<p>An Initial Coin Offering (ICO) is a fundraising mechanism in which a blockchain‑based project sells newly created digital tokens to investors in exchange for established cryptocurrencies such as Bitcoin or Ethereum, or occasionally fiat currency. The tokens often represent a utility within the project’s ecosystem, a share of future profits, or a governance right, and their value can fluctuate on secondary markets after the offering.</p>

<h2>How It Works</h2>
<p>The process typically begins with the publication of a whitepaper that outlines the project’s vision, technical architecture, <a href="/NewSite/encyclopedia/token/" class="ency-link">token</a> economics, and roadmap. Developers then create the token on an existing blockchain—most commonly Ethereum—using a smart contract that defines its supply, distribution rules, and any built‑in functionalities.</p>
<p>Next, the project announces the sale schedule, which may include a private presale for early backers, a public sale, and sometimes a bonus structure to incentivize early participation. During the sale, contributors send funds to the project’s wallet address; the smart contract automatically allocates the corresponding amount of tokens to their addresses.</p>
<p>After the sale concludes, the tokens are usually transferred to participants’ wallets, and the project may list them on cryptocurrency exchanges to provide liquidity. The raised funds are then used to develop the product, cover operational costs, and grow the community, while the team continues to deliver on the milestones outlined in the whitepaper.</p>

<h2>Why It Matters</h2>
<p>ICOs lowered the barrier to entry for blockchain innovation, allowing startups worldwide to raise capital without relying on traditional venture capital or banking channels. This democratized funding accelerated the development of decentralized applications, DeFi protocols, and NFT platforms.</p>
<p>For example, Ethereum’s 2014 ICO raised approximately $18 million in Bitcoin, providing the resources needed to launch a programmable blockchain that now underpins thousands of tokens and applications. While the model has spurred tremendous growth, it also highlighted the need for investor protection, prompting regulators in many jurisdictions to introduce guidelines aimed at preventing fraud and ensuring transparency.</p>