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The Link Between Cryptocurrencies and ICOs

Cryptocurrencies and initial coin offerings (ICOs) have materialised as investments over the last decade. However, if you plan to invest in these, you need to research first to lose a lot of money. 

Cryptocurrencies Defined

Cryptocurrencies are a type of electronic money. These are otherwise known as digital or virtual currencies, which do not have physical counterparts as coins or notes. For example, bitcoins or ethers are cryptocurrency units that are also known as digital tokens. A blockchain operates these digital tokens, which is a code of an encrypted string of data blocks. 

Cryptocurrencies can be used to pay to run programs and execute contracts. Anyone can create digital currencies, and there might be thousands of circulating cryptocurrencies at a given time. 

Each cryptocurrency has its own set of capabilities. Some of these were not meant to be investments. 

You can use traditional money to purchase or sell cryptocurrencies on an exchange platform. Cryptocurrencies are stored in a digital wallet, and some merchants accept these as payment for goods and services. However, crypto is not widely accepted and is not considered legal tender. 

Several cryptocurrencies, such as Bitcoin, can be withdrawn through special ATMs. These usually have zero to low transaction fees. 

Initial coin offerings (ICOs) defined

An ICO is similar to an IPO (initial public offering). This is a method in how money can be raised for a project on the internet. When you send money or crypto to invest in an ICO, you obtain digital tokens for the said blockchain project. You can start trading crypto today with Bitcoin Pro

ICOs are made for projects at the experimental stage, are just about to start, or may not have started yet. These high-risk investments are dodgy and may take years to develop to become commercially viable. Generally, these ICOs do not increase in value or might fail. 

ICOs seem to be like initial public offerings (IPOs), but these do not provide legal rights protection. If you invest in an IPO, you entrust your money to an established asset or company rather than a project. 

Despite using the internet of ICOs to raise funds, this is not similar to crowd-sourced funding as the latter provides basic investor protections. 

Operation of an Initial Coin Offering (ICO) 

A cryptocurrency startup that plans to raise funds through ICO first prepares a whitepaper. This whitepaper includes details such as what the project is about, the money required, the benefits the project needs upon completion, what kind of money will be accepted, the number of digital tokens the founders will keep, and the ICO period campaign will operate. 

Crypto enthusiasts and supporters of the project purchase some of the project’s tokens through digital or fiat currency. Buyers purchase these tokens (coins) similar to company shares sold to investors during an IPO. 

During the whole period of the ICO campaign, there must be a minimum fund needed to be raised during the said time. The funds raised will be returned to the investors if the money raised is insufficient for the minimum funds required. However, if the ICO campaign is deemed successful and sufficient funds are met within the specified timeline, the funds raised will materialise the project’s goals. 

Special Considerations 

You need to familiarise yourself with the crypto industry before you invest in ICOs. Generally, investors buy tokens with pre-existing cryptocurrencies. Therefore, a cryptocurrency wallet must already be on hand for an ICO investor to store the currency or token they want to buy. 

What are the steps in searching for the ICO that one can join? There is no one-size-fits-all formula when it comes to the latest ICOs. It is recommended that interested parties should read about new projects online. ICOs attract investors who want to seek new opportunities. One can search for forums, dedicated sites that pool ICOs that allow investors to check new ICOs and compare different offerings against one another. 

About Ambika Taylor

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