The invention of ICOs dates back to 2013 when Mastercoin, the first ICO was launched. Since then, there have been other successful ICOs such as Ethereum, which raised $18 million in 2014.
The current popularity of ICO is a result of its ability to efficiently fundraise for blockchain projects and startups without the usual capital raising process associated with venture capitalists, banks, and angel investors.
Research by the Review of Financial Studies shows ICOs raked almost $13 billion globally between January 2016 and August 2019. Meanwhile, a report by Ernst & Young found that 86% of leading ICOs that launched in 2017 were below their listing price by October 2018.
What is an ICO
An initial coin offering (ICO) is a process of raising capital through the sale of digital coins or tokens to investors seeking to purchase the tokens. The token sales work in a similar way to IPOs, with companies that require funds to create their products using blockchain technology to offer investors the tokens, which can be traded on the internet for other cryptocurrencies like Bitcoin and Ether.
Although ICOs have only been around since 2013, they have already raised billions of dollars for businesses around the globe. Many venture capitalists and small business owners are starting to see this new method of fundraising as a promising alternative to traditional ways of raising money—and the trend shows no sign of slowing down anytime soon!
How Does ICO work
There are a lot of people who want to invest, but they're afraid of the cryptocurrency market because they don't know much about it.
When an ICO is launched, there is an intrinsic value embedded in the company's new currency. The next step will be for the company to locate customers who are willing to buy that worth.
A white paper is needed to accomplish this. The whitepaper contains everything that the client needs to know about the project. In addition to describing the currency or token, it also provides information on how the token or currency can be used by users, as well as the ins and outs of the blockchain and token economics.
The team behind this begins promoting their goods after this is done to ensure as many people as possible are exposed to the product. Most of the time, they do this using a variety of internet channels, such as social media, crypto forums, and other directories of initial coin offerings (ICOs) because having a greater awareness of it will help raise the necessary funding.
In some cases, the first sale will be the only option; in others, a pre-sale or whitelisting period may be required. The price of a token may rise or fall depending on when investors join the project.
There are a few different methods by which companies might organize their ICOs. Supply or pricing can be altered so that they can achieve their aims with the ICO. In order to make things simpler for the team and investors, they can, for example, set a fixed price and a predetermined coin stock.
Pros of ICO
- Potential high returns
- No extensive disclosure requirements for the fundraiser
Cons of ICO
- ICOs are not regulated by financial authorities like the SEC
- Funds that are lost due to fraud or incompetence may never be recovered
Examples of ICO
- Block.One year-long initial coin offering (ICO) for the EOS blockchain raised a record-breaking $4.1 billion in 2018.
- Binance Initial Coin Offering raises $15billion in 2017
How Can You Invest in an ICO
Before you invest in an ICO, there are some things you should know.
For starters, when it comes to ICOs, there are two ways to think about them: as a new way of raising capital or as a way of circumventing regulations.
A number of companies have found success by launching ICOs. For example, Mike Novogratz, former CEO of Fortress Investment Group, has made several multi-million dollar bets on Bitcoin and Ethereum. And many others have either used ICOs to raise money or are using them as a way to get around regulators.
In general, half of the world's largest cryptocurrency exchanges don't operate in the US or other regulated markets. Some exchanges are based in countries that don't even mandate that they be regulated by their governments. These companies tend to be more focused on anonymity than security and ethics.
If you're not familiar with it, an ICO is a new way of crowdfunding a new start-up. Instead of raising money from banks and venture capitalists, entrepreneurs can raise money from their own customers—and ONLY their own customers—in the form of cryptocurrency. When you buy into an ICO, you're buying into the idea of a startup that will use this funding to grow into the next great thing in technology or business. The best part? You don't have to be a venture capitalist or wealthy investor to participate!