An ICO can be described as an investment which gives an investor a digital coin commonly known as a token in return for their investment. In the Initial coin offering, a project creates/develops some digital tokens and then sells them to the public in exchange for cash or other digital currencies such as Bitcoin. Therefore, an ICO can be described as a form of crowdfunding where the investors get tokens in return.
ICO’s became popular in 2013 and since then many crypto startups have used the method to raise funds. The first startup to popularize ICO in 2013 was Ripple where the developers created 100 billion Ripple tokens and then sold them to the public in order to fund the Ripple project. Another popular digital currency which was funded through an ICO is Ethereum.
A typical ICO has the following structure:
If a startup wants to raise money through an ICO it first publishes a whitepaper which contains all its plans and details about the project. In the whitepaper, the startup explains the amount of money required to complete the project and how it plans to create the tokens. Information about the currencies accepted whether fiat or crypto, how long the ICO is planned to run and the ICO campaign are all included in the whitepaper.
After the ICO launch, investors and project backers buy the tokens using either fiat or crypto. The ICO is treated like shares sold to investors through an Initial Public Offering commonly now as an IPO.
After the completion of the ICO, it’s seen as successful if the raised funds meet the funding requirements. If the funding does not meet the requirements then the ICO is canceled and the money returned to the investors.
ICO’s have been successful in most of the projects. Some popular startups have raised billions from ICOs. A good example is EOS which raised $4.2 billion and Telegram which raised $1.7 billion.