How ICOs Work?

There is no standardised way in which ICOs work however most have stages that include advertisement and the release of their whitepaper, a pre-sale and then the main crowdsale.

What is the purpose of an ICO?

An ICO (or Initial Coin Offering) is a way for digital blockchain companies to raise money. Digital coins are offered to the investing public. These coins either operate as currency or have some utility value within a digital product offered, or yet to be offered, by the company running the ICO. Investors send in a digital currency like Ethereum or Bitcoin in exchange for a specified number of the ICO currency. The funds received during the ICO are used to fund the company which conducted the ICO.

How ICOs fulfull their purpose

There is no set way for an ICO to raise money. There is a general blueprint that the majority of ICOs follow but it isn't a requirement set by a centralised body. ICOs tend to work by being split into stages, these often include; whitepaper release, advertisement, pre-sale, crowdsale and coin / token to a public exchange.

 

What the Stages of an ICO entail?

As highlighted there is no official schedule an ICO should be conducted but typically the above stages form the basis of the initial strategy. For an understanding of an ICOs stages they will release a roadmap, which will give the ICOs timeframe.

  • Whitepaper release - This is a semi-adacemis presentation of the ICO company's technology and gives investors an insight into the potential of thew business.
  • Advertisement - This is for the company to raise awareness of their project and to entice potential investors into the pre-sale. Marketing budgets can often be rather large in order to drum up the required attention.
  • Pre-sale - The pre-sale is where coins are sold to early adopters and a first round of interested investors. Often compared with angel investing because the project is normally an idea at this stage with no prototype to present.
  • Crowdsale - The crowdsale or public sale is when coins are sold to investors who pre-register by submitting various kinds of personal information. The amount of investors may depend on how aggressive their marketing campaigns are. Investors may be required to submit government ID, proof of citizenship, or (in some cases) nothing more than a wallet address.
  • Coin to a public exchange - This is when the coin will go to market where it can be openly traded by anyone who wants to purchase. 

 

What Kind of Businesses Use ICOs?

The ICO is used almost exclusively by digital service companies for whom blockchain is a central technology. Many of these companies operate in sectors such as Artificial Intelligence, Data Security, Financial Services, Gaming, etc.

Unlike the IPO, ICOs are available to companies that have not yet achieved a self-sufficient business. The ICO operates much like the startup funds received from venture capitalists in traditional fundraising, combined with the crowdfunding convenience of platforms like Kickstarter or IndieGogo.

Companies which choose to fund via ICO may be composed of dozens of corporate leaders and developers. They may also be composed of just a handful of developers or even a single developer. Blockchain companies may have working products and impressive real world experience. They may also be conducted by unproven newcomers with no working product.

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