What is an Initial Coin Offering (ICO) and how does it work?

Posted by: ico-check.com
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May 16, 2018
ICO how does it work
Cryptocurrencies, the blockchain... and ICOs have received widespread attention lately, and the recent price increase of Bitcoin has dominated the news last Q4 2017 and has focused the public eye on crypto and blockchain in general.

One aspect of cryptocurrency and the blockchain that is set to change the way business fundraising is done is the ICO.

An ICO shares many similarities with an IPO, but first lets recap what an initial public offering (IPO) is. An IPO is the issue or sale of shares of stock issued by a company to the public. This is commonly heard and read in business news. IPOs are often done for the purpose of raising capital and what follows suit is that shares of the company doing an IPO are listed publicly on various exchanges for trade. An initial coin offering or ICO on the other hand is a process by which companies or organizations raise funds (usually in Bitcoin or ETH) for a new cryptocurrency, blockchain project or business. This time Instead of contributors receiving shares, they receive tokens or coins.

These tokens or coins are usually classified as utility tokens if they are to be used as payment for services rendered by the ICO company or as securities tokens if they have some form of dividend, entitle the user some form of financial appreciation or give ownership rights in the company.

The financial barriers for entry into an ICO are lower than that of IPOs, with some ICOs having no minimum purchase amount for participation. This enables virtually anyone to participate if you have the proper technical knowhow. Some of the technical hurdles involve setting up your wallet, funding your wallet, sending your contribution to the contract address and receiving your purchased tokens/coins.

This makes ICOs very popular among the technically inclined, but as the technical barriers for participation continue to drop with advancements such as easy to setup wallets on your mobile phone and easy access to cryptocurrency, more and more people are participating in ICOs.

We are seeing many new ICOs launching every day and during 2017 we’ve seen about $3 billion go into the ICO market with some companies raising as much as $200 million during their ICO.

So how does an ICO work?

An organization wishing to launch an ICO usually selects a blockchain on which to host their token. Etherium is one of the most popular blockchains for ICOs because of its ability to easily host and deploy smart contracts which blockchain enabled companies may wish to use as the framework for its systems.

The ICO initial coin offering is usually done in stages, with private sale for big institutional investors coming first, pre-sale for early adopters and big purchasers of coins/tokens and finally crowdsale for the crowd. Discounts are usually bigger for private sale and presale but this is not a rule since some ICOs nowadays seek to level the playing field between the crowd and institutional investors.

Most ICO tokensales are done thru deploying a smart contract and publishing a contract address to which investors/contributors send funds to. The smart contract then exchanges the received funds and sends back tokens to the contributor’s wallet address.

The cornerstone of an ICO is its whitepaper which details information on the coin/token and the underlying technology and concept. The whitepaper usually fleshes out details on the ICO and contains topics such as the technology used, roadmaps, info on the team, token sale mechanics etc. More often than not, the whitepaper and its contents are usually too long or contain too many advanced concepts for the average person to read and understand. So recently, there has been a trend of providing shorter documents called a one-pager which is basically a distilled version of the whitepaper that has all the important information needed by an investor and can be easily read and understood in a few minutes.

There are numerous benefits and risks of participating in an ICO. The risks can be minimized by doing ICO due dilligence, ICO analysis and ICO reviews.

Our aim is to give you all the data you need to make your own decisions whether to invest in ICOs, as each person has a different investment appetite.

ICO analysis is a very engaging and lengthy topic which we will be covering in future posts, so stay tuned!

The multi-billion-dollar ICO market is showing no signs of slowing down as we experience record-breaking values of cryptocurrencies and companies announcing successful ICOs. We believe 2018 will further solidify ICOs as the cornerstone of cryptocurrency finance. Let ico-check.com guide you to cryptocurrency investment success!