Initial Coin Offering (ICO) is an innovative approach for raising funds through the use of digital currencies (cryptocurrencies). Such a strategy is more prevalent in cryptocurrency projects that are yet to fully developed their blockchain-based product, service, or platform. The funds collected on ICO events are normally received as Bitcoin (BTC) or Ether (ETH), but in some cases, fiat currency may also be taken as payment.
Usually, investors engage in Initial Coin Offerings with the hope and expectation that the digital token (or coin) and its corresponding company will be successful - possibly resulting in a good return on investment (ROI) for those that are regarded as early supporters.
Despite being often compared to IPOs (Initial Public Offering), ICOs are quite different in the sense that investors are not buying any kind of ownership of shared in a company. Initial Coin Offering events are mainly performed as a fundraising strategy for startups that are in very early stages of development and need funds to push the project forward.
Unfortunately, however, many ICOs are performed by non-reputable entities that raise large amounts of money and disappear, with no follow up on development. For this reason, it is extremely important that investors do their due diligence (also known as DYOR) before investing in cryptocurrency companies.
There are many different ways of issuing a cryptocurrency token or coin before offering them on ICO crowd sales. While some companies prefer to build their blockchain from scratch, issuing their own native coin, the majority of ICO events that were held so far took place on the Ethereum network, following the so-called ERC-20 token standard.
For instance, a startup may deploy smart contracts on the Ethereum network to create its own cryptocurrency as an ERC-20 token. In such a scenario, the ERC-20 protocol outlines what are the rules to be followed when issuing a digital token on the Ethereum platform, and the smart contracts ensure that these rules are followed in a reliable and autonomous way.
Although Ethereum is the most popular choice, there are some other blockchain platforms that support the creation and issuance of digital tokens, which are then offered through ICOs. A few examples of these platforms include Stellar, NEM, NEO, Komodo, and Waves.
Initial Coin Offering crowd sales are, certainly, one effective method of raising venture capital and project funding, making it possible for businesses and projects to get financial support during their early stages.