How do ICOs work?
An Initial Coin Offering (ICO) is a fundraising method where new cryptocurrencies or tokens are sold to investors. The process generally involves several key steps:
- Whitepaper Release: The project team publishes a detailed document outlining the project's vision, technology, use case, and roadmap. The whitepaper is crucial for attracting potential investors.
- Token Creation: The project team creates tokens, typically on an existing blockchain like Ethereum. These tokens represent a stake in the project or access to future services.
- Marketing and Community Building: Teams engage with potential investors through social media, forums, and events to build a community around the project and ensure sufficient interest.
- ICO Launch: The ICO is launched on a specified date. Investors can purchase tokens with cryptocurrencies (e.g., Bitcoin or Ethereum) during a pre-defined time frame.
- Funds Collection: The collected funds are used for the project's development, operations, and marketing. In some cases, funds are held in escrow until specific milestones are met.
- Token Distribution: After the ICO, tokens are distributed to investors’ wallets. These tokens can be exchanged on various cryptocurrency exchanges or used for services within the project ecosystem.
ICOs have become a popular way to raise capital in the crypto space, but investors should exercise caution and conduct thorough research to avoid scams.