Bitcoin, ICOs, and IPOs
Both financial terms initial coin offerings (ICOs) and initial public offerings (IPOs) carry a slightly negative connotation in the world of bitcoin crowdfunding, because multiple false promises and scam projects have been associated with ICO and IPO promises.
- ICO: Potential investors are given the chance to purchase a part of the altcoin’s total supply before the mining process begins. Most investors do so in the hopes of seeing the price per coin increase in the near future.
- IPO: An IPO takes place when a bitcoin or altcoin company or project hopes to raise additional funds for its operations. Investors receive a share in said company and earn interest, paid out in recurring dividends.
Both ICOs and IPOs are being used for legitimate purposes as well. For example, whenever you’re planning to create a new use case for blockchain technology which uses its own token (another word for coin), you are effectively holding an ICO. Per certain amount invested, the user will receive X amount of tokens in return to use on the new platform once it has been launched.
You are effectively offering your backers a tangible reward, even though it may not come in a physical form. Whether these digital tokens will gain value over time completely depends on the success of your project. But you are also incentivizing backers to spread the word about your crowdfunding campaign, which will go a long way in terms of developing a successful platform.
You don’t have to hand out digital tokens for people who want to back your project. However, investors — both small and large — like nothing more than some sort of return on investment, preferably sooner rather than later. Using an ICO/IPO may help you in that regard, entirely depending on the magnitude of your project and what it entails exactly.
You’re putting additional stress on yourself whenever you’re creating — or investing in — a project that involves an ICO or IPO. As an investor, you will need to keep track of the progress and make sure you’re given the coins you have paid for. And as a developer or project creator, you have responsibilities to live up to, including the distribution of these digital assets to the right people.
Creating a crowdfunding campaign with an IPO/ICO generates both excitement and expectations at the same time. Although people will see the value of your project, they are also speculating that the digital asset price will increase once your project goes live. And if there is one thing that can be said for people who trust you with their money, it’s that they’re not always the most patient bunch.