the terms ITO or Initial Token Offering and ICO, or Initial Coin Offering are sometimes used interchangeably, with the latter being the preferred choice for most people. However, as we’ve come to learn, there are some clear differences between the two. Despite this, we will continue to use the term ICO for the remainder of this article, even though the example used, in literal terms, is that of an ITO.
Now that we've cleared that up let's get on with our example.
Imagine that you're a start-up with a great idea for a new cryptocurrency enabled project. Perhaps you want to build an online service to help facilitate contracts, payments and even communication between Landlords and Tenants. A Blockchain solution could be the ideal fit for such a project.
Let's call your new online service TenantCoin.com and your new cryptocurrency TenantCoin.
Now, to create your business and launch TenantCoin, you'll first need to raise funding. But before you do that, you'll need to decide the means by which your currency, TenantCoin, derives its value. And as you may remember from our Coins vs Tokens module, there are two types of TenantCoin tokens you could sell to raise money.
The first is called a security token, which in essence, means that the value of each security token is directly linked to assets owned by the company.
The second is known as a utility token. Which in the example of TenantCoin could be used by landlords and tenants as a means of payment within the TenantCoin platform.
Preparing Your ICO
Now, assuming you're all prepared, you can get started with your ICO. Here's how it works.
Firstly you'll need to create a document detailing exactly how the business will function, this document is commonly referred to as a white paper. We'll look at the typical contents of a white paper in an upcoming article.
Secondly, you'll need to market your ICO, helping your potential customers understand why it's such a great investment opportunity. You can do this via a combination of various marketing techniques e.g. designing a website, using social media or even creating an explainer video.
All of the above should in some way, focus on one key goal, i.e. getting people to send you money in return for some TenantCoin.
Return on Investment
The idea is that as the company grows and obtains more assets, those early security token investors will see a strong return on their investment.
Or, if you happened to have opted for utility tokens, as the relative demand of TenantCoin rises, when compared to its supply, the value of the currency will appreciate, and those early utility token investors will see a healthy return on their investment.