We have been talking about ICO for years but it has not been until recently that everything that has to do with cryptocurrencies has reached a special dimension. ICOs are just one more aspect of crypto currencies, but very important, since it has to do with their birth.
What is an ICO? What is it for? What advantages does it have? Is it safe to participate in an ICO? We will try to explain all this in the simplest way possible.
But what is an ICO?
ICO is an acronym that means Initial Coin Offering, that is, initial offer of currency. The acronym ICO is quite similar to IPO, Initial Public Offering (which in Spanish is called OPV, public offer of sale) term used when a company goes public and wants to offer shares to potential investors in exchange for money. And it is that the ICO has to do with the financing of a business project.
Financing a cryptocurrency
In the case of an ICO list, what is intended to be financed is the birth of a new cryptocurrency, in the style of Bitcoin or Ethereum. We have already talked about these cryptocurrencies before. These are scarce virtual tokens, protected by cryptography, which have a value due to their scarcity and demand. These virtual currencies serve both to make payments in a very economical way and to store value, since there are markets where they are exchanged for real money.
The cryptocurrencies are created over time by a process called “mining”. The “miners” make computing power available to the project, which allows the system to work and therefore receives prizes: both the “mined” coins that appear spontaneously and randomly, as well as the commissions they receive when verifying commercial transactions that occur between users of the currency.
When someone decides to create a new cryptocurrency, he first designs it and then implements it through software. Finally, it makes this software available to the community so that the miners that support the activity of the same appear.
The whole process has a cost and one way to finance the project is an ICO. The developers carry out a pre-mine under closed doors and offer the new virtual currency in exchange for other currencies that already circulate, such as Bitcoin, and which are also interchangeable for real money in circulation. Therefore, an ICO is to offer some initial investors the new currencies in exchange for money. Hence its resemblance to an IPO, although it could also be said that it is very similar to a crowdfunding, since it is a community of users who finance a project without intermediaries.