As part of our work on halal investment at IFG we are covering cryptocurrency and blockchain technology in a lot of detail. You can read all of the series of our article on this topic here.
In this article, we give an introduction to what Initial Coin Offerings are and provide a brief overview of its pros and cons.
Initial Coin Offering is a method of financing for companies very similar to an initial public offering.
Companies will usually offer an ICO when they want to raise money for a particular app, service or product. Buying a token will enable the holder to a stake in the company or access to the product or service.
Though ICO’s have less regulatory standards than IPO’s, it is not unheard of for an ICO to be subject to checks. In 2018 the Securities and Exchange Commission intervened in an ICO offered by Telegram.
Companies will display a ‘white paper’ that investors can read before investing. The white paper includes vital information from the company with regards to what the money raised is for, how much is needed, and any other relevant information.
If the amount of funds required has not been successful, then the company will return all investors’ money. Investors are expected to buy in using cryptocurrencies (mainly bitcoin or ether) and so some prior knowledge of cryptocurrencies and wallets is strongly recommended.