Explain me like I’m five: What is ICO

Liza Deikun
Apr 11, 2018 · 4 min read

Blockchain-related topics are extremely hot nowadays and ICO is one of those. We decided to launch a series of articles where we will explain in plain language such things as blockchain, cryptocurrency, smart contracts and ICOs.

It can be challenging to explain the cutting edge technologies with simple words but I’ll give it a try as it seems very important to explain something that can completely change someone’s life within the next couple of years: make it easier, smarter, and clearer.

The blockchain symbolizes a shift in power from the centers to the edges of the networks. ” — William Mougayer

Having made the decision to implement Blockchain to our platform — MeetnGreetMe — we feel responsible for all our dear users and MeetnGreeters who are not very into this hi-tech world (the same as all of us just several months ago). So we are launching this series in order to explain it to our users and we are starting it with the most intriguing and promising technology — Blockchain.

We’ve already explained Blockchain, smart contracts, and cryptocurrencies, and now it’s time to speak about what is ICO.

So, what is an ICO?

ICO is the abbreviation of Initial Coin Offering. It is an alternative fundraising mechanism in which blockchain startups issue their own crypto tokens and sell them in exchange for BTC and ETH. And users, in their turn, can either spend digital tokens on the platform or sell them later on exchanges at x3-x100 the price. Tokens are basically like vouchers that you can exchange for goods or services on a certain platform. According to William Mougayar, author of ‘The business blockchain’, a token is “a unit of value that an organization creates to self-govern its business model, and empower its users to interact with its products while facilitating the distribution and sharing of rewards and benefits to all of its stakeholders.”

Essentially ICO is similar to an Initial Public Offering (IPO) in which investors purchase shares of a company. One main difference between an IPO and an ICO is that token holders do not own any equity in the company that they’ve contributed to, therefore the company has no real obligation to the contributor to deliver on their promises.

But why ICO?

ICO is a fundamentally new way of raising capital for a project or startup.It’s a way to raise money for new ventures trying to follow in the footsteps of digital currency pioneers Bitcoin and Ether. An ICO lets startups bypass the venture-capital process by turning to something comparable to a Kickstarter campaign.

ICOs are a relatively new phenomenon but since 2013 it continues to gain momentum. Last year it literally exploded: 2017 has definitely been a record-breaking year for ICOs. A fiat equivalent of funds raised amounted to $4 bln, and the number of successful token placements have increased to a couple of hundreds globally.

Though many consider it to be too shaky a foundation to build a business on, and there are many controversies arising from fraud, theft and volatile speculation (we’ll talk about it in one of our next articles), successful ICOs have shown that it’s possible to develop communities of users willing to try unconventional forms of money. Besides, this alternative form of investment has numerous advantages:

– it gives opportunities to up-and-coming projects

– doesn’t require unnecessary paperwork

– it gives the startup creators opportunity to build a community of the project’s supporters

– it gives creators an extra incentive for innovation

–it gives investors the opportunity to get an early access to potentially valuable tokens.

Summing up, the phenomenon of ICO has become a tool that can revolutionize not just the world of crypto but the whole financial system. It has already given birth to such innovative technologies like Ethereum and has proven its ability to generate initial seed funds for kick-starting start-ups from anywhere in the world. But don’t forget that now there’s a lot of scam in the field of ICO, so do your homework and do your own research about the ICO project before investing.

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