Learn cryptos : What is an Initial Coin Offering (ICO) ?

Still called “token sales“, ICOs are an emerging form of participatory financing that has been booming for years. Based on blockchain technology, this form of fundraising works through a system of virtual tokens. If this technology is still in its infancy, it must be said that it is a technological revolution and already attracts many people. It is therefore essential to master its functioning in order to adopt it when necessary.

What are the advantages of ICO?

To start a business project, it may be necessary to raise funds. This is where ICOs come into their own. Indeed, it is a method of financing by issuing assets that can be exchanged for digital currencies like bitcoin. So, all you have to do is launch your application, and you will find investors ready to finance you. But, your project will have to be well developed to find funding quickly.

In general, ICOs allow a start-up company to quickly raise the funds needed to get started. Like crowdfunding, they allow any backer to take part in the fundraising. Only, you will need to have cryptocurrencies to be able to buy bitcoins.

Therefore, ICOs are an effective way to bypass the regular venture capital funding system. By doing so, you can avoid capital dilution and do good business. Moreover, by adopting this method of financing, you will avoid the long and tedious process of usual fundraising. Moreover, you will not pay any commission as it is usually the case on the sites of other forms of participative financing.

Which companies can use ICOs?

ICOs are real aids to business creation. However, it should be noted that they are not suitable for all companies. Indeed, in this financing, the tokens have an intrinsic utility. Without this factor, ICOs would have no value. It goes without saying that only companies interested in blockchain can use it. This privilege can be justified by the fact that these companies develop applications of the blockchain. Also, the development of certain protocol layers may favor this recourse.

Very often, ICOs are used to finance the launch of decentralized applications. These applications run on a specific blockchain protocol. It can be either Bitcoin or Ethereum. But, sometimes ICOs are used to directly fund blockchain protocols. This was the case with Tezos, which raised the equivalent of over $200 million in July 2017.

Sometimes, ICOs can be used by individuals with cryptocurrencies. In this case, they are called crowdsales. Thus, a third party internet user can participate in an ICO. All he has to do is exchange the amount of digital currency he wants to invest against the tokens issued by the project that launched the ICO.