Definition
An initial coin offering or ICO is a relatively new approach for raising funds by using cryptocurrencies. ICOs are mostly conducted by cryptocurrency projects that are yet to fully develop their product, platform, or service.
Understanding the term
The initial coin offering (ICO) can be considered the cryptocurrency industry’s equivalent of an initial public offering (IPO). Companies that are looking for funding to create a new coin, app, or service can launch an ICO. Investors can buy into an ICO and receive the respective cryptocurrency token issued by the company.
This token may represent a stake in the project or company or may possess some utility related to the company’s product or service. ICOs are quite different from IPOs, even though the two are often compared. ICOs are more of a fundraising strategy for startups that need to push their project forward.
Unfortunately, there have been instances where ICOs have been conducted by non-reputable entities which have disappeared after extracting large sums of money from investors. This is why it is extremely important for investors to do their due diligence before investing in an ICO.
Takeaway
ICOs are similar to initial public offerings, but the coins issued in an ICO can have utility for a software product or service. While some ICOs have yielded massive returns, others have turned out to be frauds. The funds collected in an ICO are normally received as Bitcoin, Ether, or fiat money in some rare cases.