The term ICO (Initial Coin Offerings), denotes the process of initial placement of coins. As part of this process, digital money is sold by project representatives, who are paid for the transaction with real money or with the same popular cryptocurrency. Bought coins can be used on the platform of the project, using them for internal transactions, or for exchange trading.
It is not so difficult to understand what an ICO as it might seem at first glance. In addition, the principle of using this procedure will be available for studying for both those who are interested in cryptocurrency and have some experience of its use and beginners who only get acquainted with this field.
How ICO conducts various projects
The issuing of own coins with the purpose of their subsequent exchange to any popular cryptocurrency, for example, Ether or Bitcoin, and also for real money – the same dollars or euro – makes the project very attractive from the perspective of financing and development prospects.
The initial sale of coins should be carried out at the first stage of the project’s existence, that is, before its infrastructure is formed. All attracted funds are directed to the further development of the project, namely:
- Creating an effective marketing system;
- Completing the project for all stages;
- Sending assets to special funds to ensure strong support for the project in the long term.
Legal aspects of ICO: characteristics and risks
In addition, to understanding the definition of ICO, it is also important to understand its legal features.
This process cannot be attributed to either a legal or an illegal way of investment attraction. There is ain’t no clear definition of the legal status of the ICO in a world, and, as a consequence, there is no regulated procedure for conducting procedures. Also, still there are no requirements that are put forward for companies that are about to raise funds.
Since there is no clear definition of legal relations in this sphere, it is also impossible to call them financial, which causes certain legal risks.
Among the key problems of the ICO projects, we can name the following:
- Tokens – those same coins for sale – easily fall under the definition of an investment product in a case they directly tied to the goal of obtaining additional finance. In turn, this leads to the violation of many standards – as the lack of a license, a special permit to conduct such activities;
- The threat from the US and the Securities Commission. This suggests that it is better to refrain from dealing with US residents. This is easy could be calculated via IP address of the resident;
- Pressure from the Antitrust legislation. In this case, it is important to follow the “Know Your Customer” rule, clearly following the requirements;
- In the European region, the most important risk is the data protection law, since data saved via Blockchain cannot be deleted;
- Lack of property rights for the Blockchain. Ownership of Blockchain data does not exist at all, therefore the Bitcoins you use do not belong to you, and all disputes are resolved in the format of “Wild West”.
The difference between ICO and IPO
Separately, it is necessary to highlight the difference between ICO and IPO, since the latter term is the process of an initial public offering of shares on exchanges. If a particular company wants to distribute its assets to the public, it conducts an IPO process.
ICO is carried out almost on the same principle, as investors share their capital, and in return receive a share in the project in the form of tokens.
If you go into the initial cryptocurrency injections, they remind you of some ways of the Crowd-funding system, when money is collected from the mass, from donations and voluntary investments of the audience. The accumulated funds go to the realization of a specific goal. Other words, the project does not yet have its own product, so it uses the collected money to create it.
The IPO procedure is strictly regulated at the legislative level, while for the sale of tokens there are no laws and special regulations – everything happens in a free regime. If we take as an example control process in the United States, then the public placement of assets is only available to companies that operate in the form of joint-stock companies, and also have a registration with the SEC. Considering all these requirements, the process of investment attraction at the initial stage of project development becomes difficult, but it gives stable guarantees for the future.
But with ICO everything is much easier, but at the same time, investors do not have any insurance.
Advantages of investing in ICO
What is the benefit of purchasing ICO token for investors? Here we can name a few weighty reasons:
- Gaining the benefit of selling coins in the future, when their value becomes more;
- Use tokens to get the services of interest, which will be much cheaper.
How to choose an honest project for ICO
There are already countless ICOs, and even an experienced investor can get lost in such diversity, not to mention a newcomer. The main risk is to get into the hands of scammers and say goodbye to your money forever.
In such a transaction, only the criterion of trust is relevant, and there is no legislative protection. In addition, even if the transaction was successful, no one guarantees that the project will survive to the stage of product appearance. Therefore, the investor will not pay back his investments and will not receive the desired profit.
When going to participate in the ICO, it is important to pay attention to such characteristics of the project, for which it can be identified as honest:
- The existence of a special agreement and a list of rules, which is available for public inspection;
- Availability of a ready working layout;
- Prepared Whitepaper and additional documentation;
- There is a special account for accounting of property, assets, and capital until the deadline for the fulfillment of obligations has come;
- Registered company;
- The good reputation of the founders and managers of the project.
Examples of the best ICO
A successful ICO definition is very abstract, even rather conditional. However, you can determine its status by the number of funds collected. We can give examples of the most successful projects:
- Bancog, who collected the amount of 396,720 Ether in three hours;
- Brave – the project collected 35 million dollars in 30 seconds;
- Storj – was attracted 30 million dollars within a week;
- Aragon – collected 275 thousand Ether in 15 minutes.