An initial coin offering (ICO) is a means by which a start-up can raise capital by selling cryptocurrency inherent to their project in exchange for a more valuable cryptocurrency, such as Bitcoin or Ethereum. ICOs are unregulated and so are classified as high-risk investments.
If a start-up hopes to launch a successful ICO, information about the project is usually presented in what is known as a whitepaper. In this whitepaper, investors can expect to find information such as: what the project is about, the team behind the project and how much money is looking to be raised.
When it becomes time to participate in the ICO of a project, the token purchased may give the owner certain benefits. A token that has been purchased may give the owner access to a specific protocol or network , and so is therefore known as a utility token. However, a token may simply be purchased in hopes that it appreciates in value.
The funds raised are typically collected via a public address with which participants send their cryptocurrencies to. Alternatively, an account may be created for each participant, providing them with their own unique public address.
If the minimum amount of money is raised, an ICO is considered to be a success. The underlying token of that project then becomes listed on cryptocurrency exchanges, where they are traded against other cryptocurrencies. However, if the minimum amount of money is not met, it will be considered a failure and the funds returned back to the investors.