We hear the term ICO quite frequently. So, what exactly does ICO mean? ICO stands for initial coin offering. Here, cryptocurrencies are made use of to create and trade tokens.
How do these work? When a start-up wants to create their own token, they will require funds. These funds can be obtained through an initial coin offering. The start-up will make the entire design for the token on white-paper and will present it to the interested public. If the investors are convinced of the success of these, they will invest in the idea. In return, they will be given a few of these tokens that are being developed by the team of developers. The funds collected from the investors will be invested in propagating the newly released token. If the token is successful in the market, the investors will receive returns according to their investments. If the token did not raise the expected investment, the funds are returned back and the token is considered to be unsuccessful.
What are these tokens or coins?
ICO coins or tokens are a unit of exchange. They are not to be confused with cryptocurrency coins. ICO tokens are not a type of currency, but they are an equivalent to any value defined by the user. They can have their value as shares in a firm, a membership in a group, a particular type of service, or anything for that matter. ICO coins function on a cryptocurrency platform. A cryptocurrency platform requires a blockchain to function. Some of the popular cryptocurrencies are Ethereum and Bitcoin.
Pre-ICO or ICO pre-sale:
We have seen that the ICO tokens are sold during the crowdfunding to the investors. But in a pre-ICO, they are sold before the crowdfunding to a selected group of individuals. This group has certain specifications as to who can be a part of it. Why pre-sale? These pre-sale ICO tokens will provide funds for building infrastructure, promoting the sale and reaching out to people with the token. It also benefits the investors as the tokens would be sold for a lower price in the pre-sale.