We are living in the blessed digital era. First, we got a digital watch, then digital photo, digital TV, digital marketing and digital sex. The world was ready for digital currency and Bitcoin was born. So, no surprise that in a very short time digital stock has joined the party.
ICO (Initial Coin Offering) is pretty close to the well-established IPO (Initial Public Offering) with two major differences:
The concept is relatively new, and the old IPO might look safer, but some ICO benefits are just unbeatable:
First of all, we need a bunch of guys with a cool idea somehow connected to a blockchain. For example, a startup that will allow you to buy a genetically modified tree and when it will grow- it will have your name on its leaves for a Bitcoin. Sounds pretty insane, but I’ve heard much weirder ideas that turned into a successful business.
These guys start a marketing campaign and invite everyone to buy tokens.
Not a race-car or a shoe. It might look pretty much like Monopoly, though. You buy and sell something that doesn't really exist, but somebody wins and somebody loses.
The ICO token basically signifies your contribution to the startup investment. The more money you will give, the more tokens you will get in return. With the tokens, you will be able to buy future company services or just sell tokens.
But why would you give the money if you will not own a part of the company as it works in IPO? Right, nobody will. That’s why you have a smart contract.
The guys with weird genetic trees must promise something worthy to the investors. It can be a free tree for your wife, two percent from the future company revenue or any other value or service. In this case, money definitely might grow on trees.
The smart contract is actually an agreement between the ICO issuing company and the token holder. It is a code that makes a certain “then” happen if a certain “if” happened. For example, it can say that everyone who bought “the genetic tree” token before 2020 can sell it for a fixed price. One a holder will send the token – the price will be adjusted automatically.
Most of them are still created on the Ethereum platform (the first smart contract was issued by the platform creator, Vitalik Buterin). But there are more, such as Confideal, ChainLink, BlockCAT and others. Each one has its pros and cons. You can read about them here.
Read more: Should I invest in an ICO
Ok, we got it, it is a Bitcoin-inspired stock-exchange. I can invest in weird trees instead of Apple or Intel. What’s the buzz about it?
Here are some pretty impressive numbers:
Got it, it's a good deal, isn’t it?
That’s a very good question. There is something important to mention: everybody lies (special thanks to Dr. House for the perfect quote). There are good guys and there are less good guys. A start-up named Condido has raised $375,000 and disappeared with the money. Their website was deleted and nobody can find the founders. Well, old-fashioned burglars had to drive to the nearest bank wearing funny pantyhose on their faces. These days, you can do the same without leaving your house.
Here is a short “stay away from” list:
Last, but not the least: Pre-ICO.
Hey, wait. There is something else I forgot – actually you can buy the tokens before the ICO. How come, you ask? It’s a cryptoworld, you know, everything is possible. Nothing is real, follow the white rabbit, Neo.
In fact, sometimes a company needs funds for the ICO itself (advertising etc.) In that case they can pronounce “sale before sale.” Pre-sale token price is cheaper, so it can be a very good deal. It is usually very limited and can finish literally in seconds. So, if you want to buy on pre-sale, you need to check the upcoming events all the time.
Pre-sales might look like a low hanging fruit but it is not easily achievable. The popular practice is to run the pre-sale for a limited number of investors, who take the role of business angels. So, a startup can use the money raised with the pre-ICO to get much more money with the ICO itself.
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