What Is An ICO and How Does It Work
Exploring the landscape of ICOs, we delve into what they are, where they came from, and what function they bring to the decentralised market place.
What Is An ICO?
Initial Coin Offerings (ICOS) are a means of crowdfunding in the cryptocurrency ecosystem. It is a modern opportunity to raise capital for new businesses, instead of going the more traditional routes of IPOs and venture capitalists. For example, if you have a great idea and want to launch a startup, but lack the capital to get it off the ground, ICOs give you the opportunity to raise the funds you need to develop the project, without typically having to give up any of your ownership.
This concept came about in 2012 when a software developer, JR Willet, wrote about it in a White Paper. It was titled Mastercoin (now called Omni) and was about creating a new protocol layer on top of the Bitcoin blockchain for users to be able to create and use new digital currencies without the need of advanced technical skills. He launched the project in 2013, raising $2 million dollars in the space of nine months. Typically an ICO these days will last several weeks.
How Does An ICO Work?
An ICO is developed from an idea supported or built on a blockchain network. The startup will draw out the idea in a White Paper, and band together a team of highly skilled investors, developers and experts in the field. They will then initiate a “token sale” which allows investors an opportunity to buy blockchain-powered tokens which will fund the initial stages of the project development.
There is typically an opportunity for the “investors” to make a profit off of their tokens, but this is never guaranteed. The tokens will usually offer a “coupon” to services or products that the platform will offer post-development.
What Happens After The ICO?
The intention of the ICO is to draw investors to support this idea, and to facilitate the development of the project by providing capital. Once the ICO closes, the startup will develop the project in a timeline stipulated in their White Paper. In terms of creating liquidity, it is considered beneficial to list the tokens on several exchanges, allowing investors to buy, sell or trade their tokens which in turn raises the value of the token.
In post-ICO phase communication is key as well as delivering as much value to token holders as possible. That’s were Vertex steps in, creating an aftermarket for non-listed tokens. By offering an OTC trading platform, Vertex can offer secure trading as well as guaranteeing the success of every transaction. By offering liquidity to digital assets, Vertex is the world’s first secondary market.
