What is an ICO/ITO?
Similar to a traditional IPO (Initial Public Offering) the idea behind an ICO (Initial Coin Offering)
or ITO (Initial Token Offering) is to raise capital to fund new projects.
ICOs and ITOs are a relatively new form of financing based on Blockchain technology that allows companies to raise capital at a very early stage of the project. In an ICO/ITO crowdfunded Coins/Tokens (“digital assets”) a preallocated to investors thus providing the issuing company additional capital. Depending on the design or rather the properties of the “digital asset” it is either a Coin or a Token (Token Sale). Since they share the same objective, the expressions Coins and Tokens are often used synonymously whereby “Coins” is the most common form. Sometimes the use of the expression TOKEN SALE instead of ICO/ITO has regulatory reasons. In certain jurisdictions the sale is treated differently than the (public) offering of Coins/Tokens.
In general the capital raised from the investors consists of other cryptocurrencies which either can be used for payments (e.g. salaries, services, goods) or exchanged into FIAT currencies.
Due to the fact, that IPOs are subjected to regulatory requirements and an IPO process is well structured this traditional way of capital procurement is currently considered as the more legitimate way. Nevertheless, the ICO market has recently experienced increasing acceptance and is meanwhile able to obtain the necessary funding for larger projects and companies.
In comparison to IPOs the implementation of ICOs is fast, cost-efficient and simple. In some cases, the realisation of an ICO could be done within one month.
An exception is the Instant-IPO process which gives companies a comparatively cost-efficient and direct access to the capital markets.
The business intention behind an ICO as well as the description and structuring of the Coins/Tokens are presented in a so called whitepaper.