What is ICO?

What is ICO?

If you’re looking for one of the biggest trends in cryptocurrency, taking into consideration the ICO might be a good start. ICO is the abbreviation for Initial Coin Offering, which means that you create a digital coin or token, and then you sell it in an initial offering process.  It also means that someone could offer investors some elements of a new cryptocurrency in exchange against cryptocurrencies like Bitcoin or Ethereum. Since 2013 there has been a massive development in this domain. Now the pre-created token can be easily traded or exchanged if there is a request for them. ICOs are a substitute for crowd funding and have the potential to change the way organizations capitalize themselves.

The ICO typically takes place before the finish line of a new project, and its purpose is to fund the expenses during the creation process, which helps the team to be motivated. The participants are investing in the triumph of the project. They can play an essential role when it comes to raising awareness in the community, but almost everyone is driven by a potential profit if the project takes off and the tokens are more valuable than the ICO price.


ICOs are a combination of donating and investment. Knowing that some frauds exist in the industry, the community has adopted self-governing best methods and principles concerning ICOs. Multiple platforms promised due-diligence of projects before enlisting them and giving the financial compensation the project team for accomplishing some pre-defined objectives. People also demanded multi-signature system to increase safety.

Some ICOs use a single Bitcoin public address to raise funds. This method is bad for privacy, but on the other hand, it is good when it comes to audit the money raised. Other ICOs use cryptocurrency protocols that already exist to create tokens. This simplifies the creation process. Some examples of protocols are NTX, Bitshares, NEM, Factom, Lisk or Counterparty.

How they work

Typically new ICOs are announced on different forums with cryptocurrency topics. Every announcement contains information about the project, such as white papers, project objectives, the team involved in the creation process or notable features of the project. There is also a short description of the previous experience of the team members because people have to know if they are specialists or not.

These platforms collect funds in Bitcoin. There are two ways of making that possible: by using a global public address, in which case people need to send Bitcoin from an address they command the private key, or by creating individual accounts for each participant, in which case the administrator has to provide them with unique Bitcoin addresses.

The dynamics of an ICO could vary. They usually include a determined period of raising money as much as is necessary. A part of the money is reserved for early promotions and social media, as well as newsletter campaigns.

Once the ICO is completed and the platform launched, the new project’s tokens get listed on cryptocurrency exchanges to commerce against other cryptocurrencies on the market.

Law implication

The legal state of ICO is not well-defined. Usually, the tokens are sold not as financial assets, but as digital goods like a lot of other things in online. In this case, the funding using ICO is not legally regulated, which makes it easy to handle and paperless if an experienced lawyer is behind the transactions.

Although, some jurisdictions seem to be informed about the ICO and tend to control them in the same way as the vending of shares and securities. The considerable implosion of this project aroused the regulator’s attention. So, if now ICO mostly happens in a gray area, the future will make them more frequent. This could represent some risks for investors, but it could also reduce the advantages of ICO compared with traditional methods of funding.

Succes vs. failure

Different ICOs have been the right choice for investors. Some of them gained in value 100 to 500 percent in Bitcoin after the launch. But on the other side, many ICO ended up a few time after release. ICO is also used by scammers who build a good looking website, write some convincing words and promise to create the greatest project ever. Many small and shady ICO collected funds and then delivered nothing.

It is not possible to say everything about ICO in this article, but at least you know what to expect when you hear about this topic. In the end, we say that the ICO represent one of the opportunities given by technology. But every decision about investing or creating must be very strictly documented and analyzed to obtain success.

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