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What is an Initial Coin Offering (ICO)?
An initial coin offering (ICO) is a type of capital-raising activity in the cryptocurrencyCryptocurrencyCryptocurrency is a khung of digital currency that is based on blockchain networking. Cryptocurrency like Bitcoin & Ethereum are becoming widely accepted. và blockchain environment. The ICO can be viewed as an initial public offering (IPO)Offering MemorandumAn Offering Memorandum is also known as a private placement memorandum. It is used as a tool to lớn attract external investors. that uses cryptocurrencies. However, it is not the most precise comparison, as there are some crucial differences between the two fundraising activities. Startups primarily use an ICO is to raise capital.
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The main advantage of ICOs is that they remove intermediariesFinancial IntermediaryA financial intermediary refers khổng lồ an institution that acts as a middleman between two parties in order to lớn facilitate a financial transaction. The institutions that are commonly referred khổng lồ as financial intermediaries include commercial banks, investment banks, mutual funds, and pension funds. from the capital-raising process & create direct connections between the company và investors. In addition, the interests of both parties are aligned.
Types of Initial Coin Offerings
The two types of initial coin offerings are listed below:
1. Private ICOIn private initial coin offerings, only a limited number of investors can participate in the process. Generally, only accredited investors (financial institutions & high net-worth individuals) can participate in private ICOs, and a company can choose lớn set a minimum investment amount.
2. Public ICOsPublic initial coin offerings are a khung of crowdfunding that targets the general public. The public offering is a democratized khung of investing because almost anyone can become an investor. However, due to regulatory concerns, private ICOs are becoming a more viable option relative lớn public offerings.
The rise of cryptocurrencies and blockchain technology is helping boost the popularity of ICOs. In 2017, more than $7 billion was raised using ICOs. In 2018, the figure almost doubled. The largest ICO to date was executed by Telegram, an instant messaging services provider. During a private ICO, the UK-registered company raised over $1.7 billion.
How Does an ICO Work?
An initial coin offering is a sophisticated process that requires a deep knowledge of giải pháp công nghệ, finance, and the law. The main idea of ICOs is leveraging the decentralized systems of blockchain technology in capital-raising activities that will align the interests of various stakeholders. The steps in an ICO are listed below:
1. Identification of investment targetsEvery ICO starts with the company’s intention khổng lồ raise capital. The company identifies the targets for its fundraising campaign & creates the relevant materials about the company or project for potential investors.
2. Creation of tokensThe next step in the initial coin offering is the creation of tokens. Essentially, the tokens are representations of an asset or utility in the blockchain. The tokens are fungible and tradeable. They should not be confused with cryptocurrencies because the tokens are just modifications of existing cryptocurrencies. Unlượt thích stocks, the tokens generally vị not provide an equity stake in a company. Instead, most of the tokens deliver their owners some stake in a sản phẩm or service created by the company.
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The tokens are created using specified blockchain platforms. The process of the creation of tokens is relatively simple because a company is not required lớn write the code from scratch as in the creation of new cryptocurrency. Instead, existing blockchain platforms that run existing cryptocurrencies such as EthereumEthereumEthereum is one of the growing cryptocurrencies lớn contend against Bitcoin. With the rise of Bitcoin (BTC), the cryptocurrency market has been validated. allow the creation of the tokens with minor modifications of the code.
3. Promotion campaignAt the same time, a company usually runs a promotion chiến dịch to lớn attract potential investors. cảnh báo that the campaigns are commonly executed online to lớn achieve sầu the widest investor reach. However, currently, several large online platforms such as Facebook and Google ban the advertising of ICOs.
4. Initial offeringAfter the creation of the tokens, they are offered to the investors. The offering may be structured in several rounds. The company can then use the proceeds from the ICO to launch a new product or service while the investors can expect khổng lồ use the acquired tokens lớn benefit from this product/service or wait for the appreciation of the tokens’ value.
ICO Regulations
The initial coin offering is a completely new phenomenon in the world of finance and technology. The introduction of ICO’s made asignificant impact on capital-raising processes in recent years. However, regulatory authorities around the world were not prepared for the introduction of the new fundraising Mã Sản Phẩm in finance.
Approaches lớn the regulation of initial coin offerings vary amuốn different countries. For example, the governments of Trung Quốc và South Korea prohibit ICOs. Many European countries, as well as the United States và Canada, are working on the development of specific regulations lớn govern the conduct of ICOs.
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At the same time, there are already published guidelines governing ICOs in a number of countries, including nước Australia, New Zealvà, Hong Kong, & the United Arab Emirates (UAE).
Additional Resources
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