An Initial Coin Offering (ICO) is similar to the working process of an IPO, however, it is a mechanism by which cryptocurrency companies sell their tokens in exchange for bitcoin, ether, ripple and other digital cryptocurrencies.
ICOs are a relatively new concept that came about after the release of Bitcoin and the blockchain technology and soon become a dominant topic of discussion within the blockchain community. Since 2013 ICOs have been extremely popular in raising funds and the pre-created token can be easily sold and traded on all cryptocurrency exchanges if there is a demand for them.
Brief History in ICOs
- ETH, when it first offered its ICO was sold at 0.0005 bitcoin and is currently worth 0.05 BTC which is a 10,000 percent increase in profit.
- Augur Tokens(REP) were sold initially for 0.005 each and is now traded at 0.01 which gained in value from 100 to 500 percent in bitcoin.
“The ICO market is currently still completely unregulated. Everybody should be aware that this does imply not only large profits for investors but also large losses.”
The ICO financial instrument is still unregulated and undefined in terms of legality as tokens are not sold as financial assets but as goods that are digital like other products. Sometimes ICOs are referred to as “crowd sale”.
The Merits of an ICO
- Lesser restrictions and quicker process than taking the venture capital route.
- Ownership and equity are unaffected (Unless stipulated otherwise).
- A faster funding process.
- For a token holder – returns on investment with an increase in a token’s price.
- ICO lets individuals become a part of a new and improving technology that could disrupt and revolutionize multiple industries.
The Risks involved with an ICO
- Undefined and uncertain regulations.
- Volatile sale of tokens or unstability in the process
- Unlike shareholders, token holders are faceless.
- Lack of regulatory protection.
“Bitcoin is just one example of something that uses a blockchain. Cryptocurrencies are just one example of decentralized technologies. And now that the Internet is big enough and diverse enough, I think we will see different flavors of decentralized technologies and blockchains. I think decentralized networks will be the next huge wave in technology. The blockchain allows our smart devices to speak to each other better and faster.” – Melanie Swan