What is an ICO?
An Initial Coin Offering (ICO) is a Blockchain innovation, in which the initial capital is raised using the possibilities opened by cryptocurrencies. Businesses that start afresh or are a few years into existence can build a digital coin (or token or Cryptocurrency) and offer this coin for sale in an ICO. The coins are listed in cryptocurrency exchanges. The token thus offered can represent the value associated with a project or business opportunity under consideration.
There are two observed ways in which ICOs can happen. In the first category, an ICO involves allocating equity to a token. This method gives the investor voting privileges and access to dividends of the business. An example for this is the fund raising effort of ‘the ‘DAO’. This use case is the most similar to that of an Initial Public Offering (IPO).
However, a majority of use cases fall into the second category. In this case, the initial capital to start a business is raised through an ICO. In return to the investment, investors get tokens that grant access to certain features of the business project under consideration. The token holder can use the tokens to pay for goods and services from the business that offer ICO, rather than using fiat currency. Though investors do not get equity shares or voting rights in the business, value of the tokens they hold increases with an increase in value of the business.
A bit of history
The first ICO was held by Mastercoin in July 2013. Ethereum raised money with a token sale in 2014 raising 3,700 BTC in its first 12 hours, equal to approximately $2.3 million at the time. Karmacoin held an ICO in April 2014 for its Karmashares project. ICOs and token sales became popular by 2017.
Read more about the history of ICO here.
Difference with IPO
An ICO is similar in concept to an initial public offering (IPO). Both are processes in which companies raise capital. An ICO is an investment that gives the investor a Cryptocoin in return for investment, whereas an IPO involves selling of shares or equity to the public. Thus ICO provides businesses an option to raise initial capital without giving away any equity. ICO also helps Startups and companies to raise capital without any help from VCs. This is important because the process is similar to crowdfunding, and is able to raise more money than from Venture Capitalists. Also, technology ownership is safe with the founders.
Processes involved in an ICO
The Cryptocurrency project starts with a pre-announcement of the project details. Pre-announcement is followed by publishing a white paper that describes every detail about the project that includes the business model, usage of token within the project, the team behind it, advisory board, partners & suppliers, eligibility criteria, and the terms of participation in ICO. Platforms such as Reddit or Bitcoin Talk are usually used for pre-announcement.
The offeror of the ICO offers a contract, describing the terms of transaction, lifecycle of the project, target investment amount and project deadlines. The offeror also defines terms of usage of the token and the privileges guaranteed to an investor. ICO has a start and end date during which the coin will be open for sale. This period is also mentioned in the offer.
Marketing / PR Campaign
Marketing & PR campaigns play an important role in conducting a successful ICO. The main objective of these campaigns is to communicate the value proposition of the ICO offer to various potential customers.
Actual sale of cryptocurrencies or tokens starts after the marketing phase. Businesses list the tokens on currency exchanges and the sale will be open for a fixed period of time. The tokens offered in ICO could be purchased using other cryptocurrencies, Bitcoin or Ethereum, or in some cases, fiat currencies are accepted as well.
Future of ICO
Coin offerings are seen as a way of providing funding to build open-source projects that would not have otherwise received support. Experts in the industry even think this will lead to a new generation of open source internet protocols which could eventually loosen the control of big tech companies such as Google and Facebook.
How Technology provides support
Technology has many roles to play in the ICO business, such as developing the cryptocurrency, building Blockchain-based applications, ICO advisory, and Blockchain Consulting Services. Experion has experience in developing Blockchain based web and mobile applications. Our team is skilled in developing Blockchain based web and mobile applications for managing user wallets and role based user accounts along with an admin panel for performing various tasks and generating reports.
If you would like to know more about ICO and Blockchain related services, please reach out to us at email@example.com