Understanding ICOs (Initial Coin Offerings) And Their Uses


The topic of ICOs is becoming increasingly popular, with billions of dollars being raised through this process. However, becoming a part of this flourishing system, it is vital to understand ICOs, their uses, applying and what is so exciting about bitcoin to work, and how you can invest smartly. In addition, it’s essential to understand before you choose to buy into an ICO that quality over quantity is vital. By understanding this new crowdfunding market, you’ll be able to make a more thoughtful financial decision when deciding whether or not it’s right for you.  

How Are ICOs Processed?

To understand in simple terms, Initial Coin Offerings (ICO) is a process in which funds pour into a project using digital tokens that have been designed and issued specifically for that purpose. They are a form of crowdfunding, similar to what is used in the film, music, and art industries. This task of generating ICOs is completed in two simple phases:

  • PHASE 1

First, a company generates its digital token using blockchain technology. This can be achieved by using Ethereum’s ERC-20 protocol as an example. This token is then sold for a lower value than the projected profits that the company believes it will generate in the future. An ICO can be made even more lucrative by having investors pay with other cryptocurrencies rather than fiat currency like US dollars or Euros. The current market exchange rate determines the price, and it might be even lower than the amount of money needed to produce a profit. 

  • PHASE 2

2) The company then issues its token on trading platforms like Ethereum’s Ether. These tokens are essentially used to pay transaction fees (for example, when transferring stored digital money into another asset for security purposes). They are in circulation and can be used to pay for goods and services, or they can be used as a method of cash deposit (making it more likely that they will be collected). Some companies might sell their tokens on exchanges like Binance to generate more profit.

Why Do Companies Choose To Raise Money With ICOs?

Different companies see the different potential of ICOs to start using ICOs to raise money. For example, a new type of social platform that could increase engagement between users, while others want to introduce new ways of delivering services or software updates. The However, technology behind ICOs is still in its experimental stage, so it is up to you to decide whether or not the investment is worth it.

Once a company has gone through generating their token and selling it on exchanges, they will have scouted out companies that have been successful in the past. The network of these companies can be built up with new products developed by other startups. By using these new products at a discount, investors can be assured that their tokens will continue to return a profit for years to come.

Some Common Uses Of ICOs

When looking at some of the most successful ICOs, you’ll find that they all have different reasons for creating their tokens. However, the following are some of the most common uses of ICOs:

  • Payments – ICOs help make online payments cheaper, faster, and more secure. They can be used for business-to-business transactions and retail payments between customers and companies. 
  • Platforms – Blockchain technology offers a simplified way to manage data under a centralized ledger that’s extremely difficult to hack into or change without permission from a person who controls the system. It also adds in additional levels of security that can prevent any changes from being made by people who don’t have permission.
  • Smart Contracts – Smart contracts are used to enforce agreements or contracts that are transparently stored and accessible across different platforms. They are simply lines of code that can only be completed when all conditions for completion have been met. 

If a company has been successful with an ICO and is generating good profits, it will have an investor who will want to invest even more. They will want to invest in other new companies that also plan to use ICOs to raise funds instead of an old bitcoin software. If you’re considering investing in an ICO and you’re not sure if it’s the right choice for you, then make sure that you do some research on the company instead of simply taking anyone’s word for it. 

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