Initial Coin Offering (ICO) Explained
An Initial Coin Offering (ICO) is a process where a company or developers sell to the open public part of the supply from a cryptocurrency. One ICO aims to raise funds to develop services related to the cryptocurrency in specific or to grow the company behind as a whole.
ICO is the equivalent in the crypto market of an Initial Public Offering (IPO) in the traditional stock market. One IPO is a process where a closed company goes public by selling parts of the company (stocks) to raise funds aiming to improve a specific product/service or develop other parts of the business. So, the ICO process has similarities with the IPO; the first occurring in the crypto market and the stocks being replaced by a cryptocurrency.
After the ICO, the circulating supply can be sold through different platforms, like a Decentralized Exchange (DEX) or a Centralized Exchange (CEX). If the cryptocurrency project does not announce in the usual platforms (e. g. website and whitepaper), we can see the tokenomics (e. g. supply and transactions) on the blockchain used (e. g. Ethereum or Binance Smart Chain).
Considering that the crypto market is something new, investors should be careful in what cryptocurrencies they invest and in which ICO they participate. Some fraudsters use ICOs only to get money from disoriented people and run away with it. So, it is important that investors do the due diligence to know where they are putting their money.
Some things that an investor should look like in a project before participating in an ICO: whitepaper, tokenomics, roadmap, purpose of the cryptocurrency, website, team and social media presence. Also, to participate in an ICO, the investor must have other cryptocurrency which can be various, like Bitcoin, BNB or USDC.
An ICO and an IPO are important to the development of the markets and the economy. Money has to pass from creditors to debtors in a process where productive investments are made and the economy moves and grows.