ICO – short for initial coin offering – is an upcoming trend in crowdfunding which uses cryptocurrency and is backed by blockchain. For firms looking to raise money for operations and innovation, there are a handful of options out there which they can use.
Traditionally, the common practice was to wait for the company to make enough profits to contribute to expansion and development, which restricted the firm to only the funds generated by the company. However, as a different option, firms can opt for sponsors or investments outside for support and earlier conception of their business ideas. This way the company receives its required funding in no time with obviously a trade-off of shares. Yet, another way of doing that is to offer shares to individual owners in return for funding. The shares are sold through Initial Public Offering better known as IPO.
As for ICO, it is quite similar to IPO but it is utilized in a cryptocurrency setting. Similar to IPOs, ICOs acts as fundraisers for companies. A firm looking for funds to launch a coin, app or software creates an ICO. Then, the investors whose interest gets piqued purchases those ICOs with preexisting cryptocurrencies such as Bitcoin or Ethereum. In exchange for their contribution, the investors get a cryptocurrency token known as ICO.
Needless to say, ICOs are a great way of raising funds while escaping the strict and long fundraising techniques provided by banks and conventional investors.
In the span of a few years, the cryptocurrencies that were initially launched as ICOs have skyrocketed and their prices have doubled if not tripled.
If you have a business idea that has a lot of potential then we do recommend harnessing the thriving fundraising strategy that ICOs have associated with them. However, do your research about your business plan before you dive into it.
The Pac Square team has created an infographic which will further increase your understanding about ICOs and what they stand for.
Related: What is an ICO?
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