What is an ICO?

An initial coin offering (ICO) is a way of crowdfunding for start-up companies and allows them to avoid many costs such as regulatory compliance costs required by banks for instance. In an ICO venture, a percentage of cryptocurrency is sold to initial backers for fiat money or other cryptocurrencies. Currently, the leading blockchain platform for ICOs is Ethereum.

Every week, new ICOs are released. When an ICO is introduced, there is a set funding goal which is expected to be met within a specific time period. In this period, the ICO is raising funds and seeking investors to invest in it. The crowdfunded coins are referred to as tokens and are given to investors.Once the project launches, tokens are issued to investors and can be used as currency to be sold or to buy other cryptocurrencies such as Bitcoin or Ethereum.

Difference between IPO’s and ICOs:

The term ICO has been compared to the term IPO (Initial Public Offerings) in relation to the share market, With IPOs’ companies sell their stock to the public/ investors who are interested in buying shares from the company as an investment. With ICO’s, companies transfer/sell their coins through tokens.

ICO and IPO’s are both excellent options of raising large sums of money for companies and early investors. Other options for companies to raise funds would be through bank loans or being acquired/bought by another company.

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