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’ token today was created based on Ethereum. However, there are tokens that are based on QTUM, NEM, or other existing platforms that gives a similar function as ethereum.
How does it work?
1. White Paper - To create a project through an Initial Coin Offering (ICO), a group of people or a startup needs to create a plan on a “Whitepaper” that puts into details what the project is about. To be more specific, a white paper should contain the following:
• what are the needs of a project to be complete and its end goal
• how much of the tokens will the founders of the project keep for themselves
• how much money is needed to create the project
• what type of money is accepted
• how long the ICO campaign will run for
2. ICO campaign - The ICO will create their “own token” and any supporters of the project can buy it with a fiat or other existing cryptocurrency. These tokens are similar to shares of a company sold to investors in an Initial Public Offering (IPO) transaction.
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 to either initiate a new scheme or to complete the project.
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