ICO - Initial Coin Offering
What is ICO?
Initial Coin offering (ICO) is a fund raising campaign by startups. 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.
It is also called as Initial Public Coin Offering (IPCO)
Deeper to the ICO!
In a cryptocurrency startup firm, if they would want to raise money through an ICO, it usually creates a plan on a whitepaper which states what the project is about, what need the project will fulfill upon completion, how much money is needed to undertake the venture, how much of the virtual tokens the pioneers of the project will keep for themselves, what type of money is accepted, and how long the ICO campaign will run for. These coins are similar to shares of a company sold to investors in an Initial Public Offering (IPO) transaction. If the money raised does not meet the minimum funds required by the firm, the money is returned to the backers and the ICO is deemed to be unsuccessful.
Early investors in the operation are motivated to buy the cryptocoins in hope that the plan becomes successful after it launches which could translate to a higher cryptocoin value than what they purchased it for before the project was initiated. An example of successful ICO project that was profitable to early investors is the smart contracts platform called Ethereum which has Ethers as its coin tokens. In 2014, the Ethereum project was announced and its ICO raised $180 million in Bitcoin or $0.40 per Ether. The project went live in 2015 and in 2016 had an ether value that went up as high as $14 with a market capitalization of over $1 billion.
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, IPOs deal with investors, ICOs deal with supporters that are keen to invest in a new project much like a crowdfunding event. ICOs is 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.
The risk of ICO:
ICO funds are usually received in Bitcoins(BTC) or Ether(ETH). The projects creates a Bircoin or Ethereum address for receiving funds and displays it on a web page. This is like opening a bank account, and displaying it on a web page for people to send money to.
Investors send BTC or ETH to the published address, in return for the new tokens. The project uses the BTC or ETH to pay staff or sell the cryptocurrency for fiat currency on a cryptocurrency exchange to fund the project.
So what is the new ICO token?
The token issued by the project to investors are generally created and tracked in one of two ways:
- As the intrinsic token of an entirely new blockchain (for example Ethereum was funded by exchanging wallets funded with ETH tokens in exchange for BTC from investors)
- or as a token on top of an existing blockchain
1. as a colored coin on Bitcoin's blockchain
2. a token held in a smart contract on Ethereum's blockchain
Initial Coin offering (ICO) is a fund raising campaign by startups. 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.
It is also called as Initial Public Coin Offering (IPCO)
Deeper to the ICO!
In a cryptocurrency startup firm, if they would want to raise money through an ICO, it usually creates a plan on a whitepaper which states what the project is about, what need the project will fulfill upon completion, how much money is needed to undertake the venture, how much of the virtual tokens the pioneers of the project will keep for themselves, what type of money is accepted, and how long the ICO campaign will run for. These coins are similar to shares of a company sold to investors in an Initial Public Offering (IPO) transaction. If the money raised does not meet the minimum funds required by the firm, the money is returned to the backers and the ICO is deemed to be unsuccessful.
Early investors in the operation are motivated to buy the cryptocoins in hope that the plan becomes successful after it launches which could translate to a higher cryptocoin value than what they purchased it for before the project was initiated. An example of successful ICO project that was profitable to early investors is the smart contracts platform called Ethereum which has Ethers as its coin tokens. In 2014, the Ethereum project was announced and its ICO raised $180 million in Bitcoin or $0.40 per Ether. The project went live in 2015 and in 2016 had an ether value that went up as high as $14 with a market capitalization of over $1 billion.
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, IPOs deal with investors, ICOs deal with supporters that are keen to invest in a new project much like a crowdfunding event. ICOs is 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.
The risk of ICO:
ICO funds are usually received in Bitcoins(BTC) or Ether(ETH). The projects creates a Bircoin or Ethereum address for receiving funds and displays it on a web page. This is like opening a bank account, and displaying it on a web page for people to send money to.
Investors send BTC or ETH to the published address, in return for the new tokens. The project uses the BTC or ETH to pay staff or sell the cryptocurrency for fiat currency on a cryptocurrency exchange to fund the project.
So what is the new ICO token?
The token issued by the project to investors are generally created and tracked in one of two ways:
- As the intrinsic token of an entirely new blockchain (for example Ethereum was funded by exchanging wallets funded with ETH tokens in exchange for BTC from investors)
- or as a token on top of an existing blockchain
1. as a colored coin on Bitcoin's blockchain
2. a token held in a smart contract on Ethereum's blockchain
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