An ICO is a fundraising operation for a project through the sale of cryptographic tokens. The tokens are sold at a discount and later on may be used within the project or sold for a profit. ICOs are unregulated and hold a lot of risk for uneducated investors. That’s an ICO in a nutshell.
ICO stands for initial coin offering. The term derives from the traditional finance term, IPO (or initial public offering). An IPO is used to describe the launch of a new company on a stock exchange, also known as going public. The purpose of an IPO is to sell stocks of the company in order to raise capital from the public. ICOs, on the other hand, sell cryptographic coins, also known as tokens, as a way to fund a specific project. The general idea is that if you believe the project will succeed, you buy the tokens that power the project beforehand at a discount. Once the project launches, you will be able to use the tokens or sell them for a profit.
How an ICO Works?
When a cryptocurrency company wants to launch a new project through an ICO, it creates a whitepaper. The whitepaper is a document that describes several important aspects of the project: What is the project about? What needs will the project fulfill? How much money is needed for the project? Who is the team behind the project? How will the tokens be sold in the ICO be distributed?
ICOs usually use the Ethereum platform to set up the token sale. A smart contract is set up so that when people send Ether (Ethereum’s currency) to the contract, it will dispense back the ICO tokens.