To understand what an Initial Coin Offering (ICO) is, let us first begin with an analogy. Take for instance in a stock market; when a business opens up, people want to buy a stock in them. Buying stock in a business is basically like buying a small piece of the business. When they do this, it is called an Initial Public Offering (IPO).
It is basically called that because it is the first time the stocks are on the market, it is the first time that you are available to purchase stocks from them, and the initial public offering is usually at a discounted price.
Now moving on to cryptocurrency. In cryptocurrency, there are Initial Coin Offerings. This is when a developer creates a cryptocurrency, and usually offers it with some kind of benefit to buying it early. For example, one of the benefits would be if the cryptocurrency skyrockets, you will make a lot of money since you are buying it at its cheapest price. In that sense, an Initial Coin Offering is very much like an Initial Public Offering.
Generally speaking, a team might have a concept for a new cryptocurrency. The new cryptocurrency may seek to solve some issues that existing cryptocurrencies do not solve, or it might solve an issue in a better way through some different underlying technology.
Either way, an ICO seeks to raise funds for a new cryptocurrency by funds generated in selling the new cryptocurrency tokens to early adopters and investors in exchange for money. An ICO provides a way for new cryptocurrency projects who just came onto the marketplace to get their operation into more flow and grab more people.
Most ICOs raise money in Bitcoin or other cryptocurrencies. The ICO usually takes place in the project before the project is completed, and to help the founding team with expenses before the launch. This will help founders to grow their business and get more awareness on the project.
For larger projects, the funds would go into a foundation for continued support. An example of one of the largest ICOs is Ethereum. In fact, this fundraising method was first pioneered by Ethereum in 2014 and has since gotten mainstream in 2017.
Participants of ICOs are invested in the success of the project and provide early liquidity of the coin after launch. They also gain the support of others regarding early adoption of the coin. Investors would be coming on-board to help the project get awareness. Their primary focus is when a project does well then they are going to profit from it as well. It is a really good way much like a crowdfunding, and gets a new project the start-up out into the marketplace using this system as well.
ICO participants who are coming on-board would be looking at the project. If it is right for them, they would then use their Bitcoin, Ethereum or whichever other cryptocurrency which is accepted to partake in that ICO.
Some ICO tips before you invest: