Initial Coin Offerings in Simple Terms

Belecy Institute
Aug 18 · 3 min read

Since the astronomical success of bitcoin, the crypto world has evolved to the point where companies and projects hold Initial Coin Offerings (ICOs) to run an idea or a business concept for a share in returns for invested funds. From the first reported ICO which was conducted by Mastercoin in 2013, which rose close to around 5,000 bitcoins, valued around $500,000 at the time, with that brought the seas of ICOs with countless being launched every day. Some have stood significantly out, for example In 2017 Tezos ICO raised close $230 million. Funds raised in 2017 amounted to over $6 billion from over 875 ICOS and over $7billion from over 1253 ICOs in 2018.

So what essentially is an initial coin offering (ICO)? An initial coin offering (ICO) or initial currency offering is a type of funding using cryptocurrencies as medium of worth. Well for traditional companies and organizations from Wall Street to the far corners of the earth, the need to raise funds to expand operations is imminent. Sometimes, these companies welcome investors or venture capitalist for needed cash with an agreement of giving a certain percentage of their companies to these investors. Many at times, these companies and organizations go public, crowdfunding from individual investors by selling unit of shares through an Initial Public Offering, anyone can buy the shares of the company. Initially, these shares are bought at a cheap price and if the company becomes successful after the IPO, then the price of the bought shares increase in value and sometimes in astronomical values which can make the person who bought the shares to be very rich. This same concept of initial public offering relates quite similarly to initial coin offering for the crypto space.

When a cryptocurrency startup firm wants to raise money through an Initial Coin Offering (ICO), it usually creates a plan on a whitepaper which explains in details what the project is about, with breakdown of what funds are needed. In an ICO, the block-chain oriented projects let you put money in the project through the purchase of pre-sale tokens (like shares of an IPO) of the emerging cryptocurrency. Typically, ICOs happen at the start of the project and the funds gotten are used for funding the launch and development costs outlined in the whitepaper of the project. During the ICO campaign, enthusiasts and backers of the firm’s project buy some of the distributed virtual tokens with fiat money or other crypto currency like bitcoins. For legitimate ICOs, if the fund raised does not meet the projected budget by the firm, the money is returned to the investors and the ICO is ruled to be unsuccessful. A good example of ICO is the popular Ethereum, which is a cryptocurrency project. In its ICO, it raised around $18 million and rose to a $1bn market cap by the end of 2016

But are ICOs safe and straightforward as outlined in this article? Stay tuned for our next article which closely examines initial coin offerings and what to watch out for in determining legitimacy of ICOs.

Belecy Institute

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