What is an Initial Coin Offering (ICO)?

In blockchain terminology, ICO stands for Initial Coin Offering. Equivalent to an IPO in the investment world, ICOs are a way for cryptocurrency developers to obtain funds by delivering a certain quantity of their new coins to buyers. Speculators either hand over legal tender or other more established cryptocurrencies such as Bitcoin or Ethereum. In exchange, speculators aim for these new digital currencies or products to perform well and appreciate in value so that they can make a profit when sold or traded.

ICOs attained commercial success in July 2014 when ICO Ethereum raised a whopping $18.4 million. This event marked a significant breakthrough which led to ICOs becoming the de-facto method for funding any crypto-project development. Just in 2017 alone, ICOs raised $5.6 billion and records continue to be broken as figures from the first half of 2018, $6.3 billion, exceeded the entire year of 2017.

Figure 1: ICO statistics (Rosic, 2019)

The benefit for cryptocurrency creators lies within the fact that the ownership stake of the company still belongs to them and does not change hands even though funds are acquired. ICOs are generally used by startups as a form of blockchain crowdsales by providing the easiest and most direct route for interested investors to purchase tokens.

Much like how there are two sides to a coin, the advantages of ICOs are accompanied by downsides. The lack of paperwork is a double-edged sword as scammers have been able to create bogus white paper and omit important details.

Another major con is the high levels of risk involved in terms of ICO investment returns. Investors often rely on the quality of white paper as well as the credibility that the team exhibits to make a decision. However, it all boils down to the probability of whether the project idea would succeed.

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Disclaimer: This article is not trading or investment advice. It is for entertainment and educational purposes only. Please do your own research before investing into any digital currency.

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