Initial Coin Offering

initial coin offering (ICO) explainedInitial Coin Offerings are enabled by Smart Contracts. Smart contracts execute the terms inside of them when the programmed condition is met. An ICOs will likely set a minimum amount of money to raise for their campaign.

Simple example:

A company wants to raise $1 million to develop and application. The company creates an Ethereum-based coin of their own with the initials XXX as the token name.

The company then decides that an investment of one (1) Ether is equal to 250 XXX coins. To make this real simple we’ll assume that Ether trade at $250. This means that the company will issue 1,000,000 XXX coins.

A day after the ICO goes live, the company sells all one million XXX coins and the smart contract releases the XXX coins to all buyers.

If the ICO did not meet its minimum funding requirement, all buyers get back the money that they’ve put in the ICO.

Coin holders are generally treated the same way as stockholders in a traditional IPO. If a company goes bankrupt and is liquidated in the process, the tokens will still exist as smart contracts but the value of the Coin will fall and might be rendered worthless.