1. What is ICO?
An initial coin offering (ICO) is a method of raising capital for a new cryptocurrency venture.
New cryptocurrency startups can raise money for their projects through ICOs. To do so, the startup would release a whitepaper outlining the details of their project, what it needs in order to be completed, and how much money will be required to fund it. The whitepaper would also outline how much of the raise capital would be kept by the pioneers of the project, what forms of payment are accepted, and how long the ICO campaign will run for.
During the ICO campaign, supporters and investors of the project may purchase some of the distributed tokens with virtual currency, similar to buying shares in a company during an IPO. If the startup manages to raise the capital outlined in the whitepaper, the funds will be used to launch or complete their project. If the startup is unable to raise the funds, all money is returned to the backers and the ICO is not successful.
So why invest? The idea is to get in early, buying tokens that could skyrocket in value after the launch of the project. Just like crowd funding, investors in ICOs tend to support the project and want to see it to fruition. Unlike crowd funding, however, investors in ICOs expect a return in their investment, with the increase in token value after project completion.
2. What is Cryptocurrency?
A cryptocurrency is a virtual currency that uses cryptography – or encryption – to keep it secure. As cryptocurrencies are not issued by central banks or authorities, they’re safe from government interference.
The decentralised nature of cryptocurrency is what makes it different from fiat currency (like US dollars). Unlike fiat currencies, which rely on governments or corporate boards to control the supply by printing new units, decentralised cryptocurrency is defined by the entire system collectively. This means that its value and transactions are controlled by the Internet.
A public record of all cryptocurrency transactions is stored on a network, known as blockchain technology. Every record is known as a block, and after a transfer, these blocks are verified and added to the network. This means the same person can’t spend the same coin twice.
One of the primary benefits of cryptocurrencies is their anonymous nature, making them useful for tax evasion and money laundering. Another is the ease of transferring funds between two parties. Secure and with minimal fees, transferring funds via cryptocurrency is a lot more enticing than using a financial institution.
Bitcoin was the first decentralised cryptocurrency, launched in 2009 with a tremendous increase in value in 2017.