Introduction
Most crypto enthusiasts believe that investing in ICO tokens can produce high returns. An Initial Coin Offering (ICO) follows the same concept as an Initial Public Offering (IPO). ICOs are also like stocks.
Open-source cryptocurrency startups use Initial Coin Offerings (ICOs) to raise capital. The ICO trading platforms link investors and entrepreneurs. When a technological entrepreneur develops a new cryptocurrency, he will give some unique “tokens” to an investor.
These tokens are similar to the shares that you buy when you invest in a company. The investor will return some units of widely known cryptocurrency like Ethereum or Bitcoin to the entrepreneur.
This exchange of value between the technopreneur and an investor will serve as a way to raise capital for cryptocurrency startups. The investor will also gain access to some aspects of the new cryptocurrency project.
White Papers and ICOs
To raise capital from ICOs, the first thing that a cryptocurrency startup does is publish a white paper. A white paper is an in-depth document that gives investors an overview of the cryptocurrency project. Some of the typical information in the white paper includes:
- The scope and objectives of the project.
- The amount of capital to undertake the project
- The team behind the paper
- The length of time for the ICO campaign
- The amount of ICO tokens investors will receive
- The type of digital currency the technopreneurs will get in return
Many investors ask for a white paper before deciding to invest in a new cryptocurrency. They do this because ICOs can fail or turn out to be fraudulent. Also, corporate organizations don’t really regulate how startups distribute ICOs. Some other ICOs have performed well in the long run. Investors ask for white papers to get some confidence in their investment.
What Are the Types of ICOs?
Utility Tokens
Utility tokens are also known as app coins or user tokens. Utility tokens help people to access a startup’s services in the future. Investors get utility tokens so that they can use the ICO startup’s product in the future. These tokens don’t give investors a share in the company as such.
Utility tokens work in the same way as early pre-orders for unreleased video games. New companies that are offering utility tokens love to tag the events as token distribution events or token generation events.
To get more updates on the latest ICO tokens, visit Bitcoin Prime.
Asset Tokens
Asset tokens are not popular. The Securities Exchange Commission regulates the issuing of asset tokens in the United States. The SEC sets up the requirements to classify a token as an investment or security. The value of a physical asset like platinum or gold is associated with the token. The price of the physical asset determines the fragmented value of the token.
Reward Tokens
Reward tokens place a good stamp on the reputation of the recipient. You get reward/reputation tokens for the amount for the positive impact you left on a blockchain. It is not possible to trade reward tokens.
Equity Tokens
Startups distribute equity tokens to a specific set of investors. These investors have a decent amount of funds to develop the startup. In exchange, they get rights to some portions of the business. People who hold tokens from the enterprise can take part in organizational decisions. Equity tokens resemble IPOs the most.
Conclusion
ICOs help new cryptocurrency businesses to raise capital for development. Investors place their resources via ICOs to get returns in the future. If you decide to participate in ICO campaigns, it is better to treat these virtual tokens like any other physical investment.
Go online, do your research and read up on the latest projects. There are websites dedicated to educating the public about new ICOs. Just be careful to avoid scams.