An initial coin offering (ICO) is a method that developers use in order to raise the funds to start a new digital currency, much like how the now well-known Ethereum was created. Backers put money in to help the project be developed and launched, and in return they receive a share of the initial coin offering. If the project is successful, then the backers will make a profit from the venture as the initial coin tokens will be worth more than the money that they put in to find the project.
Initial coin offerings are usually announced on various digital currency forums across the internet, and this is where people first hear about the idea. One such forum is Bitcointalk, and many people use this platform as the springboard of a project’s success, announcing the idea in the hope of getting backers interested.
Therefore, the thread about the idea must contain as much information about the project as possible, as the more people know the more likely that they will get involved and be willing to part with their money and time. Some information could include the whitepaper (if it is present), project goals, timelines, the people involved, the experience of the people involved, notable features and why it is likely to be successful.
The funds that are used to raise money for the project are usually collected in bitcoins. Typically, an initial coin offering will include a few weeks of collecting the funds, although the amount of time varies with every project, some needing more and some needing less time to raise the required amount. Some will just carry on raising money until the goal amount is reached, while other will put a cap on the amount that can be raised, or else too many initial coin tokens will have to be given out initially.
In some cases, some of the initial offering is held back for a while, and then used for promotions once the product has been launched, such us on the forums or on social media to raise even more awareness of the venture.
An ICO could be described as a mixture between a donation and an investment. Those that help to fund the project have no guarantee that they will be getting the same or more back from it, they know very well that it is also likely that the project will not take off. Although primarily most people back projects in the hope that they will be successful, there may be some people that give money as a donation just to see it succeed, as they feel that they could use the idea in the future.
Recently, ICOs have become a lot safer to invest in, with more protection being put in place. In the past it was not uncommon for an ICO to be a scam, and just a way for someone to earn an extra bit of money, but know protection such as multi-signature wallets are used, or a single public bitcoin address.
Some of the biggest current digital currencies were created using ICOs. These include those such as NXT, Mastercoin, Bitshares, Ethereum, Maidsafecoin, NEM, Synereo, Factom, DigixDAO, Lisk, and Waves. All of these had to start somewhere, and after people heard about them and what they could potentially offer, they invested enough money for them to be launched.
Ethereum is an example of one of the most successful ICOs due to the amount of money the project made. It raised a staggering US$18 million — one of the largest ICOs to date, with a current market capitalization of about US$1 billion.
It was around the time that Ethereum was created, that bitcoins had the largest rise in price — between 2013 and 2014. Many of the ICOs around this time failed to live up to what they announced they could offer, but those that were successful were certainly very successful. One of the earliest ICO’s was around mid-2013, and this was the Mastercoin, which was funded on a bitcoin forum. It was from here on that the idea took off, and it was not long until multiple ICO’s were created, all hoping for some form of investment.
Here’s a look into ICOs and how it could potentially spell the success of a new cryptocurrency or even a blockchain-based technology:
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