What is ICO (Initial Coin Offerings)?
An initial coin offering (ICO) is a means of crowdfunding centered around cryptocurrency, which can be a source of capital for startup companies.
In an ICO, some quantity of the crowdfunded cryptocurrency is preallocated to investors in the form of “tokens,” in exchange for legal tender or other cryptocurrencies such as Bitcoin or Ethereum. These tokens become functional units of currency if or when the ICO’s funding goal is met and the project launches.
Today we are hearing a lot about ICO but only a few of us have a concrete knowledge about this concept. So let’s know the details about this new idea based on Blockchain technology which is being talked about in our surroundings. Once you go through this article, you will have a crystal clear idea about the concept of ICO and you can easily make your peer and family members aware of it.
The concept evolves a group of people who fund the companies which embrace cryptocurrencies in place of traditional money. The whole act of the groups funding the companies is defined as token sales.
Digitalized tokens are distributed to the investors bartered against the investment of the cryptocurrencies by the ICOs at the time of token sales. These tokens depict partial possession in the enterprise; the fixed percentage of profit generated by the company or gets entrusted to avail certain services of the company.
Once this process is over, the IOC coins or tokens can be availed by the investors. It is witnessed that numerous traders have become the millionaire in a night as these token possess huge values.
More than $1.5 billion dollars in the principal amount have been lifted by ICOs in 2016 and 2017 only.
Even the blockchain of famous cryptocurrency “Ethereum” is funded by a group of people who use the model of ICO. This executed for around four weeks and elevated $18 million which made Ethereum the second well-known cryptocurrency. Some of the others which incorporate in this list are Counterplay, Colored and Mastercoin.
According to Fred Wilson who is an enterprise capitalist and also an investor in the famous social media portal, Facebook and Twitter confirm that ICOs is the legal troublesome risk phenomenon.
History of Fundraising and ICO
Bank loans, private funds, Kickstarter and enterprise capital were certain ways through which tech enterprises and small entities used to elevate funds before the inception of the concept of cryptocurrencies.
Initially, there were only a few opportunities where you could invest and rather you had to be analytically sound about the sectors which are profitable to be invested. But with the invasion and development of cryptocurrencies, this concept has changed totally.
Presently new tech enterprises stick to the blockchain to grab investors who can invest as much as they can in the marketed company.
How does ICO Work
Mostly, the identical process is followed by all the ICOs to initiate token sales. The following are the benchmark steps:-
- A group of people forms a team which proposes a practical blockchain proposal. To turn this proposal into reality they have to get funded through ICOs.
- This proposal has a white paper or command sheet which depicts the enterprise mode, technical blueprint, and a guideline report to generate money.
- There is always a set of rules which is often termed as a “proof of the concept”. But sometimes, these set of rules are absent.
- There are huge advertisement campaigns through the social media portals, Google advertisement, reviews and blogging through videos by the group of investors. Through these campaigns intricate people about the budding ICOs.
- Through these campaigns, the proposal informs the guidelines of the budding token sale to the audience:-
- Total number of coins or token accessible for circulation
- The value of every token.
- The benefit of each token.
- The estimation of the proposal to be raised
- At the time of the sale of the ICO token, the coins are circulated to the traders who participated in the auction.
- After this, there is the availability of the tokens for selling through the exchange process.
Please note that the sale of ICO tokens are always regulated through cryptocurrency blockchains.
How does ICOs work on the Blockchains
ICO initially started to be operated through the blockchain of bitcoin. At that period of time Bitcoin was optimal as it was the sole blockchain which had a huge amount of dollars in the form of cryptocurrency as the capital fund.
Today the blockchain of Ethereum is mostly preferred by the investors for ICOs. It has become favorable because of its brilliant contact attributes and a special token benchmark known as the ERC-20.
Presently around 95% of total amount of ICOs are carried through the blockchain of Ethereum.
The following is the process how ICO worked on the blockchain of bitcoin:-
- A group of people would assemble and declare a project with the amount which they want to raise.
- The promising investors are provided desired time to configure the ICO.
- The projects declare a stipulated number of token which shall be available for a fixed price which shall be invested in the Bitcoins.
- An address is announced where the participants or investors can send Bitcoin.
- Finally the investors are given the token according to their investment in the Bitcoin once the ICO process is completed.