What is a Cryptocurrency ICO?
An Initial Coin Offering (ICO) is the initial sale of a newly issued token or coin at a discounted rate in exchange for cryptocurrencies or fiat currency. Prior to release on exchanges, ICOs are a way for investors to invest into a company before trading starts on public exchanges. This is typically a way for a company to raise money and to help fund the project. It is the digital currency version of crowdfunding for a project.
The term is derived from initial public offering (IPO) which is first time that the stock of a private company is offered to the public before it is put on an exchange. Unlike IPOs, ICOs do not have any legal ownership rights in the company, or entitle the owner to any sort of cash flow opporunities like dividends. Since there is no legal binding ownership and currently are not subject to regulation, they have been prone to fraud and scams.
The first token sale was held by Mastercoin in July 2013. Other notable sales include Ethereum and Karmacoin in 2014. The trend for ICOs started to take off when the messaging app developer Kik had a sale in September 2017.
Investing in digital currencies can be risky but ICOs are extremely high-risk because of the lack of regulation and the increasing popularity of scams. Investors should do research the company, project and key personnel before making an investment. The explosion in Bitcoin’s price has caused people to want to find the next Bitcoin. The problem is that most blockchain projects are opensource the new coins tend to be copies of legitimate projects or they are a token on Ethereum. Since tokens are so easy to create (can take less than an hour), these scams just put nice digital marketing around a specific purpose and release advertising for the ICO.