Living in a modern era where technology is the mastermind of every key sector of the economy, the financial field is one sector that has experienced a real overhaul. The transfer of cash, payments and even investments are done digitally. This trend has led enterprise capitalists to invest in ICOs.
ICOs, or traditionally known as Initial Coin Offerings, is a process where funds are raised in an unregulated manner for a crypto-token. In most cases, cryptocurrencies like Ethereum and Bitcoin are used in this venture. In other words, this type of investment is somehow similar to the current IPO (Initial Public Offering) where investors purchase shares in companies.
This type of investment has come at a time when venture capitalists are decentralizing the world for equal access to everyone. During the initial stages of decentralizing finances, crowdfunding was a significant climb in the ladder of democratization. Still, the majority are referring to this venture as an ICO tokenbecause everyone can invest in this venture which acts as a unit of exchange to raise funds to different parties involved.
How do ICOs work?
If you have read the Ethereum smart contract, you will know that it says, (for example) you are investing one bitcoin worth $500. Upon the termination of the crowdsale, you get $500 worth of the token. In other words, compared to the traditional capital venture where certificates were sent to you to sign, the smart contract sends these token to represent the company security.