Just on the same lines as initial public offering (IPO) of stocks, an initial coin offering is an unique way adopted by cryptocurrency startups and other manufacturing firms to raise money from the market. The companies which adopt this route fund their enterprises by selling their own cryptocurrency, often accepting payment in other forms of cryptocurrency (mostly Bitcoin or Ethereum).
An ICO typically involves selling a new digital currency at a discount or a token as part of a way for a company to raise money. If that cryptocurrency succeeds and appreciates in value often based on speculation, just as stocks do in the public market the investor has made a profit.
Unlike IPOs, ICOs dont involve any investment bank or underwriters and rarely any equity or voting rights are offered to the investors here. However, there is a very minimal regulatory oversight in such cases as norms regarding cryptocurrency are still in infancy stages all across the world. As per popular American business magazine Forbes, these types of offerings raised more than $4 billion in 2017.
ICO working
The first step during the launch of a typical ICO is an issuance of a white paper that details the technicalities, project plans and budget goals for a project, and may also include a brief discussion on how the coins or tokens will be distributed among the interested investors. In many cases, ICOs fix the number of coins to be offered before sale. Generally, those who buy first are mostly given preferential terms, paying a lower price per coin. But, prices can fluctuate. Some offerings have a specific fundraising goal, and they keep the price fixed throughout the period of offering.
Worldwide, various ICOs have been launched in the last some years with much success by the crypto-firms to raise finances to meet their financial endeavors. However, this route of raising money is still in a premature stage, and it will take time to mature and evolve into a full fledged mechanism to raise money just like IPOs.