It’s hard to escape this new era of investment and finance. What is now known as fintech, financial technology is sprouting up left and right. There has been a recent shift in those looking to manage their finances that has drawn people to using technology to help them with the task. Fintech startup companies directly help with traditional banking and financial institutions. In several countries around the globe, fintech companies are slowly taking over, providing services and products that were once found only through financial institutions.
One fintech development you may have heard of, and even may be sick of hearing about, is Bitcoin. Bitcoin is a cryptocurrency that was developed in 2008, using blockchain technology. Since its creation, the way we operate our finances may have changed for good.
Cryptocurrency is digital money that uses cryptography for security. Cryptography is writing and solving puzzles. With the cryptography step, it is difficult to counterfeit. The currency does not have a central authority and can be used for a variety of things such as buying goods and investing.
The history of cryptocurrency begins with Bitcoin in 2008 and, as of 2015, there were 14.6 million bitcoins in circulation. Since its launch, cryptocurrency has found its way into many aspects of our everyday lives that we may not even be aware of. There are now several different kinds of cryptocurrencies. Cryptocurrency has the ability to make transferring funds easier between two parties. The transactions don’t cost much and allow users to avoid high fees experienced when using most banks and wire transfers.
Today, new cryptocurrencies are popping up all the time, each specialized with their own blockchain and purpose. Those don’t just come out of nowhere. Nobody just wakes up and creates a currency with a value out of thin air. Like other kinds of startups, cryptocurrencies need to be funded by other interested people to get the project up and running. This is where ICOs come in.
Initial Coin Offering, or ICO, is like an IPO for cryptocurrency. When a new digital currency is developed, money is needed to fund it. Those who invest are hoping the currency will gain a lot of traction and raise the price of the coin. Unlike IPOs, investing in an ICO cannot gain you ownership stake of the company.
When a new cryptocurrency appears, the startup company uses ICOs to raise money and create a whitepaper that explains how the currency will work. The document will tell potential investors how much money will be needed and all other details that investors will need to know. With this paper, a potential investor will have all the information they need to make a decision on whether or not they’ll choose to invest, such as how long the project will take to launch, what kind of money is accepted, and how much of the tokens the startup members will keep for themselves.
During the ICO phase of a cryptocurrency’s life, interested investors buy some of the coins with virtual currency. The coins are known as tokens and act similarly to shares of a company when they are sold during the Initial Public Offering (IPO) step.
In the event the startup does not receive the amount of money they needed to fund the project, the money is returned to the investors and the ICO is not successful. If, however, the money is raised, the capital is used to complete the project.
Investors who are interested in making money through ICOs are usually hoping the project will become a success, making the cryptocoin value rise higher than what they initially paid.
While ICOs operate like IPOs, they are quite different. An ICO is more closely related to crowdfunding. An IPO deals with investors and the investors of an ICO are more like supporters that are likely to get involved with crowdfunding, donating money to see projects they are interested in or may benefit from. ICOs fall away from crowdfunding, however, because the supporters have the potential to gain returns if the project is successful.
There are many benefits to investing in an ICO. For one, if the project is unsuccessful, there is no harm because the money is returned to you. If the project is a hit, there is a chance it could take off and you could make some money. ICO transactions are predicted to make a big splash in the financial world as it steps into a digital era.
Investors are being warned, however, to be careful when investing in ICOs. Fund-raising projects are not regulated and many investors are finding they’ve supported a project that turned out to be fraudulent. The funds lost to a fraud campaign may be impossible to recover.
The popularity of cryptocurrency has brought upon a new wave of technology that has escaped the bounds of virtual money: blockchain. Blockchain technology is being used everywhere from banking to human resources. Many major companies are finding that blockchain is a faster, more secure way of completing tasks we’ve been doing for years.
The shift we are seeing is that of a digital age. Tech-savvy individuals are seeking easy access, convenience, efficiency, and speed in every part of their lives, including their finances. Having the ability to make transactions from the convenience of a phone or other electronic platform is what is creating this strong push towards Fintech.
To help you grasp the idea, we’ve laid out the basics of cryptocurrencies, including what they are, where they came from, and what to do with them. The world of cryptocurrency is new. Don’t be left behind!
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