What is Initial Coin Offering? (ICO)

Initial coin offering (also known as initial currency offering) is a type of funding that involves the use of cryptocurrencies. It functions like regular crowdfunding except that it is possible to have a private ICO. They are usually conducted when a company wants to launch a new coin or dApp into the market.

Understanding ICOs

An Initial Coin Offering (ICO) is used by the cryptocurrency industry to raise funds for a new coin, app, or project. It is the equivalent to Initial Public Offerings (IPO). Investors who seek to invest in an ICO can put their money into the offering in exchange for the new cryptocurrency token or coins offered by the company. The token represents a stake in the project being funded.

Basically, in an ICO, offerings are made using cryptocurrencies which would be sold as tokens or coins to investors. In exchange, the token sellers would receive any form of legal tender, specifically Bitcoin or Ethereum.

Through ICOs a lot of companies have been able to raise hundreds of millions of dollars to run their projects. There are no formalities in holding ICOs as all that’s simply needed is to submit a whitepaper that is worthy of an ICO to qualify.

ICOs hold a number of benefits such as;

• providing a means whereby dApp developers can raise funds to execute projects

• anyone can invest in a dApp project by simply purchasing a particular amount of tokens in an ICO

How it all started

In 2013, Ripple Labs created a payment system and created nearly a hundred billion XRP token. The company later sold these token to fund its development project. Later that year, another company, Mastercoin created a layer on top of Bitcoin in order to “tokenize” Bitcoin transactions and execute smart contracts. Over a million Mastercoin token were sold against Bitcoin. Ever since then, many companies that create cryptocurrencies token have stepped up.

In mid-2014, the Ethereum Foundation sold ETH coins against 0.0005 Bitcoin per coin. It made a total of $20mio. While in 2016, Lisk sold its token in an ICO for almost $5mio. The Ethereum Foundation ICO became the largest crowdfunding in the history of ICOs and paved the way for new generation ICOs.

ICOs first came to public knowledge in 2014 as many investors began to see its potentials. By the end of the year, $18.4 million was raised on the ICO Ethereum. Prior to that time, as of 2013 ICOs were often used for funding the development of new cryptocurrencies. These cryptocurrencies were then traded on cryptocurrency exchanges on demand. The 2014 ICO Etheruem successful performance paved way for other investors to come into the big picture of ICOs.