With the ever-increasing use of virtual currency and its volatility, cryptocurrencies are being adopted across the world for various transactions. Cryptocurrency derivatives trading is a new trading area that many daytime traders are interested in. Several people hold some experience and knowledge of what is an ICO and the function of ICOs. For those who do not, we will give you the basics introduction of this, so you may have a deeper understanding of it.
What is an ICO Actually?
The ICO is an allusion to the established term IPO. There are in fact a number of similarities between these fund-raising procedures. Both aim to collect money from investors who are prepared to take risks. An important difference is as follow: ICOs are mainly the domain of inexperienced retail investors.
In addition to this, contrary to stock exchange listings, ICOs are neither precisely defined, nor are they regulated. Lastly, only very few ICOs actually involve the sale of stakes in a company in the form of shares, but rather so-called tokens, the exact purpose of which can vary widely. It seems to make more sense to regard ICOs as a new form of crowd-funding rather than confusing them with traditional stock market listings.
What is the Function of ICOs?
Often the people offering ICOs specifically stress that the process should be defined as a “token sale”, a “donation”, or a “crowd sale”. This is designed to prevent future problems with regulators. A number of the latter, such as the SEC in the US, have already signaled that they plan to examine ICOs closely in the near future. Should the sale of ICOs be equated to the sale of securities, the same laws and tax rules that apply to the stock market could be applied to them as well. Currently, no binding rules exist. Many ICOs already exclude U.S.-based investors though in order to forestall potential future legal problems.
ICOs are open to the general public. Therefore, anyone in the cryptocurrency industry can take part in, if they can get funds transferred on time. This means the projects can raise funds from investors all over the world in a completely decentralized manner.
Moreover, the concept of a cryptocurrency ICO means that people can help shape the future of the entire ecosystem. There is a wide range of different projects and new ideas raising funds through ICOs, which raise a lot of money doing so.
However, with ICOs, investors are often buying coins or tokens for a project that does not even fully exist yet. In most cases, the team will have some degree of code to show what the project will look like. However, there is no guarantee of projects ever being completed, or even being embraced by mainstream users if they are a risk investor.
This is a risk investor should consider, as it may take years until there is an actual market for the project in question, or even for a project with a potential market to go mainstream (which isn’t guaranteed to happen)… and that’s if it ever gets off the ground, to begin with. Backers have a financial stake in the process, but ICOs are not regulated or registered. This means that users will not be reimbursed if something were to go wrong.
Although there are successful ICO transactions on record and ICOs are poised to be disrptive innovative tools in the digital era, investors are cautioned to be wary as some ICO or crowdsale campaigns are actually fraudulent. In addition to those which simply aren’t prepared to create a functioning company, product, or service, and get it out to their market, which is also in addition to those which just don’t have a good market, to begin with. Because these fund-raising operatives are not regulated by financial authorities such as the Securitie Exchange Commission, funds that are lost due to fraudulent initiatives or unprepared/inexperienced teams may never be recovered.
Thanks for your time, after reading this article, you may have a deeper understanding of what is an ICO and what is the function of ICO. It was an honor to share the experience of cryptocurrency derivatives trading with you. For more information, please follow all of our newest articles on Bybit.
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