What Is an Initial Coin Offering (ICO)?
An initial coin offering (ICO) is a method for companies to raise funds by launching a new cryptocurrency. This type of funding does not require the sale of securities or the involvement of venture capitalists, hence making it an attractive alternative for early-stage crypto projects.
Crowdfunding not only creates awareness for a project, but also builds a community of incentivised users, as the investors become the consumers. In the current market, there are two types of ICOs:
- Public ICO — Open to the public and available to any investor who is interested.
- Private ICO — Open only to a select group of investors who generally have larger amounts of capital.
Traders interested in a public ICO can register via the project’s website or a trading platform, where they can either use or trade their tokens once they have acquired them. Additionally, some projects also reward investors with airdrops or non-fungible tokens (NFTs) as a gesture of appreciation.
How Do ICOs Work?
When an organisation decides to conduct an ICO, it first starts with a white paper, which is where all the information about the project is documented. A white paper is the roadmap of the project, explaining how users can utilise the virtual currency and how the project intends to expand.
Typically, this white paper will then be accompanied by a website, social media channels, forums, and online platforms in order for the organisation to build its community. This initial promotion is meant to entice individuals to dive deeper into the project and participate. Some projects opt to have an initial sale, while others may have a whitelisting period or a pre-sale.
One of the most successful ICOs to date is Ethereum. This 2014 project initially minted 50 million Ether coins that traded for around US$0.30 per coin. Today, Ethereum is the second-largest cryptocurrency in the world at the time of writing.