There are many different cryptocurrencies in the market of online trading, (Litecoin, Namecoin, Peercoin are just some examples of names) however the largest and most famous in the investment world is Bitcoin.
Bitcoin was created in 2009 by Satoshi Nakamoto, utilising blockchain technology, and can be named as the brightest example of a decentralised digital currency without a central bank or single administrator that can be transferred from one user to another user on the peer-to-peer bitcoin network without an intermediary.
Cryptocurrency is a digital currency which uses cryptography as the main mechanism of validation and security for transactions. Cryptocurrency is a form of electronic cash; it’s virtual and not controlled by any government or business. Although Bitcoin was critised many times for its price volatility, legitimacy and high electricity consumption, it is still being used by millions of people for investment and entrepreneurial purposes.
An ICO or an Initial Coin Offering is an innovative type of fundraising using cryptocurrencies and blockchain technology. An ICO – is the initial issue of proprietary digital “tokens” or digital “coins” to entrepreneurs or investors, in exchange for legal tenders or other cryptocurrencies. “A token” is a new asset class that is both raising capital and enabling the usage of decentralised software applications with the support of blockchain technology. It should be mentioned that the collected funds by “the token issuer” are often used to finance a specific project or have a general funding purpose. The investor in such schemes receive a digital token which is often linked to the right to receive a dividend, a voting right, a license, a property right or a right to participate in the future business activities of the issuer.
Most ICOs are being launched through online platforms, such as crypto-currency forums and other websites. An ICO is a complex process and always takes pre-public engagement phase and post-public engagement phase, which requires strong marketing, legal and technical support.
No specific regulatory framework
A well-defined and specific framework
A business in its early stages
Company needs a minimum track record
Fundraising for specific purposes
Fundraising for the businesses long term development
Token holders get limited rights
Shareholders get well-defined rights
Target audience is usually connected with cryptocurrencies
Very often the target audience is represented by institutional investors
Varied levels of transparency
The transparency and reporting processes are prescribed by the listing rules
ICOs major risks can be classified as follows:
Regulatory and legal risks
Business ICO risks
ICO founders risks
Most ICOs are carried out using special online platforms, like crypto-currency forums and equivalent platforms. In such case, an Issuer produces and publishes a technical white paper online with all the details of the project, as well as legal and commercial terms of the proposed ICO. The white paper informs potential investors about the status of the project, key team, external advisors and consultants. To subscribe tokens into the ICO process, the investor needs to transfer virtual cryptocurrencies to the Issuer. This digital currency transfer is made to the designated private wallets addresses of the respective cryptocurrency.
In order to subscribe tokens as a part of the ICO process, an investor needs to transfer a required amount of virtual currency to the Issuer to a designated cryptocurrency address or an electronic wallet of the Issuer. Therefore, the subscription process can be completed online really fast. The tokens help to identify the level of investor’s contribution. In some cases, investors also receive additional tokens for marketing them and trying to attract new investors. After ICO, the investor`s tokens are transferred to the designated accounts. It should also be mentioned that the Issuers can list their tokens on various cryptocurrency exchanges, as well as trade them against cryptocurrencies.