Initial Coin Offering (ICO) is an innovative approach for raising funds through the use of digital currencies (cryptocurrencies). Such a strategy is more prevalent in cryptocurrency projects that are yet to fully developed their blockchain-based product, service, or platform. The funds collected on ICO events are normally received as Bitcoin (BTC) or Ether (ETH), but in some cases, fiat currency may also be taken as payment.
Initial Coin Offering events are mainly performed as a fundraising strategy for startups that are in very early stages of development and need funds to push the project forward.
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There are many different ways of issuing a cryptocurrency token or coin before offering them on ICO crowd sales. While some companies prefer to build their blockchain from scratch, issuing their own native coin, the majority of ICO events that were held so far took place on the Ethereum network, following the so-called ERC-20 token standard.
Though the majority of ICOs have taken place on Ethereum, the first ICO — Mastercoin — took place on the Bitcoin network. In 2013, the Mastercoin team aimed to create a Layer-2 protocol on Bitcoin that would enable the issuance of new cryptocurrencies. The project embarked on a month-long fundraiser in which anyone could purchase mastercoin by sending bitcoin to the Mastercoin Exodus Bitcoin address. If you sent one bitcoin (BTC) to the address, you would receive 100 mastercoin, plus an additional 10 mastercoin per week until the end of the sale. The Mastercoin sale raised more than 5,120 bitcoin, which was worth approximately $500,000 at the time.
Ethereum was also originally funded through an ICO, which took place in 2014. Buyers received ether (ETH) in exchange for bitcoin, and more than 7 million ether was sold in the first 12 hours of the sale, worth approximately $2.2 million. By the end of the sale, more than 50 million ether was sold, amounting to about $17.3 million. Controversially at the time, 9.9% of this ether was set aside for Ethereum’s founding team, and an additional 9.9% was allocated to the nonprofit Ethereum Foundation. This feature, which is sometimes referred to as a pre-mine, was adopted by many later ICOs.
More on Ethereum ICO
Ethereum was officially announced by Vitalik during the North American Bitcoin Conference in Miami in January 2014.
The ICO opened on 20 July and closed on 2 September 2014, the total duration was 42 days. The only way to participate was to pay in bitcoin .
An interesting mechanism was created in these 42 days: the first days each bitcoin allowed to receive 2,000 Ether and then gradually the number of Ether that could be bought with a bitcoin decreased to 1,337. With this system the ICO obtained the sale of almost 60,000,000 tokens .
Thanks to the ICO, Ethereum managed to collect 31,529 bitcoins worth $18.4 million . A curious anecdote is that there was no minimum or maximum collection limit set, yet this is the sixth largest fundraising project of all time. In fact, it also seems that the company’s development team lost most of its revenue due to fluctuations in the price of bitcoin, since the funding was done in BTC.