Nowadays, technologies make investments easier and it's not even necessary to look for investors in some cases. In this article, we will consider Initial Coin Offering (ICO) investment scheme.
What is ICO?
ICO (Initial Coin Offering) is a new way to fund projects.
The scheme is pretty similar to the traditional one with shares and has exactly the same purpose -- raise some money to grow the business. But instead of shares, investors or people who just want to support the project, they buy ICO coins (also known as altcoins) or Tokens via Initial Public Offering (IPO).
Both coins and tokens are cryptocurrencies but they vary. Before we continue moving forward let's find out what's the difference between a Crypto Coin and Token:
As was mentioned, Tokens and Coins differ. Coins are a separate currency that has their own blockchain. So, to create your own coin, you have to develop own blockchain from scratch. A couple of examples of such coins are Ethereum, Ripple and others.
What is token? This is a category of cryptocurrency that functions on the top of a blockchain so hasn't its own. Therefore, it takes much less time for a development team to build a token based on existing blockchain solutions, rather than to create one on their own. A development team is a self-organizing, cross-functional team of people who collectively are responsible for all of the work necessary to produce working, validated assets.
Coins and Tokens: The Difference
Further, in the article, I will use the term 'tokens' to avoid saying 'coins and tokens' all the time. I hope that I've managed to cover all questions related to 'what is initial coin offering' and 'cryptocurrency coin vs token'. Let's continue to another frequently asked 'versus' question.
ICO vs IPO: Difference
One of the distinctions with traditional funding IPO (Initial Public Offering) is that tokens can be bought not only with the help of ordinary currencies like Euro or USD but with the help of cryptocurrencies like Bitcoin and Ethereum.
Talking about fundings, you might find this guide on how to develop a crowdfunding app interesting. Besides, an ICO campaign has some set goals that indicate what amount of money a company should collect and for what timeframe. As we can see, the principles of ICO resemble crowdfunding campaigns on Kickstarter or Indiegogo.
Example of ICO set goals
In case the token investment goals are reached within the set period of time -- the company invests money into the business and starts distributing tokens to people who took part in funding. After that, these investors can start trading these tokens on cryptocurrency exchanges.
It's worth noting that just as in the case with shares, the price of tokens directly depends on the company's growth. In other words, that implies certain risks for investors. Let's take Ethereum (ETH) cryptocurrency as an example. The company raised $18 million in 2014 and since then its coin grew in value from $4 to more than $450 at the moment of writing. I think that was a worthy investment for the company's supporters.
As a rule, the team that conducted a successful ICO campaign takes a portion of fundings (let's say 5-10%) and set them aside to cover the expenses related to UI/UX design and development. That's needed to keep working on a project all the time.
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