What is ICO and How Does it Work?

6 min readAug 15, 2020

ICO token crowdfunding was initiated in 2013 when Mastercoin was the first ICO to be launched. It turned out up to 5 billion US dollars which induced others to invest in ICO. The second ICO token is the second most dominating one- Yes, it is the Ethereum ICO token which generated up to 18 million US Dollars in 2015. Later on, the number of ICOs increased to 100 in the next year, and in 2017, it reached nearly 1200 of them raising nearly 8 billion US Dollars.

What is ICO?

Initial Coin Offering is the present way of crowdfunding with the help of digital currency or the so-called cryptocurrency. ICO tokens will be developed by popular token development companies and promoted accordingly to attract investors. The token will be sold on share value to the investors for crypto coins.

If the targeted capital is raised, the business venture will be carried on and after the profits, the share will be returned and the amount will be repaid. If not, the tokens will be returned for the crypto coins spent. But the question is “Whether it is working?”. The answer is a strong yes. According to Coinschedule, the ICO generated more than 6.2 Billion USD through more than 120 ICOs in 2019. Even in 2025 now, there are Crypto companies looking to expand their financial capital with the help of ICOs.

Need of ICOs

Crowdfunding and capital formation have not been this much easier before without ICOs. ICO had been developed and maintained by top ICO development companies and hence there are fewer chances of getting deceived. Being centralized, you can rely upon ICOs for capital generation and profit-making. Of all the ICOs that had been ever created, the successful one is the EOS token which generated nearly 4 million US Dollars in just seven rounds of operation in 2017 and 2018.

To be short, ICO is nothing but similar to an IPO which works in stock marketing and trading operations.

Benefits of ICO:

There are several benefits to launching an ICO. Because who knows the token may be sold for 10k grand. The entire market is volatile and buying an ICO token has more opportunities than buying a cryptocurrency first. Also, you can back your desired team or union using the tokens that are available on the exchange platform. Another benefit of ICO tokens is that they come up with additional benefits like revenue redistribution on certain projects. These are some of the benefits that the token issuers will get by investing in ICO token development.

There are no regulatory restrictions to develop your ICO token for your crowdfunding activity.

You need not invest in any property or your collateral as a token to get your crowdfunding capital. You can also launch an ICO token by placing assets under the asset tokenization platform. Aiming to create decentralized innovative business models via a digital platform.

Risks of ICO:

There are always two sides to a coin. Yes, with enormous returns and benefits, comes a general risk. There are certain risks involved in investing in ICO too, but comparing the risks of stock trading, the risks are minimal and have less impact. One such risk is the success of the crowdfunding of ICO tokens. An ICO cannot rely on the success of crowdfunding alone as it totally relies on the stability of the coin even after the failure of capital generation.

The second risk is the less guarantee of returns and transparency. Also, most of the ICO platforms are scams and it is prone to loss of crypto coins. But, it is to be noted that the entire cryptocurrency network is protected by the blockchain platform and the transactions are ledger and managed. So, compared to other trading options, the ICO option is more safe, transparent, and reliable.

How to launch a successful ICO:

Launching an ICO successfully involves five important steps to be followed:

Develop a quality ICO Whitepaper with the entire details of your project
Prepare a well-structured marketing strategy for your ICO
Find out the right Token Sale Model for your ICO
Conduct and launch your ICO Token Sale in different periods
Manage Your Token Distribution

Launching an ICO is not a difficult task like creating a legal and traditional token. But it needs certain things to look over to successfully launch an ICO token. Firstly, you need to know the purpose of creating your ICO token and your present competition. Secondly, you need to look over the legality of the ICO in your country. If your country is against the launch of ICO, then there is no chance that you can start your business with the acquired capital with the ICO.

Create your distribution plan for your ICO. There are different types of distribution plans like Pre-sale, general sale, actual ICO tokenization sales, and private sales. Create a technical document, literally “ The white paper”, to describe your project in a detailed manner. Finally, promote your content through promising content and a marketing team to boost your ICO tokens. This does not end here. You need to track your ICO’s path and maintain it. You can do it by creating a roadmap and management criteria.

How does ICO work?

ICO working is similar to the working of traditional tokenization with the inclusion of a digital nature. It is working on certain principles.

A company or a startup that needs monetary help or investment capital will publish a white paper.
In the whitepaper, the company’s intention to start an ICO, the capital they need, and their future endeavors using the capital will be published to the investors.
Investors who find the project or the future endeavor interesting will buy a token from them for the exchange of cryptocurrencies.
They can also buy tokens using fiat currencies like US Dollars, British Pounds, etc.
Most of the ICO token capital formation is done in the decentralized application platforms. However, a certain commission is to be paid to the platform if the particular investment is generated successfully.
This token generation is easier to generate capital for a startup than conventional loans or venture capital generation.

No holding of assets or stakes:

ICO tokens are not assets themselves. They are a token for a project which requires crowdfunding activities. So, the investor who bought the token cannot claim the asset or the share for the particular business. Yes, you cannot claim ownership status if you buy a stake or token from the ICO. But when the business got uplifted, the cryptocurrencies would be returned with affordable profits.

The legality of ICOs:

ICO is legal in those countries which accept cryptocurrencies as a legal business. But the thing is ICO and other cryptocurrency-related businesses are not regulated. So, there is always a discrepancy in ICO investment. But the fact is that ICO would be regulated and maintained in the future giving it an organizational structure. Despite its framework and its DApp structure, it is maintained and managed by blockchain technology. Blockchain stores every transaction in a ledger. So, you need not be afraid of the regulation mechanism.

Evolution of ICOs:

Exchange platforms have updated the token trading platform to the next level by converting the coin offering to an exchange offer. IEO helps streamline the investors. Yes, In an ICO, anyone who aspires to invest in the token can participate. But in terms of IEO, only the members of the given exchange can participate. It is a centralized token exchange platform that gives more security to the investor. As ICO is considered a scam despite the presence of genuine ones, the IEO upgrade is the most essential one.

Final thoughts:

To conclude, ICO tokenization has been a helping hand for many startups and entrepreneurs to kickstart their businesses and earn more profits. So, preferring ICO and IEO for capital generation will be the best choice for every startup. However, whether you prefer ICO or IEO for fundraising, the primary objective will have to set up the base well. Many ICO development companies haven’t provided ICO websites of the highest quality and it has been a major drawback.

While using an ICO fundraising, I would suggest you opt for two methods.

ICO Software development
ICO script purchase

These two solutions have been preferred by startups for adopting a risk-free approach and they hardly require much investment. Both these solutions are offered by any top ICO development company in the market and you can certainly trust in these solutions. They provide a faster entry to the market with the same amount of ROI.