"ICO" refers to "Initial Coin Offering", or the initial offering of coins (tokens). This is a form of crowdfunding that uses cryptocurrency.
During an ICO, a project team sells digital tokens to investors in exchange for cryptocurrency. Like in the case of other crowdfunding models, during an ICO participants fund the development of a company in order to then profit from that company in the future. Investors can also profit from reselling tokens for a higher price than the price at which they bough them.
Initial Coin Offering (ICO) is a form of fundraising, during which blockchain startups sell a certain amount of cryptocurrency to the investors before it is listed at the cryptocurrency exchanges. Before the project is launched, the new cryptocurrency coins are called tokens. They are mined due to a one-time or accelerated emission — a premine.
What is an ICO for?
The main goal is to sell the required amount of tokens and raise the funds that are enough for the project implementation. You can buy a startup’s coins for fiat money or cryptocurrency: ethereum, bitcoin, neo, waves.
The investments required for the project launch are divided into a soft cap and a hard cap:
- a soft cap is a lower limit that, if reached, will allow the ICO organizers to finish the project development. If it is not reached, the ICO is considered a failure, and the project is closed down;
- a hard cap is an upper limit that will allow the project developers to implement all their ideas. If a hard cap is reached, the ICO stops before the scheduled date because an excessive number of sold tokens can disbalance the blockchain economy.
A secondary goal is to attract a loyal audience, future users. If after the project launch the tokens provide advantages to the users of the startup’s blockchain, many people will want to buy them during the ICO at discounted prices.