What an Initial Coin Offering (ICO) is and how it works

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Imagine you are a startup with an idea for a new cryptocurrency system. The problem is you need money from people so you can actually make the currency. You could go to a bank or try getting venture capitalist investors, but if you want to raise money without giving up any of your ownership of the company, Initial Coin Offering or ICO works for you.
You create a document essentially detailing exactly how the system works (it’s called a white paper), make a pretty website, and explain why it’s a great idea very useful to ICO. Then, you ask for people to send you money (usually Bitcoin or Ether, but you can also take fiat) and in return, you send them back some of your new created coins. They hope that the coins will get used a lot which would raise the value of the currency.
It’s important to remember unlike an initial public offering (IPO), investing in an Initial Coin Offering or ICO won’t result in having an ownership stake of the company you’re giving money to. You’re gambling that the price of currently worthless currency you pay for now will raise later and make high profit.
Currently, there’s very little regulation on ICOs in America, so as long as you can get the tech set up you can try and get your currency funded. Of all avenues of funding, an ICO is probably one of the easiest to set up as a scam. Since there’s no hard regulation there’s nothing stopping someone from doing all the work to make you believe they have an interesting idea, and then they steal money from you.
So if you’re really set on getting in on that new ICO that you have heard of, make sure that the people putting up the ICO are real and accountable. In the internet age it’s really simple to put together a convincing website, so going the extra mile is important. You can look for what history the product’s leads have with crypto or blockchain. If it looks like they don’t have anyone with relevant experience that can be easily verified, that’s not a good sign.
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