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Initial Coin Offering-What and How It Works?

Nov 19, 2017 Posted /  6844 Views

Initial Coin Offering-What and How It Works?

What is an ICO?

Alike, Initial Public offering(IPO), Initial Coin Offering (ICO), offers investors a certain chunk of ownership in the company-, which raising funds- to the public. In an Initial Public Offering, a share of stock of the company is presented to a funder. On the other hand, for an Initial Coin Offering, crypto coins aks tokens means a certain degree of company’s ownership for the investors.

Like, in an IPO, the new shareholders hope that the value of their will augments tremendously with time, here in an ICO, the funders wish the value of their coins or token will increase gradually.

However, the major difference between both of them is, unlike IPO, ICO is non-regulated by the central government or any federal state agency. So, no rules and regulations to apply for an IPO, thus, giving investors the luxury to invest on their own terms.

The Concept Of ICO

The idea around an Initial Coin Offering is quite straightforward, here the company, who want to raise funds, create a digital coin or token, and then issue it to their investors. An ICO is just like the initial public offering, both of them are aimed at acquiring funds, but, here, instead of stock, the ICO purchase gives an investor a new type of coin or token. In other words, the funder gets an asset rather than a security.

How Does It Work?

The working of an ICO is quite simple. First of all, the development unit of the company working on creating crypto coin or token will set up a smart contract on Ethereum. The smart contract is an exclusive feature of new and advanced cryptocurrency launched just two years back, Ethereum. It is a contract between two parties, it can be B2C or B2B, here, the gate for the flow of currency is opened when the criteria of unlocking the contract are met from both the side. Now, coming to ICO, investors register on the smart contract platform and get exclusive Ethereum wallet addresses. Once, Ethereum is sent to this address, the user register on the network of funding will get ICO tokens in return, which is equivalent of crypto equity.

What is Ethereum?

Apart, from being a digital currency, it is mainly an open source software platform, the nucleus is the Blockchain technology, gives developers the luxury the create decentralised applications. Like, Bitcoin-, world’s largest cryptocurrency-Ethereum is distributed public Blockchain network. However, there is a big dissimilarity between both of these currencies, the Bitcoin is all the ownership of digital assets, whereas, Ethereum centre running the programming code of the Blockchain

What is a Smart Contract?

A smart contract is a revolutionary feature, which Ethereum currency brings to the table. It is a set of computer code, which can facilitate the exchange of money, property, or any other asset. The smart contracts run automatically over the Blockchain network, and at executed when the pre-mentioned conditions are met. And, since, the smart contracts are based on the Blockchain technology, there is no possibility of scams,  frauds, or third party interference, as it is a fool-proof technology.

Every ICO has its exclusive price offering to the funders, which is divided into multiple phases. After each phase, the cost per crypto token augments. After obtaining the crypto tokens, an investor can trade them anytime.

Here’s How an Ico Transaction Flows

First of all, funders invest in the Initial Coin Offering. Then, ICO tokens or coins are distributed by the company, in need of fund. After that, if the project for which funds were raised is successful, the remaining coins are destroyed. And, lastly, on the other hand, if the ICO conditions are not satisfied, the tokens are safely returned to the original wallets.

The ICO coins or tokens are easily traded over popular cryptocurrency platforms that accept them. But, today, in the market are several ICO exclusive exchange platforms.

The Future Ahead

The future ahead of Initial Coin Offerings look bright and progressing. In the years to come, ICOs will a driving force for people to put their ideas into practice, without the need of running here and there for funds. If your idea is revolutionary, you are bound to raise great funds to meet the monetary requirements. On the hand, companies, who are pursuing to expand or working on a new technology or project can acquire funds, anytime.

Applancer is an open platform for discussion on all things like Blockchain , Cryptocurrency and Ico news updates. As such, the opinions expressed in this article are the author's own and do not necessarily reflect the view of Applancer .

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Tags: Ethereum ico digital currency decentralised applications Ethereum currency ICO tokens ICO coins

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