ICO stands for Initial Coin Offering. You can look at ICOs as an alternative form of crowdfunding to the release of a new cryptocurrency.
ICO is one of the most efficient and easiest ways for an individual or company to fund their projects and, at the same time, have other individuals and companies investing in them. Usually, before the new cryptocurrency emerges, the individual or company will need to raise money for all the technical development that is needed. So, they usually sell tokens in exchange for more established cryptocurrencies like Ether (ETH) or Bitcoin (BTC). The ICO period is usually never inferior to one week.
There are different types of ICOs. You can either have a specific limit of time or goal for the project funding. An example of an ICO may include having every token having a pre-designated price which will never change during the ICO period. In this case, the token supply is said to be static. However, you can also have a static token supply but include a dynamic funding goal. for example. In this case, the token distribution is made according to the funds received. So, if your project gets more funds, the token price will increase.
One of the best examples of a successful ICO project is the one regarding the Etherum, which has Ethers as their coin tokens. Back in 2014, only the Etherum project was able to raise $18 million in Bitcoins or $0.40 per Ether during their ICO. While the project only went live in 2015, by 2016 the Ether value had a huge increase in price and it went as high as $14, with a market capitalization of more than $1 billion.
Even though many people tend to compare an ICO with an IPO (Initial Public Offering), the truth is that they have a lot of differences. Unlike an IPO, an ICO doesn’t grant you any kind of ownership of the company or individual who is trying to develop their own cryptocurrency. Plus, one of the main disadvantages, especially when compared with an IPO, is the lack of regulation.
ICO regulation is needed
Throughout the latest years, you have numerous examples of successful ICOs. However, you shouldn’t trust every ICO you see or you get in touch with. While some end up with losses like it happened with cryptocurrencies such as Omni, for example, others can be used as a scam. After all, you just need to build a beautiful website, list some amazing sales talk, numerous promises that this is the nest big cryptocurrency, and you may have a hand full of investors willing to buy your ICO tokens. The problem when you are not cautious enough is that ICOs aren’t regulated by any financial institution. Unlike in the IPOs case where you have the SEC (Securities Exchange Commission), there is no entity to which you can appeal if you discover you were involved in an ICO fraud.
At the moment, ICOs are still operating in a so-called “gray area”. However, we believe that this should change soon even though this would certainly withdraw some of the advantages ICOs have at the moment.
Read more on what you should look for in an ICO here.