An initial coin offering (ICO) is a type of capital-raising activity in the cryptocurrency and blockchain environment. The ICO can be viewed as an initial public offering IPO that uses cryptocurrencies. However, it is not the most precise comparison, as there are some crucial differences between the two fundraising activities. Startups primarily use an ICO is to raise capital.
The main advantage of ICOs is that they remove intermediaries from the capital-raising process and create direct connections between the company and investors. In addition, the interests of both parties are aligned.
The two types of initial coin offerings are listed below:
In private initial coin offerings, only a limited number of investors can participate in the process. Generally, only accredited investors (financial institutions and high net-worth individuals) can participate in private ICOs, and a company can choose to set a minimum investment amount.
Public initial coin offerings are a form of crowdfunding that targets the general public. The public offering is a democratized form of investing because almost anyone can become an investor. However, due to regulatory concerns, private ICOs are becoming a more viable option relative to public offerings.
The rise of cryptocurrencies and blockchain technology is helping boost the popularity of ICOs. In 2017, more than $7 billion was raised using ICOs. In 2018, the figure almost doubled. The largest ICO to date was executed by Telegram, an instant messaging services provider. During a private ICO, the UK-registered company raised over $1.7 billion.