One of the biggest trends in cryptoasset is an Initial Coin Offering (ICO). But what is the craze all about? An Initial Coin Offering is a way of raising funds using cryptoassets. ICOs are commonly used in projects that haven’t fully developed their blockchain product or service. The payment of ICOs is made using cryptoassets such as Ethereum or Bitcoin and in some instances, fiat currency is used.
The idea behind ICOs is basically Return on Investment. Investors participate in the initial coin offering and buy tokens with the expectation that the company will be successful in its blockchain development and drive demand causing the original tokens to increase in value and attract profits. They hope that as early supporters of the cryptoasset they will get a good return on investment.
How does an ICO work?
ICOs are used as a fundraising method allowing a company to raise funds for their project in the early stages. ICO tokens are created on the ethereum blockchain according to the ERC-20 token standard. There are other platforms that support the creation and issuance of digital tokens along with Ethereum. The most successful ICOs have produced tremendous returns to the investors giving hope to many others with the aim of participating in ICOs.
When a cryptoasset firm wants to raise money through an ICO, it creates a plan on Whitepaper stating what the project is all about, the type of money accepted, how much of the newly issued tokens the investors can keep, the money required to undertake the venture and how long the ICO will run. As the ICO runs, supporters and enthusiasts of the firm buy the distributed newly issued tokens with cryptoasset or fiat currency. If the money raised by an ICO is not enough to take the firm off the ground, in some cases all the money is returned to the investors and the ICO is considered to be unsuccessful. The funds is realized within the specified time and if this happens, the money is used to initiate the scheme or complete it.
Can anyone hold an ICO?
Yes. ICOs are decentralized and no single authority governs them. During 2017 and 2018, anyone could have done an ICO without any repercussions but with the recent crackdown by SEC against ICO promoters and issuers, we have seen less interest in ICOs. A company only needs to create a viable blockchain venture on whitepaper describing its application. For an ICO to be successful, it has to be backed by solid evidence of how the idea will work, what it does, why its valuable, who needs it and how it will be developed.