There are few companies that are raising money through digital tokens in exchange of funds that is usually termed as Initial coin offerings. Here, we will discuss on all necessary details of Initial Coin offerings and how it helps Companies to raise money in a different way.
Traditional techniques for raising money
• Companies were making through by selling their shares in return of cash.
• Companies take money in the form of debt and pay back to the borrower with the said interest.
• Companies may liquidate its property or other assets that are helpful for raising money.
All of three assure money but they are very risky and not favorable for buyers as well. Here, comes the concept of Initial coin offerings and why they become so popular in small time span only.
Initial Coin Offerings
ICO is a completely new technique for small or large sized Companies to raise money and much popular than any other traditional technique for raising money. Like any other technology, IOC also has certain risks associated with it that needs to be understood by investors deeply.
Money can be availed in the form of Bitcoin (BTC) or Ethereum (ETH). First of all, one Bitcoin or Ethereum address will be generated for the customers and same address can be used by the customers to send or receive money.
Investor expectations from Bitcoin (BTC) or Ethereum (ETH)
• Profits – Most of the investors expect that digital tokens that were purchased earlier can be sold out for certain profit. This is not clear how much profit can be raised by investors in total but they need to find out smart contacts to finalize the deal. There are reward based funding schemes for Initial coin offering investors and assure some return on every order.
• Liquidity – It is expected that tokens can be used as crypto currency that provides other market to investors for selling their tokens.
The secondary market does not give any kickstart to the concept as orders are generally tied to any individual and beneficiary account cannot be changed as required. Obviously, the restrictions don’t worth for Companies as crypto currencies don’t have any listing requirements. Only in rare cases, cryptocurrency offer schemes to exchange tokens. The main objective for cryptocurrency to exchange token is making money instead of focusing on project quality either it is going up or down.
There is a disconnect between the phrase ICO (Initial Coin Offering) that deliberately sounds similar to IPO (Initial Public Offering) and the disclaimers associated with these tokens, written in small print, suggesting that the tokens are not an investment or a security. These investment rounds are sometimes called “donations” or “presale tokens” instead of using the “ICO” terminology, in order to disassociate with legally sensitive words and phrases.
What are the highlights?
Initial coin offerings (ICO) and Initial public offerings are two different terms that you should not be confused about. We cannot consider digital tokens as security or investment but they are pre-released amount having some legal sensitivity and other related issues. There may be the cases when ICO term is not used directly by investors but different terminology to avoid any legal matter or obligations.
SO, here you have to focus on project in which you are planning to invest. The project with high risks or reward profile may discard opportunities for better exchanges later. The experience by investors has proved that Bitcoins have high risk/rewards associated when compared to ETH scheme. This is the reason why ETH tokens are always more appreciated when compared to Bitcoins or any other related schemes.
Being investors you need to make smart decision, you have warned already!