As we have already reported, Initial Coin Offerings, generally abbreviated as ICOs, are a fundraising method using crowdfunding. In cryptocurrency communities, a distributed network of investors – based in different locations around the world – can invest in new blockchain projects and buy tokenized assets with either fiat currency, bitcoin or ether. ICOs are similar to the concept of Initial Public Offerings (IPOs) on the stock exchange, where investors can buy shares in a company; With ICOs, investors buy the project’s tokens (which act like stocks) and pay in a cryptocurrency, such as B. Bitcoin. ICOs are a means for blockchain startups and other projects to quickly amass funding and (potentially) penetrate a global market with a specific idea, product or project.

So what is a “reverse” ICO?

Reverse ICOs ”, as they are now known, use the process of an Initial Coin Offering to tokenize or decentralize their business, to collect additional investments or to start a blockchain-based branch of their traditional business. Put simply, while a “traditional” ICO aims to quickly raise funding to start or launch a blockchain business or project, a “reverse” ICO sees an established firm raising funds to its pool of investors to decentralize or open.

What are the benefits of reverse ICOs?

Because many large companies either have a track record, are regulated by regional authorities, or have already gone public (IPO), it is believed that reverse ICOs are more easily valued and can function with greater legal and tax transparency and trustworthiness. While small and medium-sized businesses can attract venture capital and rounds of funding, the vast majority of the time, large companies have to resort to an IPO to get bulk funding from a wide variety of investors. While this process is beneficial and can give certain companies more prestige, the associated process is highly regulated and is usually only open to accredited investors. Through a reverse ICO, companies are able to distribute tokenized assets or utilities to raise funds or functions for a variety of global investors without – for the most part – going through a tedious legal process or complying with foreign regulations.

What are reverse ICOs for?

In some cases, established firms have carried out a “reverse ICO” in order to establish their own economy in their product. A notable example is the messaging app Kik, which successfully ran an ICO and launched its own cryptocurrency – Kin – for use within its app to facilitate payments and purchases. In other cases, reverse ICOs have enabled companies to distribute and decentralize their operations or property over a blockchain without going through the normal processes involved in conducting an IPO. Many cryptocurrency exchanges – in an effort to decentralize their operations – have turned to an ICO to create their own cryptocurrency value, conduct their operations over a blockchain, or attract new investments. While in practice it remains to be seen, it is believed that many companies may show an interest in running reverse ICOs in the future to launch new products or attract crowdfunding investments.

What is a Reverse ICO? first appeared on Coin Insider.