Initial Coin Offering or ICO is an alternative way to raise funds sourcing from all over the world using some units of a new cryptocurrency or tokens. For an ICO to work, a project creates a digital token and sells it to the public, usually in exchange for other cryptocurrencies such as Bitcoin or Ether. The majority of the ICOs’ tokens today was created based on Ethereum. However, there are tokens that are based on QTUM, NEM, or other existing platforms that give a similar function to Ethereum.
How does it work?
1. Whitepaper
To create a project through an ICO, a group of people or a startup needs to create a plan on a “Whitepaper” that contains details of what the project is all about. To be more specific, a whitepaper should contain the following:
• What are the needs of the project to be complete and its end goals?
• How much of the tokens will the founder(s) of the project keep to themselves?
• How much money is needed to create the project?
• What type of money is accepted?
• How long will the ICO campaign run for?
2. ICO campaign
An ICO will create their “own token” and any supporters of the project can buy it with fiat or other existing cryptocurrencies. These tokens are similar to shares of a company sold to investors in Initial Public Offering (IPO) transactions.
3. Conclusion
If the money raised does not meet the minimum funds required by the project, the money is automatically returned to the supporters or the financiers. If the fund's requirements are met within the specified timeframe, the money raised is used for either initiating a new scheme or completing the project.
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