Definition Of Initial Coin Offering

Initial coin offering, commonly known as ICO, is the mechanism used to raise funds for

financing cryptocurrency-related ventures and it is mostly used by startups as a way of evading the regulated capital-raising mechanisms used by banks or venture capitalists. For example, the Ethereum cryptocurrency project has already raised a lot of money in ICO. This investment model is closely related to Initial Public Offering (IPO) whereby interested investors purchase

shares of a certain company. In ICO, the resulting coins are called tokens and they can be equated with the shares of a company that are sold to the investors. ICO has dominated the blockchain community, and many view ICO projects as securities that are unregulated. This can enable the founders to raise the capital required to undertake a certain crypto venture. To make it simple, crowdsourcing eliminates the hustle that is very common in the capital venture process.

In every ICO campaign, a given cryptocurrency percentage is sold to the initial funders of the

project as an exchange for a legal tender or another cryptocurrency like Bitcoin.

Every cryptocurrency startup must create an elaborate plan in its white paper explaining what the project is about, the problems that the project will solve after its completion, the amount of money needed to fund the venture, and the percentage of the coin that the pioneers will keep for themselves if the project succeeds. However, if the venture fails, the funds are returned to the financers and the ICO is said to have been unsuccessful. If the funds are enough, the project is initiated or the funds can be used to complete the project.

Generally, ICOs can be easily structured with the aid of technologies like ERC20 Token

Standards, which ease the process of developing any cryptographic assets. Investors contribute to the ICO development by sending their funds in the form of Ether or Bitcoin to a set smart contract that can store their funds and, later, distribute the equivalent value of the new token.

Anyone can participate in an ICO because this venture has few restrictions, if any, assuming the fact that the token is not a security. Compared to the global pool that many investors find themselves in, with ICOs one can easily raise astronomical profits if things go well. However, there is a large margin of risk because they are extremely speculative since most of them raise pre-product money.