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How much do you know about ICO?

Traditionally, there are three main ways for a company to raise money:

  • Issuing debt (the company receives cash and promises to pay back the amount borrowed, with interest)
  • Selling shares (the company sells ownership of the company for cash)
  • Pre-selling goods and services (this ranges from customers pre-ordering a book or computer game, to Kickstarter-style crowd funding of to-be-made items or services. Perhaps even package holidays, or aeroplane tickets fall into this category)

But these days, there is one more popular way of raising funds. Some technology startup companies are raising money in a new way, by issuing digital tokens in return for funds. This is called an which is Initial Coin Offering(ICO).

ICO funds are usually received in Bitcoins (BTC) or Ether (ETH). The project creates a Bitcoin or Ethereum address for receiving funds and displays it on a web page. This is like opening a bank account, and displaying it on a web page for people to send money to. Investors send BTC or ETH to the published address, in return for the new tokens. The project uses the BTC or ETH to pay staff, or sell the cryptocurrency for fiat currency on a cryptocurrency exchange to fund the project.

Token Holders are normally promised certain rewards by the issuer. Depending on the rewards promised by the issuer, tokens could potentially be classified as a security. Once the ICO has ended, the issuer will work with exchanges globally (such as Bittrex.com) to list, and allow token trading on secondary markets.

How much do you know about ICO? was originally published in CryptoDigest on Medium, where people are continuing the conversation by highlighting and responding to this story.

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