In cryptocurrency, initial coin offering (ICO) an equivalent of initial public offering (IPO) is an exercise by which a private company goes from being a limited to public company by way of selling her shares for equity. This is done to avoid going to bank or venture capitalist to source fund for, initial coin offering (ICO) solves the basic problem of initial coin distribution.
How to use Initial Coin Offering
Primarily, there are two purposes of using an ICO.
- Crypto Equity – creation of new project, for which to work a special currency is needed. Majorly, these equities are raised through crowdfunding which in turn allow every interested individual to participate in the cryptocurrency, initial coin offering. In the future, this equity can be sold on some specific crypto exchanges, in this regard it can be compared to a startup, whereby an investor invests on the idea with the hope it will be widely accepted and the startup venture becomes profitable in future. One crypto token is equivalent to a crypto equity.
- Crypto Coins – creation of a new coin which differs to bitcoin with its own distinct unique features.
Two types of Initial Coin Offerings
As crypto enthusiast, you know can create a new token or crypto currency, being a coin or being a share out of a project, below is example of two different initial coin offerings to buttress on this for easy comprehension
- New Crypto Currency
LISK (a cryptocurrency and its token is called LSK) – the first modular crypto-currency: Lisk initial coin offering happened in May 2016; in their ICO, they were able to rake up to 15 thousand bitcoins. Lisk core feature is its scalability, where side-chains will be utilized as a solution, whether it will succeed or not depends on how many people are enthusiastic or believe in this coin.
- New Crypto Project
Firstblood.io is a perfect example as they perfectly represent the vision of a blockchain startup which launched late 2016.
The project slogan and vision: To build decentralized eSports reward platform that all gamer loves.
Its business plan was simple: players will earn coins by competing in computer-based games, this will be tracked on smart contracts over the blockchain and people get their reward by being a jury.
What are they offering: First crypto tokes in exchange for ethereum.
What do they need: Fund to host tournaments and build the FirstBlood infrastructure up.
Initial Coin Offering Crowdfunding
ICO crowdsales process is not all too special. Currently, developers of the crypto tokens create an ethereum smart contract. The real magic is happening over the smart contract; that is people register on the platform and then get a special ethereum wallet address. The user simply needs to send the eth (ether) to this address, after the ICO conclude, crypto tokens will be automatically distributed to the rightful owners.
In cryptocurrency, initial coin offering has its special pricing, they are normally divided into multiple stages; after these stages the price per a crypto token increases, meaning the earlier you participate and join an ICO, the better price per coin you get as the coin appreciates.
The whole initial coin offering investment can be perceived as high risk and high reward endeavor. One bitcoin high yield investment will always have a return on investment, but it may not be full returns. A crypto ICO can actually skyrocket and double the initial investment within few minutes, it can also burst that nothing is gotten as return on investment.