The ICO

Starting reading about Cryptocurrencies can feel a bit like starting a new job. Everyone seems to be talking a foreign language. There are so many new terms that everyone seems to be using all the time.

ICO

ICO is short for Initial Coin Offering. It is a play on words analogous to IPO or Initial Public Offering in the financial markets.

What is it?

An ICO, like an IPO, is a way to raise money. People with a project or business proposal get investment from investors in return for Coins, effectively shares in the project.

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Pros and Cons

What are the pros and cons of investing in and ICO and raising funds through an ICO?

Many see ICOs as a great way to raise funds they can then use to fund their project. TokenMarket has an extensive list of up and coming projects.

So if its that easy why is it that not every company is raising funds in this way?

Investment

From an investment point of view there can be a few issues

• There is a lack of regulation, which means buyer beware.
• The project goals may be very vague and may change over time. There is often no clear strategy, just people cashing in on the Crypto Bubble.
• Getting your money out. Until the coins are listed on an exchange, and a liquid one it can be hard to get your money out.

Raising Funds

If you are a company trying to raise funds the main issues resulting from ICOs are pressures on the company from outside investors and speculation as soon as the coin is listed on an exchange. In some ways these are pressures that a company will experience from any investor but as always with Crypto the effects are magnified.
This can cause solid companies to become worth nothing overnight which is a real risk when raising funds through the ICO market.

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ICOs are suited to Tech companies in the Blockchain space but there is no specific reason why companies from other industries could not raise funds in this way.

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One Size does not fit all

Interestingly not all companies in the digital currency space raise funds in this way. The best example is Openbazaar who outlined in their blog some of the reasons

Why OpenBazaar Token Doesn’t Exist

• OpenBazaar Doesn’t Need a Token to Work
• Tokens are a New and Unproven Model
• A Token could Increase the Barriers to Entry
• Tokens Sales are a Regulatory Unknown

Further Reading

IF you want to learn some more about the pros and cons of ICOs you should check out a great post today by @calaber24p/

• New Altcoins Trying Different Distribution Models to Level the Playing Field

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Thank you for reading this. I write on Steemit about Blockchain, Cryptocurrency, Travel and lots of random topics.



Images from https://pixabay.com/

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