Initial Coin Offering (ICO) is an innovative approach to raise funds through the use of digital assets (crypto assets). Such a strategy is more prevalent in crypto asset projects that have not yet fully developed their blockchain-based product, service or platform. Funds raised at ICO events are usually accepted as Bitcoin (BTC) or Ether (ETH), but in some cases, fiat currency can also be taken as payment.
Typically, investors engage in Initial Coin Offerings with the hope and expectation that the digital token (or coin) or crypto asset and its associated companies will be successful – possibly generating a good return on investment (ROI) for those considered early backers.
Although often compared to IPOs (Initial Public Offerings), Initial Coin Offerings or ICOs are very different in the sense that the investor does not purchase any shareholding in the company. The Initial Coin Offering event is primarily conducted as a fundraising strategy for startups that are still in the early stages of development and need funds to push the project forward.
Unfortunately, however, many ICOs are carried out by unreliable entities that raise large sums of money and disappear, without further development. For this reason, it is very important for investors to do their due diligence (also known as DYOR) before investing in a crypto company.
There are many different ways to issue tokens or coins on a crypto asset before offering it on an ICO crowd sale. While some companies prefer to build their blockchain from scratch, issuing their own native coins, the majority of Initial Coin Offering or ICO events held so far have taken place on the Ethereum network, following the so-called ERC-20 token standard.