What is an ICO and how does a cryptocurrency offering work?
In recent years, virtual currencies and other digital assets have been gaining increasing attention among investors . Consequently, they have gained popularity in the financial market and terms like token or blockchain have become all too familiar to many investors. But do you know what an ICO is?
That is the general process of cryptocurrency exchange. So, every person interested in this type of market needs to know typical expressions of the crypto world to be able to evaluate opportunities.
Want to know better what ICO is and how this procedure works? Read this text!
What is cryptocurrency?
Before talking particularly about ICOs, let’s know what a cryptocurrency is. Also called digital currency, this type of asset essentially performs the same function as physical currencies. That means it serves as a mediator for buying and selling relationships.
Unlike regular currencies, which are issued and managed by governments or some other kind of institution, virtual currencies are decentralized, and the legitimacy of transactions made by them is discovered through complex calculations performed by computers around the world.
What is ICO?
Now that you have a better understanding of what a cryptocurrency is, you can learn more about the initial coin offering.
In the financial market , this term is commonly understood as an initial offering of virtual assets. This means that it is through this procedure that new crypto assets are made available for purchase and sale.
Just as companies make initial public offerings of their shares on the stock exchange, ICOs are created to make a given crypto asset available for sale. The aim is to raise funds for a project developed using blockchain technology .
The first virtual currency offerings were only made after the launch of new “coins”. In other words, a group of people created a new cryptocurrency and made it available through an ICO. In these cases, the product offered was the currency itself.
However, over time, other purposes were found for blockchain. In addition to validating transactions, this mechanism began to be used to run programs, as well as to register and execute contracts autonomously, for example.
As a result, companies and emerging projects realized that an ICO could be a way to raise funds from investors. In exchange, virtual assets are issued and made available on the market.
The assets provided are called tokens — a form of specific granting of rights to their holders. They can belong to two categories, namely:
- granting access to a company’s service, project or platform, made through a usage license or provision of credits;
- granting rights to participate in the company’s results or on a return on the money invested.
What are the differences between ICO and IPO?
When studying the subject, it is common to compare ICOs and IPOs. Although the two processes have similarities, it is important to understand that they are not the same thing.
When we talk about IPOs, we are referring to an initial public offering . It is through this procedure that a given company or fund issues the first assets to raise funds through trading on the stock exchange.
Although an ICO also raises funds from investors, this procedure occurs in the cryptoasset market. This means that, instead of offering a share or fund quota, tokens or virtual currencies are sold, without the need for the financial market to mediate this transaction.
Furthermore, it is common for an IPO to be carried out by mature companies, which have a certain stability in the market and an advanced level of operation and management. An ICO, on the other hand, can be carried out by small projects, which have never operated before and do not present transparency to investors.
How does an ICO work?
It can be observed that an ICO and an IPO are the two completely different concepts. This could similarly be said when considering the initial coin offering from the perspective of its mechanism.
Read the stages of this procedure below!
Checking for compliance with local regulations
The first step developers targeting an ICO launch need to take is ensure their process does not contravene the regulations of the jurisdiction in which it is based. There must also be a determination over who the permitted investors are that are allowed access to the initial offering.
Project creation
After verifying compliance with local regulations, it is necessary to assemble the team and develop the document that details the information about the initiative and related crypto assets. At this stage, it is necessary to clarify the commercial and financial points, as well as the differences and benefits for those who will purchase the token or currency.
Project disclosure
Finally, it is necessary to establish how the project will be promoted. At this point, developers need to clarify the fundraising period and the rewards that will be provided to investors.
How to participate in an initial coin offering?
Even once you have a clear understanding of what an initial coin offering (ICO) is and how it operates, you still need to know the specifics of how to become involved. Finding an offer in which you are interested in taking part is the first step.
Next, you must access the offering listing system. This is where you will find instructions for the platform where the investment will take place. When the operation is independent, it is common for the investor to deal directly with the developers during the ICO.
