What Is An ICO, How Does It Work?

Initial Coin Offerings (ICOs) is regarded as an alternative form of crowdfunding which has emerged outside of traditional financial systems. This investment model has assisted many projects and companies to successfully raise the funding required to launch their business.  

In 2013, over $5.1 billion (US dollars) were raised via crowdfunding worldwide. This amount increased to $16 billion (US dollars) in 2014 and was estimated at over $34 billion in 2015.

Initial Coin Offerings, commonly referred to as ICOs, is the cryptocurrency version of crowdfunding and are a part of the crypto world that is most likely here to stay. It’s one of the easiest and most efficient methods for companies and individuals to fund their projects and for everyday consumers to invest in projects.

The ICO Event

An Initial Coin Offering is an event that usually extends over a period of one week or more and in which everyone is allowed to purchase newly issued tokens in exchange for established cryptocurrencies like Bitcoin (BTC) or Ether (ETH).  

In an ICO, there typically exists a specific goal or limit for project funding. Specifically, every token will have a pre-designated price that will not change during the Initial Coin Offering period.

It is also possible to have a static supply with a dynamic funding goal, in which the distribution of tokens will be made according to the funds received, meaning that the more funds the project receives the higher the token price will be.

You can also have a dynamic token supply that will be determined by a number of funds that are received, meaning that the price for each token is static (e.g 1 ETH – 1 token) but every time one Ether is sent a new token is created. A limit can be set in terms of goals or time frame.  

Author: Gregory Semukh

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