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What is ICO?

What is ICO?

An ICO is a method of corporate finance. The so-called initial coin offerings are comparable in part to an initial issue of securities on a stock exchange. An ICO is a way to acquire tokens for projects in the Blockchain ecosystem via crowdfunding. Supporters or investors are buying the project’s tokens and speculating that later on, they will get a higher value of these tokens, similar to a share on the stock exchange with the prospect of price gains.

With the success of Ethereum, ICO’s are increasingly being used to fund the development of an encryption project by releasing token that is integrated into the project. With this event, the ICO became a tool that could revolutionize not just the currency but the entire financial system.

An important difference to IPOs (initial public offering) on the stock market is that ICOs generally do not reflect ownership of the company through the token. It, therefore, does not entitle to dividends, nor does it automatically confer a voting right.

How do they work?

ICOs are usually advertised in several crypto media forums, mainly in Bitcointalk. The ad topic contains important information about the project, such as a whitepaper, project goals, ICO timelines and project development, staff involved, previous team members’ experience, notable project features, and other ICO details.

Funds are usually collected in Bitcoin or Ethereum, either through a global public address (in which case participants must send Bitcoin from an address for which they control the private key) or by creating accounts for each participant and providing them with an address Exclusive Bitcoin.

The specific dynamics of an ICO may vary. They usually include a few weeks of earning money at least and may even increase depending on demand. Occasionally, some ICOs will limit the maximum amount raised. A small percentage of tokens are usually reserved for rewards, advertising campaigns and even for developers of the currency.

Once ICO is completed and the project is launched, you receive your coins and once an exchange lists you, you can sell, or exchange for other currencies, or simply store them in your wallet.

Origin of ICO

Perhaps the first crypto-tape distributed by an ICO was Ripple. In early 2013, Ripple Labs began developing Ripple’s so-called payment system and created about 100 billion XRP tokens. The company sold these token to fund the development of the Ripple platform.

Later in 2013, Mastercoin promised to create a layer on top of Bitcoin to execute smart contracts and use tokens in Bitcoin transactions. The developer sold one million Mastercoin tokens against Bitcoin and received about $1 million dollars.

Several other crypto-coins were financed with ICO, for example, Lisk, which sold its coins worth about $5 million dollars in early 2016.

The most famous, however, is the Ethereum. In mid-2014 the Ethereum Foundation sold ETH worth 0.0005 Bitcoin each. With this, they received almost $20 million dollars, making it one of the largest crowdfunding and serves as the capital base for the development of Ethereum.

As Ethereum itself unleashed the power of smart contracts, it opened the door for a new generation of ICO.