What is an ICO? A New Way to Crowdfund Promising Projects
Thursday 18th January 2018 | Joséphine
An ICO (Initial Coin Offering) is a fundraising method, operating through the issuance of tokens exchangeable for cryptocurrency during the start-up phase of a project. This is why ICOs are also called token sales.
The organiser must publish the white paper to start an ICO. This is the document that will be read first by potential buyers of tokens. They will look for several key bits of information like the benefits that the network will bring, the team and the characteristics of the token.
Tokens are issued by the initiator of this ICO and can be purchased by anyone who wants to invest in projects they consider promising. The condition is that the exchange is made with cryptocurrency, often Bitcoin (BTC) or Ether (ETH). The investor must buy using set purchasing platforms or have cryptocurrency. These purchasing platforms are used thanks to the Blockchain which is a register of banking transactions chronologically organised.
Every block of the chain is shared on all computers of the network and secured.
Tokens do not represent shares in the company, unlike shares in an IPO (Initial Public Offering). Buying tokens at an ICO is actually pre-paying for the product or service to be developed. The main goal is to buy these tokens at the very beginning of the process when their value is still relatively low.
There is no telling that the value may just disappear as easy as the rising of the moon.
The value of the token will depend on the value of the developed service. It strongly encourages ICO participants to be involved in the project. Following an ICO, the tokens become exchangeable on cryptocurrency exchanges. So the investor has choices at the end of the ICO: wait for a higher value or resell to make a profit or loss whatever the case may be.
This process makes it possible to finance a project sufficiently at an early stage of development by avoiding traditional method of capital investments.