You may associate the term unregulated when we speak about Initial Coin Offering or ICO, but this is actually a blessing for the cryptocurrency market trapped in legal formalities. It is not a serendipity that the method is also called as Initial Public Coin Offering. It is a kind of crowdfunding technique with the purpose of raising capital for new ventures or start-ups. It is a kind of contract between a group of parties in which cryptocurrencies are offered as a token with a re-fixed value. This is called an ICO campaign and can be successful or a failure.
The ICO campaign
The procedure works like this. You want to start a cryptocurrency startup and need capital to fund it. You have to create a plan for your venture on a white paper including other details like:
- The concept of the project
- The project estimate or approximate capital required until the completion of the project
- The resources you may require until completion
- The type of funding you seek
- The duration of the campaign
- The share of virtual tokens to be kept by you
When the campaign starts, your supporters will purchase a portion of the cryptocurrencies kept for distribution with virtual currency or fiat (a legal tender), which form the tokens for the ICO. By this process, you are actually allowing the coin buyers to won the corresponding shares in your startup, like the shares offered by a public company in IPO.
You will raise some money in this way and if it reaches your project estimate or the minimum amount of capital for the startup, the campaign is a success. You can use the money to start the venture or for any related constructive concept. If the raised money does not reach the minimum required fund, the campaign is deemed as a failure and you return the money to the buyers.
ICO started with the first token sale in the year 2013 and has been growing since then with Ethereum holding almost 80% of the share and has proved to be successful in ICO campaigns as Ether tokens. It provides the start-ups a means to generate capital without the extra expenses of facing regulatory bodies, intermediaries like banks and stock exchanges and seeking licenses. Even though it is facing many legal hurdles, many attempts are currently being undertaken to make it open and regulated by the jurisdictions.