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What is an ICO or Initial Coin Offering?Aug. 6, 2018, 2:15 p.m. GMT
Understanding what is ICO?
An Initial coin offering or ICO is a means of crowdfunding via the use of cryptocurrency. It is typically a source of capital for Blockchain start-ups. Investors, both corporate or individuals can invest money in a company usually by means of cryptocurrencies like Bitcoin and Ethereum as a part of an ICO. In return, they get a percentage of the project or company- specific cryptocurrency being sold in the project. The term ICO is somewhat analogous to 'token sale' or crowdsale, which refers to a method of selling participation in a project. In 2017, ICO industry has raised around 4 billion $.
An ICO typically entails the Blockchain company intending to raise funds for accomplishing a product or a platform. The company typically creates a whitepaper listing out product applications, the technology behind it, the addressable market, governance structure, the team and advisors, amount of money to be raised, tokens and pricing of tokens being given out to the investors etc. In short, the whitepaper is expected to answer all questions with respect to the project that investors potentially may have. These questions will also include how much of the virtual tokens being issued will the core team of the project keep for themselves, what type of money is accepted, and how long the ICO campaign will run for, basically to understand what is ICO about.
During the ICO campaign, investors buy some of the distributed cryptocoins with fiat or virtual currency. These coins, that are referred to as tokens, are similar to but not exactly the same as shares of a company sold to investors in an Initial Public Offering (IPO) transaction. If the money raised does not meet the minimum funds required by the firm, the money is often returned to the backers and the ICO is deemed to be unsuccessful. If the fund requirements are met within the specified timeframe, the money raised is used to work on the new venture.
Running a successful ICO used to be somewhat 'easy' till 3-4 years ago when several companies and projects raised money simply on the dint of their whitepapers. It is critical to understand that most geographies in the world do not yet regulate ICOs. What does that imply? That there were and will be some bad actors. So, cases of companies not achieving much or founders/core team simply siphoning off the money raised were more frequent than one would like. Retail investors are not necessarily prepared to understand and safeguard their ICO investments as a rule.
The bar for successful ICOs is now higher, as a result. A whitepaper, great team, greater advisors, solid social media and PR buzz, as well as a working prototype, is quickly becoming the norm.
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