Initial coin offerings have emerged quite recently. It is a new way to invest in startups. ICO is a unique type of investment. It greatly differs from regular shares buying. It guarantees its investors a stable return on investment, and the investors have more influence than regular shareholders.
Some people are sceptic about this way of making money. A person has to monetize virtual businesses. So, one has to use virtual money for that purpose. It makes many people doubt if such an investment can be a profitable one, or a reliable one at all.
How Initial Coin Offering Scheme Works
Initial coin offering emerged soon after development of virtual financial market. Bitcoin was the first cryptocurrency. Later those considering their own startups understood it is possible to attract investment in this and other virtual currencies. Here are some principles according to which ICO works:
- A person chooses a startup to put money in. This can be any type of business. Some startups aim to improve financial flow in the internet, other improve management of service industry, etc.
- A person invests not real money, but tokens. A token is an electronic currency, similar to bitcoin.
- If a startup develops with success, an investor will become a shareholder in a new business. Compared to regular shareholders who invest in real corporations, ICO investor has more decision-making power.
- If the startup fails, an investor gets his money back. This makes this type of investment attractive.
- ICO helps to generate new cryptocurrencies. One of the most popular examples is Ethereum. It developed so rapidly, that today this cryptocurrency occupies the second place after Bitcoin in virtual financial market.
These are the main principles of how initial public offering works. Today, the number of investors in ICO grows. The number of startups grows as well day after day.
Problems That Investors Face
Initial coin offering is beneficial, but some investors doubt in what startup to put money. Many people are afraid to invest due to lack of legislation to make initial coin offering totally legal and approved.
Such investments are direct, but they are not ruled by governmental regulations. Consequently, partners have to build their cooperation based on trust. For some people, it is not that easy.
Investors need to have strong belief in virtual market. It is a new phenomenon. Businessmen in some countries still find it difficult to invest large sums in ICO. It happens because in some countries cryptocurrency is not yet legalized.
These are the difficulties any new type of investor faces when entering the market. There are some ICO projects that were released with success. It brings hope that initial coin offering will become one of the most popular types of investment.