An initial coin offering (ICO) is a method used by developers of cryptocurrencies and other blockchain products to finance the development of their product. During an ICO, a company or initiative sells blockchain tokens for fiat money (Swiss francs, U.S. dollars, euros) or for a widely accepted cryptocurrency like bitcoin which can easily be sold for fiat money.
The money raised through the sale is used to finance a project or product. If the project is successful, demand for the token may increase. If demand outweighs supply, the tokens may increase in value. Investors can then sell their tokens on the secondary market at a profit. If the project fails, the tokens may become worthless.
In this way, purchasing blockchain tokens as a way of investing in a venture is much like buying stock in a company. The main difference is that holding tokens does not give you a share of ownership in a company. You simply own digital tokens which may increase in value if the product is widely adopted.
Companies wishing to make an initial coin offering do not have to meet the legislative and financial requirements necessary for an initial public offering (IPO) and subsequent listing on a stock exchange. For this reason, investments in blockchain tokens bear a much higher level of risk than investments in exchange-listed stocks.
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