The ICO offers us the possibility of investing in the future potential of new systems, start-ups, solutions and applications that work on cryptographic and decentralized protocols. This cryptocurrency, like the other existing ones, can be exchanged freely. It can also be bought and sold freely, and it is the market (the people) that fixes its price based on supply and demand. This allows that, if you buy at a price and sell at a higher price, you can generate profits.
But to understand in depth what an ICO is, as in everything, we must start at the beginning, and here the principle means to understand the traditional financing and then describe in detail what an ICO is, its advantages, examples, precautions and everything you need. If you are looking for a list of ICO Listing sites then you can check ICO TopList.
Every initiative, if it wants to be put into practice, requires a series of economic costs. Making something real is always subject to a series of expenses, whether major or minor.
Traditionally, in the absence of personal resources, these expenses have been financed with any of these three forms:
• Sale of shares
• Debt (Loans)
However these options require a bureaucracy and enormous, archaic costs, which limits creativity leaving in the hands of a few “financial dictators” the decision of what is bankable and what is not.
Financing for the sale of shares
Funding for the sale of shares is one of the traditional options most used.
Whether privately (with family, friends or professional investors) or through a public offering via IPO, who wanted to start an initiative (or make it grow in the case of the IPO) could get other people to buy part of your company through the actions.
These actions represent a participation of the company and therefore of its benefits. If the company is doing well and earns more money, it is normal for their shares to rise in price over time, as the shares generate dividends, that is, the company periodically gives part of its profits to whoever owns its shares.
For these two reasons there will be people interested in buying the shares at a price higher than the output price.
Subsequently, anyone who has purchased any of these shares may exchange them for money to other interested buyers. It will have benefits if in this exchange it sells at a price higher than that of purchase.
Financing with debt
This type of financing consists of borrowing money. Loans can be requested from anyone who can lend you money: individuals or companies, financial institutions and even government institutions among others.
The most common scheme is the following: They lend you an amount X of money to return it in Y years paying a Z% interest. That interest is the benefit that the lender takes.
This form of financing allows you not to give shares of your company at that time, thus obtaining a financing that will allow you to develop your product to revalue the company, that is to say, to revalue all the shares.
One of the main problems for companies when it comes to going public is the enormous demands they have to meet.
For this reason a few years ago a new form popularly known as crowd funding appeared, although the terms of crowdfunding or even ‘collective financing’ are also used to refer to this same term.
Crowdfunding is a way to get money (or sometimes other resources) through a network of people.
A time window is defined (normally one month) and in that period is when the money would be collected. This money should be used to finance the project; however nothing guarantees that this is the case.
Despite having many types of crowdfunding it is normal that, due to bureaucracy and costs, investments are treated simply as donations with the hope of receiving some discount, recognition or gift of another type.
Financing 3.0: Welcome to the ICO
Although they are called in the same way, an ICO has nothing to do with the ICO grants that are given in Spain from the government to entrepreneurs and companies. It’s pure coincidence.
An ICO is, in the blockchain world, the acquisition of financing through the sale of a cryptocurrency. The name comes from Initial Coin Offering.
The ICOs democratize the financing of ideas, allowing any person on the planet to finance an idea in a matter of seconds, obtaining in return a digital asset that is comfortable to manage and emphasizing the idea of a global world without borders.
An ICO does not mean creating a cryptocurrency, it does not mean pre-issuing or issuing it, it does not mean creating a Smart Contract or colour coin, all that is indifferent and may or may not have coexisted with an ICO.
An ICO is the process by which a cryptocurrency is distributed (normally charging) at an early stage of development of something, in which it will be used, with the objective of financing said development.
Such has been the explosion of the ICO that the investment that their companies raise exceeds the traditional investment collected from all the startups.