What is Initial Coin Offering (ICO) – Meaning, Definition – Work and Invest Process 2018
An Initial Coin Offering (ICO) is a fundraising mechanism in which someone offers investors some units of a new cryptocurrency or crypto-token in exchange against cryptocurrencies like Bitcoin or Ethereum. An ICO is used by startups to bypass the rigorous and regulated capital-raising process required by venture capitalists or banks.
In an ICO campaign, a percentage of the cryptocurrency is sold to early backers of the project in exchange for legal tender or other cryptocurrencies, but usually for Bitcoin.
The first cryptocurrency distributed by an ICO was ‘Ripple’. In early 2013, Ripple Labs started to develop the ‘Ripple’ called payment system and created around 100 billion XRP token. The company sold these token to fund the development of the Ripple platform.
Several other cryptocurrencies have been funded with ICO, for example, Lisk, which sold its coins for around $5mio in early 2016. Most prominent however is Ethereum. In mid-2014 the Ethereum Foundation sold ETH against 0.0005 Bitcoin each.
With this, they receive nearly $20mio, which has become one of the largest crowd funding ever and serves as the capital base for the development of Ethereum. With the success of Ethereum, ICO are more and more used to fund the development of a crypto project by releasing token which is somehow integrated into the project. With this turn, ICO has become a tool that could revolutionize not just currency but the whole financial system. ICO token could become the securities and shares of tomorrow.
Difference Between ICO, IPO And Crowdfunding
ICOs are easy to structure because of technologies like the ERC20 Token Standard, which abstracts a lot of the development process necessary to create a new cryptographic asset. ICOs are similar to IPOs and crowdfunding. Like IPOs, a stake of the startup or company is sold to raise money for the entity’s operations during an ICO operation. However, while IPOs deal with investors, ICOs deal with supporters that are keen to invest in a new project much like a crowdfunding event. But ICOs differ from crowdfunding in that the backers of the former are motivated by a prospective return in their investments, while the funds raised in the latter campaign are basically donations. For these reasons, ICOs are referred to as crowdsales.
How ICO works and How to invest in ICO
An ICO typically involves selling a new digital cryptocurrency or a token to raise funds for a project by the company or a group of people pursuing that project.
ICO typically is has the following inclusions for explaining the concept to the investors:
1. A website containing all the information about the project like project purpose, founders and their background, token structure in various fund raising stages of ICO like the PRE-ICO stage and ICO stage, Discounts offered to early investors.
2. A video explaining the concept and how it will bring benefits to the community accessing this platform or any disruption in an industry by using blockchain or Artificial intelligence or any other latest technology.
3. A whitepaper explaining the business model in detail (generally containing 20-25 pages).
Once the concept is designed and is ready for investors to view, this is then marketed on a rigorous basis using digital marketing platforms.
ICO remains open to everyone to invest and anyone can invest in it. Whenever the company launches a project, it can be bought token for very low prices. If this project succeeds, then the value of it gets enormous. And then you get a great advantage by selling them.
Disclaimer: Please note that, this article is only for the information purpose only and not a trading and investment advice. Do your own research and take expert’s advice before trading and investing. Find out if trading is legal in your jurisdiction. Trading in cryptocurrency carries a high level of risk, and may not be suitable for all investors. Therefore trade and invest at your own risk. We will not be responsible for the any risk involved in it.