An ICO, or Initial Coin Offering, is a new way to raise capital for all sorts of projects by selling a cryptocurrency. It’s mostly used by tech startups.
The market saw 235 ICOs in 2017, five times more than in 2016. They helped raise over USD 3.7 billion, compared with USD 96 million in 2016. The largest ICO to date (as of December 2017) is that of Filecoin, a decentralized data storage network, which raised USD 257 million in 2017. Lists of ongoing ICOs can be found at coinschedule.com and on other websites.
How does it work?
A project or company specifies its intentions to hold an ICO by publishing a so-called whitepaper. There it explains the project, its goals, how much capital it needs to raise, when the ICO is scheduled, and other information to help investors decide whether to participate.
In exchange for making an investment, an investor gets the project’s cryptocurrency, usually referred to as a token. Depending on the project, tokens may be acquired in exchange for other cryptocurrencies or for fiat money like US dollars, euros, and so on.
ICOs let startups and other companies raise capital much more easily and quickly than, for example by selling shares or bonds or getting loans, since the market is still largely unregulated and they don’t need to deal with venture capitalists or banks. Going forward, however, raising capital via an ICO can be expected to become more and more complicated as the market matures and new regulations are introduced.
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