An ICO is a crowdfunding technique employed by new cryptocurrency businesses to raise capital. In an ICO, some portions of the newly created cryptocurrencies are sold to people who are interested in supporting the project. They are sold in exchange for other established cryptocurrencies such as Bitcoin, or can potentially be bought with fiat currency.
ICOs can be defined as a token sale or crowd sale that involves taking an investment amount from investors and providing them with some features related to the project to be released.
ICOs can be useful as any diligent crypto enthusiast needs a litmus test for picking a token to support. However, you should do some research before investing in an ICO, particularly around the new company and their plans, to ensure the company and the ICO are legitimate.
Understanding ICOs – a brief history
ICOs were first performed by companies such as Mastercoin, Ethereum, and Karmacoin. The first ever token sale was conducted by Mastercoin in July 2013. Ethereum conducted one of the most significant ICOs in 2014 by raising a sum total of $18 million. They broke the record at the time for fastest-selling ICO by raising 3,700 Bitcoins, which is comparable to $2.3 million dollars, within the first 12 hours of the project.
In May 2017, there were approximately 20 ICO offerings. For instance, Brave, a new internet browser, carried out an ICO which generated about $35 million in 30 seconds. By the end of August 2017, a total of 89 ICO coin sales worth $1.1 billion had been carried out since the start of the year.
Kik carried out the first mainstream ICO in September 2017. However, the project was interrupted due to suspicious activity via the circulation of a false URL on social media. Ripple then highlighted the potential of ICOs by selling $1 billion worth of XRP tokens to investors in exchange for Bitcoin and fiat.
Today, ICO sales have become progressively popular, with around 50 token sales carried out each month. From the beginning of 2017, the number of ICOs has been growing at an exponential rate, with at least $2 billion worth of token sales effectively carried out. This proves that ICOs are not going to be a flash-in-the-pan technique utilised by new cryptocurrency businesses to raise funds. ICOs are here to stay.
Nowadays, ICO token sales are extremely popular, with a number of new ICOs starting every single day. Projections have been made by cryptocurrency experts that the token sales carried out this year will total over $4 billion.
We already have IPOs, so what’s the need for ICOs?
An Initial Public Offering (IPO) is a procedure similar to ICOs in which investors are given shares in the ownership of a company. This is as opposed to an ICO where the financiers purchase coins of the business that can increase in value if the business does well.
With ICOs, backers buy the new cryptocurrency with an intent to make a profit when it increases in worth. This is similar to individuals earning a profit when the share they purchased on the stock exchange goes up. ICOs are different than buying shares on the stock market though because you do not get a share of the ownership of the company when you invest in new tokens.
How ICOs are carried out
A cryptocurrency company that wishes to raise capital through an ICO needs to provide some information, including a project description, project purpose, investment requirements, portion of tokens that will be kept by the company, the timeframe of the ICO campaign, and the types of virtual currencies accepted by the project. Promoters who are interested can email the seller and request more information on the project before carrying out a deal. If they raise the required amount for the project, they will carry out the plan to complete it. If not, they will return the cash to the promoters.
Until now, the majority of ICO funds have been collected via Bitcoin (BTC) or Ether (ETH). During an ICO, the company provides an Ethereum or Bitcoin address where the funds will be sent and then shows it on the respective web page. The procedure is the same as opening a checking account then showcasing it on a particular web page to individuals so that they can send cash.