Crypto Glossary

Posted on September 13, 2021 in
Glossary

Initial Coin Offering (ICO)

To investors, an initial coin offering (ICO) is like an initial public offering (IPO) in the stock market (IPO). An organisation in the process of raising money to support a new project will launch an ICO to help with the funding.

What is Initial Coin Offering?

Initial Coin Offering (ICO)

To investors, an initial coin offering (ICO) is like an initial public offering (IPO) in the stock market (IPO). An organization in the process of raising money to support a new project will launch an ICO to help with the funding. Interested investors can purchase new cryptocurrency tokens created by the firm in an offering. In the instance of this token, it may mean that it can be used in making use of the product or service that the firm is delivering, or it could also represent a share in the company or project.

In most cases, businesses utilize ICOs as a means of raising cash, such as when they want to get in on the ground floor of a hot industry. Investors can trade their cryptocurrency tokens for tokens they originally invested in the firm, using ICO trading platforms. It uses crowdfunding to finance project development by creating and selling digital tokens.

The issuing company’s initiative provides investors access to specific features, as represented by a unique token that works like cash. Open-source software initiatives find it hard to obtain financing under traditional frameworks.

Types of Initial Coin Offerings

Initial coin offers fall into two general categories: 

  1. Private Initial Coin Offering 

Public token offers have a strict cap on the number of investors that may take part in the process. Private ICOs may only be carried out by those who are accredited investors (often financial institutions and high net-worth individuals), and a firm can decide on a minimum investment amount. 

 2. Public Initial Coin Offering

An example of crowdfunding in the public sector is a public initial coin offering. There are no requirements to invest in public offerings, making them an accessible way for the general public to become involved. However, private ICOs are a more feasible alternative, given governmental regulations. 

People are increasingly interested in ICOs due to the rising popularity of cryptocurrencies and blockchain technology. 

How ICOs work?

The primary goal of ICOs is to benefit all parties involved by making use of the decentralized networks of blockchain technology. If you’re planning on doing an ICO, look at the stages below: 

  1. Identifying investment prospects 

The first step in any ICO is the firm’s desire to raise cash. Once the objectives have been identified, the firm develops content around the company or project to interest investors. 

  1. Creating tokens

Tokens will be created in the following phase in the initial coin sale. Token holders are just the owners of assets or utilities that exist on the blockchain. It is tradeable and fungible. Since tokens are merely adaptations of current cryptocurrencies, they should not be confused with cryptocurrencies. While stocks give equity in a firm, tokens typically do not. Most tokens provide their owners a share in a company’s product or service. 

  1. Promotional campaign 

Similarly, most companies undertake a marketing effort to increase the number of investors. Keep in mind that marketing efforts are typically run online in order to have the broadest investor reach. Some major internet sites, like Facebook and Google, do not allow the advertisement of ICOs at this time. 

  1. Launch of the initial offering

After tokens are created, they are made available to investors. In numerous rounds, the offering might be constructed. In this scenario, the firm is able to introduce a new product or service while investors may anticipate gaining from the new product or service or can expect the value of their tokens to increase in the future.

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