Defining an ICO (Token Sale) – Read before investing
Cryptocurrencies are becoming increasingly famous, and it’s possible that you have heard the name ‘ICO’ or ‘Token Sale.’ Many people wonder what an ICO or Token Sale means.
The following is a brief lesson on the meaning of ICO or Token Sale.
Description of an ICO or Token Sale
A token sale or initial currency offering is a crowdfunding project for producing and selling digital tokens. For this, a company forms digital currency (tokens) then exchanges with investors for a recognized currency like ether, Bitcoin, fiat or other cryptocurrencies.
Usually, the public invests in these startup projects for two varied reasons:
- They believe that the tokens they are buying now will risein worth as time goes, usually when the market demand rises.
- When the investor buys these digital tokens, he/she can get a substantial reward like a share or service of the startup’s
total profits.
Background of ICOs and Token Sales
In 2013 the Mastercoin project made its first initial coin offering and the same year many other firms instantly did the same. The excitement about token sales decreased after that, and the 2016 scandal made a lot of people reluctant to invest in these ventures.
The TDAO project made more than $150 million on the Ethereum platform. However, someone hacked into the system and stole about $60 million of this cash from the project, and it had an impact on many people. Following this, the U.S. Securities and Exchange Commission and the Ethereum Foundation decided that for future ICOs more care should be taken. After the SEC implemented the regulation that selling digital assets like tokens provided by ICOs need federal laws, people became more interested in this practice.
Are Token Sales and ICOs Legit?
Yes, they are in spite of them being subject to some SEC regulations on securities. Because they are new, they are flexible where legality is concerned.
Token Sales High Reward and High Risk
Investors need to comprehend that including coins or tokens from an ICO to their portfolios is very risky. But the advantage is the possibility of big rewards. Conduct detailed research before investing. Study the white paper, read reliable review sites and avoid making drastic decisions.
The working of a token sale
An ICO begins when a startup firmwants a unique kind of Cryptocurrency. Rather than trying to get capital through banks or conventional project capital techniques, the venture becomes a worldwide investment community.
The firm first forms a comprehensive plan such as a website, white paper and even a functional prototype at times. After this, it provides digital tokens for the latest currency exchanging it for a recognized currency, mainly ether, fiat or bitcoin.
Participating in an ICO
A great feature of these ventures is that any person can become an investor. An ideal manner of doing this is conducting thorough research on the operation of initial coin offerings. Also, ensure you understand well what a successful ICO involves.
When you understand ICOs, Cryptocurrency and overall investment principals, you have higher prospects of making profitable investments in the future.
