ICO

ICO is the abbreviation of Initial Coin Offerings, that is, initial coin offering. As of April 2018, ICO industry analysts believe it will eventually become a multi-trillion dollar space as it raised a staggering $5,014,952,132. The cryptocurrency market, with a total market capitalization of more than $100 billion, has attracted the attention of many, including traders looking to make quick profits and escape regulation.

ICOs are another form of cryptocurrency used by businesses to raise funds. Through ICO trading platforms, investors can obtain unique cryptocurrency “tokens” in exchange for their monetary investment in a business. It is a crowdfunding method that funds project development through the creation and sale of digital tokens. This unique token functions like a currency unit, giving investors access to certain features of the project operated by the issuing company. These tokens are unique because they help fund open source software projects that would otherwise be difficult to finance with traditional structures.

History of ICO

It all started in 2013, when software engineer J.R. Willet wrote a white paper called "The Second Bitcoin White Paper" for the token MasterCoin and raised $600,000. By 2014, seven projects had raised a total of $30 million. The biggest raise that year was Ethereum, which raised over $18 million by creating 50 million ether and selling it to the public. 2015 was a quiet year. Seven ICOs raised a total of $9 million, with the largest, Augur, raising over $5 million.

Activity started to pick up in 2016, when 43 ICOs raised $256 million. These include the infamous token sale of The DAO project, an autonomous investment fund designed to encourage the growth of the Ethereum ecosystem by allowing investors to vote on projects to be funded. Shortly after the sale raised a record $150 million, a hacker stole approximately $60 million worth of ether, causing the project to collapse and leading to a hard fork of the Ethereum protocol. The DAO's failure didn't stop growing enthusiasm for the emerging digital asset space, and in December, the first fund dedicated to investing in the token received significant backing from old-school venture capitalists.

ICOs reached a new peak in 2017, in part due to the advancement of new technologies. 342 token offerings raised nearly $5.4 billion and pushed the concept to the forefront of blockchain innovation. The frenzy is fueled by ICOs selling out in increasingly shorter timescales, and in the rush to “take action,” project fundamentals become less important to potential investors.

How Does an ICO Work?

When a cryptocurrency project wants to raise funds through an ICO, the first step for project organizers is to determine how they will structure the coin. ICOs can be structured in several different ways, including:

Static Supply and Static Price

Companies can set specific funding targets or limits, meaning each token sold in an ICO has a preset price and the total supply of tokens is fixed.

Static Supply and Dynamic Price

ICOs can have a static token supply and a dynamic funding target – meaning the amount of funding received in the ICO determines the overall price of each token.

Dynamic Supply and Static Prices

Some ICOs have a dynamic supply of tokens but a static price, meaning the amount of funds received determines the supply.

Risks of ICO

For investors looking to participate in an ICO, it is important to investigate the following:

1. Vet the project team to see if they have demonstrable experience building successful businesses. Ideally, team members should also list their social media accounts so they can be contacted.

2. Review the project's white paper and roadmap to understand how the expected product or service will work, including when certain features will launch.

3. Check whether any computer code has been audited by a third party. This would be a good indication that a project is serious about its security.

4. Look for spelling errors on the website. This is usually an early red flag that a site was created quickly and without thought, and could be a sign that it's a scam.