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Devid
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Devid
Asked: February 23, 20222022-02-23T11:49:36+00:00 2022-02-23T11:49:36+00:00In: Crypto Trading

What Is an ICO (Initial Coin Offering)?

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An Initial Coin Offering (or ICO) is a method for teams to raise funds for a project in the cryptocurrency space. In an ICO, teams generate blockchain-based tokens to sell to early supporters. This serves as a crowdfunding phase – users receive tokens that they can use (either immediately or in the future), and the project receives money to fund development.
The practice was popularized in 2014 when it was used to fund the development of Ethereum. Since then, it has been adopted by hundreds of ventures (particularly during the 2017 boom), with varying degrees of success. While the name sounds similar to an Initial Public Offering (IPO), the two are fundamentally very different methods of acquiring funding.

IPOs usually apply to established businesses that sell partial ownership shares in their company as a way to raise funds. In contrast, ICOs are used as a fundraising mechanism that allows companies to raise funds for their project in very early stages. When ICO investors purchase tokens, they are not buying any ownership in the company.

ICOs can be a viable alternative to traditional funding for tech startups. Often, new entrants struggle to secure capital without an already functional product. In the blockchain space, established firms rarely invest in projects on the merits of a white paper. What’s more, a lack of cryptocurrency regulation deters many from considering blockchain startups.

The practice isn’t just used by new startups, though. Established enterprises sometimes choose to launch a reverse ICO, which is functionally very similar to a regular ICO. In this case, a business already has a product or service and issues a token to decentralize its ecosystem. Alternatively, they might host an ICO to include a broader range of investors and raise capital for a new blockchain-based product.

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