What are ICO's?

Growth investors in the legacy financial markets will be familiar with an IPO (Initial Public Offering), where a private company offers stock to the public for the purpose of raising funds to expand. IPO’s are usually issued by young, smaller companies and the process involves underwriters, accountants, lawyers, brokers and regulators (all of whom earn fees).

In the cryptocurrency world, an ICO (Initial Coin Offering) does something similar: it is raising funds for the development of a cryptocurrency venture, but without the demanding regulatory requirements of an IPO. An ICO will sell a percentage of the cryptocurrency (or token) at the heart of its idea to early investors in return for funds (denominated in either fiat or cryptocurrency) but which is usually bitcoin.

What are ICO's

ICO’s are pioneering a new way of raising funds without the costs of intermediaries, providing opportunities for entrepreneurs, the crypto community and growth investors. ICO’s are also one of the reasons explaining cryptocurrency's increasing popularity.

The ICO Process

The ICO process will begin with a white paper, just as an IPO will begin with a prospectus. This articulates the project and concept and why the funds are needed, what problem is being solved, how much is required and other key details such as how long the ICO will last and how much of the token will be kept by the owners. This process is also known as a crowdsale (similar to crowdfunding, but backers of a crowdsale are motivated by the price performance of the token). During the ICO campaign, supporters and investors will purchase the token if they are sold on the concept. If the ICO does not raise minimum funds in enough time, the ICO is deemed unsuccessful and funds are returned. If the ICO is successful, the concept behind the token is initiated at which point token holders will look for an increase in price.

Successful ICO’s will then usually have information on their coin listed on market data sites like CoinMarketCap and become tradable on cryptocurrency exchanges. An early example of a successful ICO was Ethereum which raised $40 million in bitcoin in 2014 at $0.40 per token. Ethereum has since multiplied in value, explaining the subsequent popularity of Initial Coin Offerings.

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