Cryptocurrencies have rapidly changed the world we see today. It’s changed the way we view money, and, once upon a time, we couldn’t have imagined digital money being as valuable as it is today. One exciting development that cryptocurrencies have introduced to the global market is an initial coin offering (ICO).
An ICO is undoubtedly a new phenomenon that’s changing the tech world as we speak by transforming how startups raise capital, diverting the focus from initial public offerings (IPO), and seeking funding from other sources such as venture capitalists and crowdfunding.
As of March 2020, around 2,300 ICOs were launched in the cryptocurrency industry. This number is only expected to grow as general awareness goes, and more startups become comfortable with exploring the possibility of an ICO.
So, what exactly is an ICO, and how can a company cash out its ICO proceeds? Read on to find out.
What is an Initial Coin Offering (ICO)?
Fundamentally, an ICO works in the same way an IPO does where, in both cases, a company raises capital. In an ICO, however, the investment attained is in the form of crypto coins, a token or coin in return for the investment. These crypto coins are quite a contrast to securities attained in an IPO investment.
Typically, ICOs are recommended for startups such as those looking to launch a new crypto-related app or service when they want to raise funds. While ICOs bear similarities with stocks, they may also have utility for a product or service offered. Additionally, some ICOs have also managed to generate massive returns for their investors, while others have either failed or have turned out to be frauds.
If you’re interested in an ICO, it’s highly recommended to have a good grasp of digital currencies basics and have a comprehensive understanding of how cryptocurrency exchanges and wallets work. Moreover, ICOs are typically unregulated and, hence, investors should be mindful and perform due diligence from their end while investing and researching in ICOs.
How does it work?
An ICO typically works in multiple ways. While in some cases, the host team will have a functional blockchain that they’ll continue developing in the future, in other cases, if the blockchain isn’t launched, tokens will be issued.
The ICO will be announced in advance with detailed information on how it’ll run. Typically, this announcement will include the timeframe and a hard capacity for the token. It could also include a whitelist that participants would be required to sign up for in advance.
The funds, usually ether or Bitcoin due to their popularity, are then sent to an address. Tokens will be sent automatically to the address the payment was made from, or the buyers will provide a new address.
How can you cash out your ICO proceeds?
Usually, cashing out funds and investing them into your project wouldn’t be an issue. However, cryptocurrency is still relatively new and, hence, treated skeptically. Additionally, there are still problems associated with these currencies not being accepted in daily transactions. While banks are making efforts to normalize this technology, they still have a long way to go due to a general reluctance to embrace cryptocurrencies.
Hence, it wouldn’t come off as a surprise if your preferred bank is reluctant to execute crypto-related transactions even though some countries are more crypto-friendly than others. On the other hand, even if your bank is comfortable with the process, there might be many paperwork and legalities involved.
Multiple factors could create hindrance in the process, such as your bank’s compliance with regulations like Anti Money Laundering since your bank has to verify the legitimacy and verification of the source of your funds.
Additionally, it’s also essential to opt for a crypto-friendly bank account and build a good relationship with it. Otherwise, even the mention of crypto could flag your transactions and put your account at risk of being shut down. To make things easier, you can opt for crypto exchange, although you’ll still have to go through their extensive verification processes, high transaction fees, and long wait times.
If the process is so complicated, how can you possibly cash out your ICO proceeds? The trick is to withdraw your funds in small amounts to ensure you’re not raising any red flags. Here’s what you can do:
- Pay staff members in cryptocurrencies and teach them to cash it out in Fiat.
- Use crypto payment processors, such as SpicePay, to help you skip the bank and process transactions directly from crypto to bank.
- Utilize peer-to-peer changes that help protect you from transaction censorship and provide top-notch security for your funds.
- Apply for a prepaid MasterCard or Visa that allows you to load crypto directly and use the currency to make payments. These can be obtained at many blockchain banking services.
- Exchange the appropriate crypto amount for Fiat in an exchange and withdraw the funds directly to your bank account.
ICOs have become a viable option for businesses looking to raise funds, especially during the initial funding stages. However, it’s still crucial for buyers to perform extensive research and be aware of what they’re investing in.
Additionally, ICOs are still a relatively new concept and, hence, cashing out their funds is still a complicated process. However, as regulations encouraging cryptocurrency transactions are introduced, and more countries embrace the idea of digital currency, ICOs are expected to grow traction, prompting other institutions to ease the way transactions are processed, too.