Initial Coin Offering (ICO)

What is ICO?

Initial Coin Offering or ICO refers to the funding of cryptocurrencies. It is like an IPO or Initial Public Offering, and works like it, making ICO a sort of crowdfunding to launch a new coin, application, or crypto service promotion. Investors receive a certain quantity of cryptocurrency known as tokens in return for their capital.

Benefits and Drawbacks of Initial Coin Offerings

The number one benefit of ICOs is that they could offer extraordinarily generous returns.

Through them, investors have a chance to earn a share in an upcoming crypto venture, which is usually lucrative if the newly launched crypto company succeeds after its inception. If the tokens bought during the ICO increase in valuation, investors will have their share from the profits.

However, ICO tokens don’t have precalculated worth, or authorized guarantees. Yes, they have turned many buyers into tycoons, but investors can still fall prey to scams.

Scammers and fraudsters are constantly trying to trap impulsive and beginner investors. Almost no economic bodies, like the SEC, regulate ICOs, which means investment sunk because of fraud would not be recoverable. For that reason, many public and private sector authorities have criticized ICOs since their sudden upsurge in 2017.

Comparison Between ICO and IPO

Initial Public Offerings earn funds from investors, just like Initial Coin Offerings. What sets ICOs apart is that their patrons expect short-term, potentially triple digit returns on their funds while the investors in IPOs tend to wait for less, and longer-term gains. Hence, ICOs are “crowd sales,” not crowdfunding.

Furthermore, government entities like the SEC don’t regulate ICOs, which could hurt investors’ protection. 

Some firms lay out a particular objective regarding the funds earned by setting a fixed price for every token traded in the ICO while the overall token source remains static. Other companies have a dynamic funding objective with an inert stream of ICO tokens. In such a case, the gross token price will rely on the overall capital secured in the fundraising.

With all that said, ICOs could be great for those seeking high-risk high-reward investment opportunities. Lack of regulation, and common scam schemes, however, make it necessary to do proper research before putting money into cryptocurrencies offered by such events.