What is an ICO? A Brief Guide

In this guide, we’ll be learning what ICOs are, why they were created and how they work.

April 2020, 5 min read

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B lockchain Technology has effortlessly defined the modern era of Finance and Commerce, with over 5000 cryptocurrencies circulated among several exchanges. Blockchain technology can be attributed to its innovations and its community. The definitive success of the Innovations in Blockchain space required a fundamentally new way of raising capital for a project or startup - a way to raise money for newer ventures trying to follow in the footsteps of giants. This was made possible with the introduction of ICOs.


What is an ICO?

Similar to Initial Public Offerings an ICO is the abbreviation of Initial Coin Offerings. ICOs have defined the success of Blockchain technology by accomplishing many amazing feats by introducing newer innovations in the blockchain space by providing the simplest path for upcoming Decentralized Apps and Blockchain Projects that require funding. Raising huge amounts of funds, ICOs were a key component in the success of projects like Ethereum and they enabled investors to invest in projects by purchasing tokens of that particular DApp and become a part of the project itself. To put it simply, ICOs are a fundraising mechanism that operates as blockchain crowd scales. It’s the cryptocurrency version of Crowdfunding where Blockchain startups issue their crypto-tokens and sell them in exchange for Notary Cryptocurrencies.


Why ICO?

ICO was a breakthrough in the mass adoption of Blockchain Technology, providing users with a fundamentally new way of raising capital for a project or startup. It was a new way to raise money for upcoming innovative solutions

  • ICOs allowed emerging innovative solutions and projects that aspired to contribute to the Blockchain Space.
  • ICOs allowed startup founders to build a loyal user base and community.
  • ICOs rightfully incentivized innovation in the Blockchain space.
  • ICOs allowed investors to capitalize on potentially valuable tokens


How Do ICOs Work?

Blockchain Platforms that offered smart contracts allowed developers to create decentralized applications and solutions on top of the Blockchain Platform. To gain funding for these newer projects and applications, developers issue ICO white papers and a limited amount of tokens because it assured that the ICO had a vision, and raised the value of the token as the demand increased and the supply decreased. Additionally, investors were given the choice to either spend those aforementioned tokens on the respective platform or sell them later on exchanges at a premium. The ICO white paper is a brief written piece of documentation that presented the problem the project envisioned to solve including the mechanisms of their solution. The ICO white paper not only motivated potential investors, but it also created a bridge between the project and their community.


Round-up

ICOs allowed emerging projects to shine. A Project like Ethereum is a prime example of what an ICO can achieve. By enabling users and investors to eradicate the hassle of paperwork and the downfalls of centralized systems. ICOs motivated the community to deliver solutions into the blockchain space by serving as a bridge for users, investors, and developers to contribute to developing blockchain-based solutions. However, similar to blockchain solutions, ICOs are still in its infancy. Like most digital solutions, they’re susceptible to bugs and prone to scammers, hackers, and malicious users. Contrarily, the advantages outweigh the cons. ICOs have marvellously collected over $6.8 Billion in developing blockchain solutions and they continue to provide huge incentives to the community to contribute and help evolve the technology. With the motivation and incentivization that ICOs provide, many innovative technologies and solutions will help evolve and revolutionize the modern financial systems and Digital Currencies. It’s only a matter of time and technology.