ICO (Initial Coin Offering)
4 min reading
Learn what Initial Coin Offerings (ICO) are and how they operate.
ICO (Initial Coin Offering)
If you are interested in cryptocurrencies and modern investing, you have probably come across such a term as ICO more than once. Quite simply, ICO is the development of proprietary business projects in the cryptocurrency environment with funds provided by investors, philanthropists (depending on the project), and simply interested people.
Understanding ICO and how it works
ICO (Initial Coin Offering) is a rather new investment model that develops simultaneously with cryptocurrencies popularization. An ICO is similar to cryptocurrency crowdfunding, meaning the fundraising for the various projects. Generally, companies or individuals can participate in these investment forms, associated with the blockchain environment and cryptocurrencies. Within an ICO, the equity represents the project’s internal currency – the token. The main goal of cryptocurrency crowdfunding initiators is to sell a maximum number of tokens for their projects’ development. Their actual value remains uncertain until the project enters the exchange. Meanwhile, the investment attraction, design, project development, and reporting process works online.
The buying party, i.e. investors, will be able to use the startup’s tokens in the future to obtain the services or goods stipulated by the ICO. Or even receive dividends or sell tokens, in case the project goes public and the value of the cryptocurrency grows further. The main value of an ICO is a good, high-quality, relevant idea. Collecting investment helps bring that idea to life. In this way, investors can recoup their investment and make a profit.
There are usually several stages in the ICO procedure, for exemple round 1, 2, 3 before launch. Initially, the ICO initiators announce their idea to the public and observe investors’ level of interest in the project. Publicity takes place in electronic media, social media, and conference form. The next stage is an offer of cooperation, i.e. an investment. Although the ICO is free in form, it needs to be anchored in a legal body. Exactly on its behalf, we make an offer: the deadline for implementing the idea, the amount needed for this, and the conditions for issuing tokens become known. Usually, users create a separate website or presentation. Occasionally, there is a pre-public sale of tokens. In this way, it is possible to raise investment, such as for the ICO’s official launch.
Afterward, whenever everything is ready for the ICO launch, there is an advertising campaign for the project, where the product/service details come out, investment terms, objectives, and technical details become available. The next stage is the full launch of token sales. Initially, the startup offers investors to buy the token inside its platform (website). Later, sales run on publicly available cryptocurrency exchanges. When an ICO token of a startup appears on an exchange, there is some proof of the project’s viability. However, this does not always mean it will be successful. Most projects use Ethereum smart contracts, less often other cryptocurrencies, and even more rarely fiat.
The ICO has proven to be an effective source of attracting investment and a good way to invest. Although only a few projects are successful. Therefore, if you want to contribute to an ICO, evaluate the project in which you plan to invest money.