Understanding Initial Coin Offering (ICO)
An Initial Coin Offering (ICO) is a fundraising method used by cryptocurrency and blockchain companies to raise capital for the development of apps, services, or new cryptocurrencies.
ICOs are the cryptocurrency industry’s equivalent of initial public offerings (IPOs) and gained significant popularity during the crypto bubble of 2017.
Initial Coin Offering (ICO) | Source: Investopedia
Navigating Scams, Manipulation, and Legal Actions
However, ICOs have faced criticism and scrutiny due to scams and market manipulation concerns.
Some projects have faced legal action from regulatory authorities, such as the U.S. Securities and Exchange Commission (SEC), for conducting unregistered securities sales.
ICO Dynamics
An ICO typically involves a company releasing a whitepaper outlining the project’s objectives, token distribution details, and the number of tokens to be mined.
Early investors may receive discounted prices during the campaign, and additional discounts can be provided for purchases made with cryptocurrencies instead of traditional fiat currencies.
Tokens offered through an ICO can have utility, allowing owners to access specific products or services. In rare cases, they may represent ownership stakes in the ICO startup.
Evolving Investment Landscape
ICOs have faced criticism for their lack of regulatory oversight, making them attractive to inexperienced investors.
As a result, alternatives such as initial exchange offerings (IEOs) and security token offerings (STOs) have gained popularity in recent years.