What Is an Initial Coin Offering (ICO)?
An initial coin offering (ICO) is the cryptocurrency industry’s equivalent of an initial public offering (IPO). A company seeking to create a new coin or app can launch an ICO as one way to raise funds.
Investors who are interested in buying into an ICO can invest in a new cryptocurrency token issued by the company. This token might be useful for the company or project, but it could also just be a way to get a piece of the company or project.
How an Initial Coin Offering (ICO) Works
When a cryptocurrency project decides to raise funds via an Initial Coin Offering (ICO), the first thing they need to figure out is how they’re going to structure their offering.
There are several different types of ICOs, including:
A company can set an exact funding goal or limit, meaning that every token sold during the ICO has a pre-set price, and the total number of tokens is fixed.
A static supply and dynamic price: an ICO can have a fixed number of tokens and a dynamic fundraising goal, meaning the total amount raised by the end of the ICO determines the final price per token.
A dynamic supply and static price mean that some ICOs have a fixed number of tokens or digital assets available for sale, but the price per token varies depending on the amount raised.
There are three different types of ICOs
A crypto project typically creates an initial coin offering (ICO) and then launches a new website for the token. The promoters of the ICO use their white paper to describe important information about the ICO.
- What the project is about
- The need that the project would fulfill upon completion
- How much money the project needs
- How many of the virtual tokens the founders will keep
- What type of payment (which currencies) will be accepted
- How long the ICO campaign will run
The project releases the whitepaper during its ICO campaign, which aims to encourage enthusiasts and supporters to buy some of the project’s tokens. Investors can usually purchase new tokens with fiat or digital currency, and it’s becoming increasingly common for investors to use other forms of crypto such Bitcoin or Ethereum. These newly issued tokens were similar to shares of stock that were sold to investors during an initial public offering (IPO).
If the funds raised in an ICO are less than the minimum amount needed for the ICO to go ahead, then all of the funds raised may be returned to the ICO’s investors. If the ICO fails, it will be deemed unsuccessful. If the funding requirements for a project are met within the specified timeframe, then the funds raised are used to pursue the project’s goals.
How do you create your own virtual currency?
It’s not as hard as you might think. The computer code for Bitcoin and Ethereum is open-source, which means that anyone who wants to can take the computer code for these currencies and modify them to create their own virtual currencies. There are companies that will code your digital token for you if you are not technologically adept. Convincing potential investors your new coin is worth consideration is the hard part. Many coins that are released never become valuable.