What are ICO’s?- Hassle-Free Fund Raising Mechanism For Some Entrepreneurs
ICO is the short form of Initial Coin Offering. Actually, it is an event (which is also called crowdsale) when a company introduces its own cryptocurrency to arrange funds for different business activities. Generally, companies issue a specific number of crypto-tokens and sell them to the targeted customers in exchange for bitcoins. Hence, it can also be used as a fiat currency.
In last a couple of years, tech-savvy individuals and companies around the world have started to abandon traditional currencies (USA Dollar, British Pound, Chinese Yuan, etc, ) in online transactions because of the involvement of third parties, high transaction fees, strict regulation of the governments and law enforcement agencies, etc. As a result, we have witnessed a sharp increase in the use of cryptocurrency. ICO is, in fact, newest of them.
Benefits of using ICOs
For companies that issue ICOs:
- Hassle-Free Arrangement Of Funds
All companies and business organizations need to accumulate additional funds to expand their business activities, go for mergers and acquisitions, open offices in new cities and countries, etc. It is very difficult to raise funds through traditional funding sources, such as banks, credit companies, and investors, because of the involvement of too many formalities, verification, and documentation. It creates needless obstacles in business activities and negatively impacts the outcome.
But, with ICOs, you don’t face such troubles. Anyone can introduce an ICO. You can easily generate tokens for numerous platforms, such as RSK, Bitshare, Counterparty, Waves, NXT, Omni, Ethereum, Stellar. Furthermore, transaction cost remains low when compared with traditional fund arrangement mechanisms. So, ICOs are especially useful for startups that look for funds to sustain in the business world and make the desired progress.
- Positive Effects On Networks
The use of ICOs puts positive effects on the digital currency networks. It can easily decentralize applications and make them strong when used by a number of users. You must keep in mind that decentralized applications have a considerable amount of network effects. So, when new users are added to the network, its efficiency gets improved up to a great extent. If users have the token, they can use it for the rapid growth of the network.
- Unlimited Business Opportunities
As the trend of using alternative digital currencies is increasing swiftly with each passing day, companies can introduce ICOs and make them popular over the World Wide Web through online marketing. It helps them to get immense business opportunities from existing and potential customers.
- Quick Settlements On Blockchains
One needs to supervise and update the distributed digital ledgers regularly to confirm the contributions and allotments of tokens. This eliminates minimal effort to raise funds on blockchains. This is a much better mechanism to generate quick funds rather than getting involved in traditional formalities for the arrangement of funds.
For Common Individuals And Investors
- Possibility Of Huge Financial Benefits
The price of Cryptocurrencies gets increased quickly. So, if you invest in ICOs, there are good chances that you get a decent return on investment. But, you need to wait for the right time to make the investment. Sometimes, your choices may go wrong and you will not be able to cover the amount invested.
- Global Circulation
Traditional financial sources have geographical restrictions. But, when you use ICOs, you don’t face such hassles. This allows you to collect funds from all over the world for your business activities, startups, projects, etc,
Risks related to ICOs
- Security Concerns
All potential ICO users must know that there is no modus operandi to test the legitimacy of ICO organizations. There are many companies that create a financial product and introduce ICOs. They even publish and market their ICOs, but there is no guarantee that the product will work as advertised. Furthermore, you can’t find the shortcomings in certain technologies until and unless you invest a certain amount of money. Many companies ask customers to accept the risk of project abandonment if they want to use their ICOs. In such cases, you lose your money and chances of its recovery is very slim.
- Inaccurate Token valuation
Never expect that token prices are based on their basic value. Several people expect a sharp in market price (of tokens in the future) and buy them without any consideration. The actual value of tokens largely depends on its resale profits. So, you may suffer a huge loss if your primary investment is higher than the ROI. So, be careful while buying ICOs. Make a fair calculation and take a solid decision accordingly before buying the ICOs of certain companies.
- Anti-Money Laundering Drives
Different governments of the world and law enforcement agencies treat the use of ICOs as a part of money laundering activities, tax evasion, and settlement of black money into white. So, if they catch you somehow and you fail to reveal the sources of the whopping sum, legal troubles will come in your way if charges framed against your are proved. It will damage your company’s reputation in the market and affect the business opportunities you generate.
- Unknown Token Buyers
As tokens are issued sent and received from cryptographic addresses, so their identity remains unknown in most of the cases. You can trace token buyers individually, but there are many blockchains that care about the privacy of users and blur the transactions made for tracking users. So, as a company owner, you should enforce KYC requirements for potential buyers to know who they are. Make sure that your company resources are not being used for funding terrorism, money laundering, tax evasion, etc. Otherwise, you may fall into legal troubles. Take all possible steps to avoid all possible scams and financial embezzlements while dealing in ICOs.
The Future and growth potential of ICOs:
In spite of several shortcomings, many financial experts predict that ICOs are the future of online transactions. As an entrepreneur, you should have all-inclusive knowledge about this new fundraising mechanism and use it properly for the rapid development and expansion of your website.
ICOs are very useful for individuals, startup companies and entrepreneurs to raise funds immediately for their vital needs. Use it carefully and lift your business to a new height.