ICO (Initial Coin Offering) is a form of crowdfunding for cryptocurrency and blockchain projects. Participants finance the development of the company now in order to get benefits in the future. The main difference between an IPO and an ICO is that investors in the IPO purchase securities for a fiat currency and in the ICO a project’s security is the internal currency — a token. The main task of the crowdfunding is to attract enough coins for the development of the project. The real value of the token remains uncertain until the project is listed on an exchange.
The majority of projects use Ethereum smart-contracts, and investments are made in ETH, less often in other cryptocurrencies, even less often in fiat money. This kind of crowdfunding appeared recently: the first ICO was held in 2013.
The main value of an ICO is the idea. Fundraising is held to implement the idea/project. The procedure usually has several stages, when you can invest in the project:
• Private Sale. This is the first investment proposal. Terms of the idea implementation, the necessary amount of coins, token emission are announced. To do this, a special site or presentation is published. Often there is a preliminary closed token sale. So, investments for the official launch are collected. At this stage, you can buy tokens with maximum discount and bonuses (sometimes up to 50%) and on more flexible terms.
• Pre-ICO or Pre-Sale — the fundraising before the ICO for its realisation. During the Pre-Sale, the cost of tokens is traditionally lower than at the ICO, but higher than at the Private Sale. Investors receive bonuses and discounts. Many investors consider this stage to be potentially most profitable. They buy tokens at a low cost, and then sell them as soon as the they start trading on exchanges. This is a form of short-term investment.
• Token sale start (CrowdSale) — the main stage of the token sale, the ICO itself. Initially, the startup offers investors to purchase tokens at their platform (website). Later, sales are launched on the publicly available crypto stock exchanges. The release of the ICO startup tokens on the exchange is considered to be a certain proof of the solvency of the project, but it does not guarantee its success in the long term.
