An ‘Initial Coin Offering (ICO)’ is an unregulated way of fundraising for new cryptocurrency projects. Typically, an organization releases a new cryptocurrency or token to investors in exchange for established digital currencies such as bitcoin or ether.
The concept of ICOs is analogous to an Initial Public Offering on the stock market. When a project is making an ICO, they normally have a white paper with comprehensive information about the project and the terms of the ICO. This document includes details like the project team, the roadmap, the use of funds raised, token allocations, and the period of the ICO.
An ICO typically has a predetermined cap, which limits the amount of money that can be raised, and the tokens issued during the ICO are allocated among the investors depending on their contribution. Some ICOs require investments to be made in cryptocurrency, and some accept multiple forms of payments.
The tokens issued by an ICO are designed to function as a form of currency within the project’s ecosystem. ICO tokens offer investors certain rights depending on their type, such as voting or ownership rights over the project. The popularity of ICOs has increased significantly in recent years.
They are being used as an alternative to traditional venture capital funding and are perceived to be more flexible and easier to access. Numerous high-profile projects have successfully raised capital through ICOs, including Ethereum and Augur.