ICO’s are very similar to Initial Public offer (IPO). IPO is when first time a new startup company brings their share in the market for the public that is called IPO similarly in ICO the startup firms raise funds by issuing digital tokens that can be converted into Crypto-Currencies.
Crypto-currency:
- A cryptocurrency is a digital or virtual currency that uses cryptography for security. The first decentralized cryptocurrency was bitcoin which was established in 2009. It is in the computer code.
History and Evolution of ICO
- For the very first time, ICO was established in 2013 by Mastercoin which had raised approx. US $600000 for a project to create a Bitcoin exchange and platform for transactions while bitcoin was the first decentralized cryptocurrencies came in 2009.
How ICO works?
- The working of ICO is started by the startups by establishing the blockchain and set up the rules and regulations at which point the ICO data to be announced.
- The next step is to start mining for coins that will be sold during the ICO with social media sites and cryptocurrency related website which is used as a marketing medium to attract investors so that it will help in raising the demand and prices post ICO.
- For the cryptocurrency creators, they will have to join an exchange (which is similar to that of stock exchange during an IPO). They need to have an account with the exchange so that they can buy the new cryptocurrency with other cryptocurrencies.
- The ICOs can be found through several sites with the purchase of cryptocurrencies being made through the selected exchange or investor can also buy directly through the creator’s official website.
- Exchanges that are mostly recommended for the purchase of new coins include Kraken, Poloniex, Livecoin, Bittrex, British and many more.
Procedure of an ICO
- Firstly, the pre-announcement is made about the future project through sites by cryptocurrency investors. The owner of the project will prepare the white paper and an investor will outline the details of the project through the presentation.
- After promulgating of white papers, the company will come to know whether there is investor interest in the project proposed then company addressed the concerns and risks raised by investors to reach a final business model and a final version of the white paper.
- In the last stage, the company will offer the final version of the white paper in which there are the terms and conditions of a contract for the benefit of the investors made on the behalf of the company entering the ICO.
- Under the offer the project details, the total capital required and the timeline of the project is mentioned.
- It will also include the financial instrument to be sold during the ICO.
- The financial instrument will have a value assigned to it together with the rights of the investor along with the expected period after which the company will commence returning earning to investors by way of dividends.
- Once the offer has been signed the ICO start date will be announced.
- After that, the marketing campaign is started which is very prominent for the company because only through the campaign the company being able to raise the necessary capital.
- Once the marketing campaign comes to an end, the buying and selling of tokens start.
Some news trending points related to ICO
- According to data from UK based coin desk around $ 2.7 billion has been raised through ICO globally since 2015.
- China recently banned these offerings by saying that they are illegal public finance instrument which is used for money laundering.
