What is Initial Coin Offering (ICO)?
Cryptocurrencies and digital assets have seen a boom in the previous few years. Anyone who has missed out on buying any of the currencies is now regretting it. If you do not have enough capital to invest in shining coins like Bitcoin and Ethereum, there are still plenty of ways you can enter the blockchain and crypto market. You can even create your token or coin if you have a unique concept that involves the use of blockchain.
If you have a revolutionary idea in mind to digitalize the payment system of any service and move towards its encryption for safer transactions just for instance. You can make a coin in its name and to commercialize your idea and launch your coin, you need money for its development and operation. You can opt for a bank loan, contact an investor or the third option is the ICO through which you can raise the required capital without offering any share of your company.
Initial Coin Offering is a type of capital generating activity in the blockchain environment. It can be resembled with Initial Public Offering but has many considerable differences. Through ICOs, any intermediator is eliminated and the company and investors are directly communicating with their interests in line. In 2017, around $7 Billion in capital money was raised through ICO due to the ever-growing crypto and blockchain technology while in the next year the amount doubled. Telegram is one of those services, which is developed through ICO and is immensely famous among the people.
Working of an ICO:
The whole process of an Initial Coin Offering requires background knowledge of cryptocurrencies, finance, and law. It utilizes a decentralized blockchain system for revenue-generating techniques in-line with the benefits of the investors. The steps involved in an ICO are briefly discussed below:
The Creation of an Idea- The first thing before going for an ICO is a solid Idea that is tempting, revolutionary, and is beneficial in this modern and digital world. Then to move towards capital raising practices, a white paper that mirrors that idea into the real world is necessary. Apart from white paper, a company is established with a core purpose and focus on achieving the idea presented in the white paper. Therefore, relevant materials are produced to carry out marketing and fund-raising campaigns.
Development of the token- The next milestone is to create tokens; these tokens are not like the conventional coins or cryptocurrencies as they are just a modified form of existing cryptocurrencies like Ethereum, Cardano, etc. Tokens represent an asset in the blockchain and must be able to trade and be fungible. Tokens do not promise any equity in the company or business but they represent a minor share of the product being developed by the company. Tokens do not have to be created from scratch as different cryptocurrencies have exceptional blockchain platforms, which do not require developers to write a whole code. Instead, they make minor changes and create a token over their platform as in Ethereum’s smart contract platform.
Marketing and Campaigns- In the current times, everything that has a considerable presence in the online world is valuable. Companies start their marketing online through social media platforms to attract investors. The idea behind the company’s goal and the coin being developed is what attracts the investors as they see it as a big hit or a flop business model. In some cases, platforms like Facebook have restricted the marketing of ICOs.
Initial Offerings to the Investors- When an investor is interested in the company’s idea and is willing to invest some capital money, they are offered some tokens in return for his money. The company then utilizes the money raised to move towards the development and successful launch of the product or service being marketed or advertised. Investors who have been offered ICOs before the launch of the product or service now hope to either use those tokens to avail their service or wait for the product’s value to increase so they can take their cut and make a profit.
Types of ICOs:
The two main types of ICOs currently being used in the finance and crypto industry are as follows:
Private Initial Coin Offering:
In private ICOs, a limited number of individuals, usually accredited businessmen, massive organizations, and top investors can participate and invest in the company. The developers or companies set a minimum target for their required investment from each investor.
Public Initial Coin Offering:
Unlike private ICOs, the public one is not targeted at specific individuals and anyone can participate to invest in it. It’s a type of crowdfunding technique where anyone can invest any amount in the product or service being developed. Private ICOs are highly demanding and are regulated by the authorities therefore preferred by most of the companies.
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