An initial coin offering (ICO) is a means of crowdfunding, through the release of a new cryptocurrency or token to fund project development.
In an ICO, a project creates a certain amount of digital tokens and sell them to the public. They usually do it in exchange for other cryptocurrencies such as bitcoin or ether.
Main reasons why public might be interested in a new token are these:
- The token has an inherent benefit – it grants the holder access to a service, a say in an outcome or a share in the project’s earnings.
- The benefit will be in increasing demand, which will push up the market price of the token.
An ICO is somewhat similar to an initial public offeringbecause it allows investors to purchase a “share” (or token) in a new idea or project. They often take place over 30 days and are the primary source of funding for some cryptocurrency startups. Unlike an IPO, most ICOs are unregulated and there are few or no protections for investors.
Main problems of ICOs:
- Absence of Regulatory Oversight: Regulations are good because they protect people/investors/YOU. It is recommended to have due diligence before investing.
- No Track Record: The majority of ICOs don’t even have a working product, just a conceptual white paper that outlines how the coin will work. Not only that, ICOs have been asking for an incredibly large amount of funding.
However, one can claim that ICOs are a good thing for the following reasons:
- Democratization: Allow projects to circumvent the traditional method of asking Banks/Venture Capitalists to invest, which can take a lot of time and resources. Anyone can invest and can earn the possibly huge returns, just like huge investments funds do. Of course, investing in ICO’s is a high-risk venture.
- Immense Profit Potential: Many in the space want to invest in the “next Bitcoin”, potentially riding the wave of buying coins at pennies on the dollar and selling them later at an astronomical valuation.
- Disruption: Validating a concept bringing high payoff due to the extremely market potential.