded anywhere. In case there is substantial activity inside a given ICO, there will happen global trade of their tokens in ICO exchange platform of cryptocurrencies worldwide.
ICOs which are successful are products highly focused on game theory and economics. The intention is that their tokens will rise in value as the volume of activity on their platform increases.
Hence, such loyalty points have a wavering value on basis of market perception and rising use of the platform. This leads to a distinct incentive mechanism since users of the platform who are getting the tokens have the motivation to bring other users to the platform for increasing the value of their tokens.
Combining a token with an initial offering via a crowded sale permits you to build an international network of early investors who will work actively to spread awareness and knowledge about your project. The users who take part in a crowded sale of tokens get the additional boost of gain on the value of their asset.
These are all aspects of how to raise money through ICOs.