Timothy A. Koonce: What is an ICO and what does it mean to new businesses?

what is an ico

By Kiki Schirr, {grow} Contributing Columnist

In the news recently, you may have heard of a new phenomenon called the “ICO.” What is an ICO, you may ask! An ICO, or initial coin offering, is an important new trend, a chance to buy into new crypto-currencies or tokens built on Blockchain. The trend began in startups, but even larger companies such as Kik are beginning to look into ICOs as a way to raise capital.

Last year I wrote, “What is Blockchain and What is its Impact on Marketing” for {grow}. I meant it as a Blockchain 101, so let’s consider this follow-up article a Blockchain 201: The New Value of Tokens.

What is an ICO?

Simply put, an initial coin offering is a sale of a brand-new cryptocurrency. You can think of the model as being similar to Kickstarter: a company will be producing a service or good but would like to raise funds in advance. Only instead of getting T-shirts in the mail, ICO buyers receive coins or tokens in exchange for their support.

So if you were to buy into an ICO of a promising young company, you would trade your Bitcoin or Ethereum (both relatively established cryptocurrencies) for new coins the company had just created. It’s a risky venture, but could be extremely lucrative if you place your bet on the correct company.

What’s the difference between an ICO and an IPO?

Big, or the SEC will come after you! In an IPO, a company divvies out portions of its stock, literally a piece of the company itself. In an ICO, you receive a currency that can be used to purchase goods or services from the company.

So an IPO would be owning United Airlines stock, and an ICO would be owning United Airlines mileage points.

If the division is not made clear enough, though, the Securities and Exchange Commission of the United States will breathe down your neck, so many new companies choose not to call theirs an ICO. Instead they call it a crowdsale.

Essential Token Lingo

Coin — A cryptography-based currency that has a Blockchain

Token — A representation of assets or other value that sits on an existing Blockchain (often Ethereum)

Cryptocurrency exchange — A marketplace to trade cryptocurrencies. The four largest are currently: Poloniex, Bitfinex, Kraken, and Bittrex.

Digital asset — A catch-all term for coins, tokens, and other types of currencies online — but can also include other binary-based goods such as photos or documents. Digital assets are not necessarily issued on a Blockchain.

What’s the difference between a token and a bitcoin or altcoin?

The simplest way to think of the difference between a token and a coin is that coins are peer to peer and have their own Blockchain (like Bitcoin itself) while tokens rest on top of another Blockchain (like Golem is on Ethereum). Ethereum, which creates smart contracts, can easily be used to create tokens.

What are uses of tokens?

Tokens can be used in many ways, much like any currency can be used. Just to summarize a few:

Steem: pay content creators for entertaining or useful content (see Steemit in resources section)
Factom: create permanent records of documents or other digital assets to provide evidence during audits
Basic Attention Token (BAT): reach buyers with your ads by paying for their attention
Storj: buy digital storage in the cloud (like Dropbox)

Of course, since cryptocurrencies are so flexible, the sky is the limit for how they will be used. If you would like to know more uses, you could take a moment to read this article on 70 problems different altcoins are trying to solve.

Why digital marketers need to be token savvy

Tokens, ICOs, and cryptocurrencies in general are all buzzwords right now. Even if your company never uses them directly, you should be savvy enough to know their meanings.

However, there are some very real marketing purposes of using cryptocurrencies, also.

If you are a young company looking to raise money, an ICO–sorry, crowdsale!–might just be right for you. You can read more about whether your company would be good for an ICO here. In general, though, you would want to be knowledgeable and known in the crypto community first, and some of the resources in the next section will help with that!

Even simply accepting cryptocurrencies as a source of payment can be press-worthy. Payment companies like Stripe often offer Bitcoin support now, so you might even be able to begin accepting without changing your payment platform.

A few high quality resources to learn more

Bitcointalk– the premier forum for Bitcoin also has a section on altcoins, so be sure to get to know the lay of the land here!

Cryptominded– a collection of various cryptocurrency resources, including a great beginner’s guide to cryptocurrency

Steemit– a great place to get to know others passionate about cryptocurrency, all while reading interesting articles

CryptoBot– a Facebook Messenger bot that will aggregate news and track crypto terms for you

ICO Watchdog– can alert you to new ICOs with notifications and tracking. It does have a one-time upfront fee.

CoinDesk– Read basic cryptocurrency news on CoinDesk

I’d also recommend that you start becoming active on Telegram, as there are many good channels devoted to crypto.

I hope that this article has been informative! Please leave any questions you might have in the comments. I look forward to hearing from you!

Kiki Schirr is a freelance marketer and founder of WeKiki distributed video platform, which is planning to tokenize soon! Kiki can be reached easily through Twitter.