Over the last few years, the buzzword, ICO has taken the world of cryptocurrency by storm. There are a lot of unique narratives about the concept of ICO – Whether it is has revolutionized the system of fundraising, whether it is a gimmick to make quick money and many more. Having said that, ICOs have managed to intrigue everyone in the cryptocurrency space. That, in itself, is enough reason to try and understand the concept of ICO in detail. In this article, we will explore the basic concepts of ICO.

Understanding The Concept of ICO

ICO stands for Initial Coin Offering. It is a crowdfunding mechanism through which start-ups with potentially disruptive ideas attempt to raise funds from the general public as well as professional investors. People invest money in these startups in exchange for a native cryptocurrency, (usually called a token; developed exclusively by the start-up) Once invested, they hope that the value of that token will increase over time, and eventually make up for the money they had invested. So, it is quite similar to buying shares of a company in the hope that those will increase in value as and when the company performs well in future. However, there are a few differences.

The unique factor about ICOs is that the investors do not get any ownership stake in the company. This is why ICOs are different from traditional funding & investment. In some cases, projects do not even have a product ready before seeking funds. This essentially means that investing in an ICO is solely based on trust in an idea. The idea which might or might not become successful in the future.

The concept of ICO is analogous to traditional fundraising, minus the tedious paperwork. Everything is automated via smart contracts, and this is one of the main reasons why people are investing in ICOs.

How Does an ICO Work?

Consider a blockchain-based shopping app where users can purchase by paying in tokens.

Let us name these tokens as ShopCoins. Now, adequate funding will be required to implement this shopping solution and promote ShopCoins as a usable cryptocurrency. The fund money will help to initiate operations including development and marketing. To achieve this goal, the project issues ShopCoins for sale. People can buy ShopCoins by paying in fiat currency like the dollar, or even in established cryptocurrencies like BTC or ETH.

In such a scenario, executing an ICO is all about convincing people about the potential of this idea and how the token value would inflate once there are enough circulation and demand in the market.

Ending Note

To sum it up, ICO is a paperless crowdfunding mechanism used by blockchain startups to raise money. Ethereum and NEO are a few of the most successful ICOs of all time. We hope that you are clear about the concept of ICO. Please feel free to drop in your queries/doubts regarding this topic and we will be glad to address those.

Note: If you are planning to invest in an ICO, we recommend you thoroughly research the project and understand the terms and conditions before doing so.