What Is an ICO in Cryptocurrency?
ICO (Initial Coin Offering) is a new crowdfunding mechanism in the cryptocurrency and Blockchain industries.
Most startups in the cryptocurrency space rely on ICOs to raise money for their projects through issuing digital tokens in exchange for fiat currency or other cryptocurrencies like Bitcoin or Ethereum. You can read more about how an ICO works here .
These tokens are similar to a share in a company sold to investors in an Initial Public Offering (IPO) transaction. If the money raised does not meet the minimum funds required by the firm, the money is returned back to the backers and the ICO is deemed as failed.
In 2016 alone, over $100 million was raised through ICOs. The first quarter of 2017 has already seen $200 million raised through ICOs.
The Ethereum ICO: A Lesson for All Entrepreneurs
Ethereum’s ICO is perhaps the best crowdfunding success story in cryptocurrency so far. In 2014, the Ethereum Foundation sold ETH tokens to the public to raise funds for development of a platform that would facilitate smart-contracts and Dapps.
In return, the investors of ETH were to receive the altcoin native to Ethereum’s network – Ether. It’s important to note that most ICOs issue a relative amount of their cryptocurrency tokens in exchange for investment money. Investors hope that as the project they invested in grows, the token they bought from the company will grow in value as well.
Unfortunately, most projects launched through ICO do not succeed and the value of their tokens drops to zero. [link to article about recent examples]
ICO investors hope that the project they invest in becomes widely adopted and gains traction as more people use it. If this happens, the initial coin offering will become successful and worthwhile for early adopters.
Unlike with an IPO, there are no regulations when it comes to participating in an ICO. Anyone who wants to invest can do so without passing any exams or strict checks that hinders one from becoming a public company shareholder.
Investing in the blockchain space is not always safe, however. Because of lack of regulation, many people have been scammed by fake ICOs and there is no way for the investor to file a case against the company since all transactions are final on Blockchain.
ICO investors don’t have a lot of protection here, so it’s important with every investment to only put as much as you can afford to lose.