What is Initial Coin Offering (ICO)?
Not long ago, Bitcoin was in its infancy stages, and it felt small. But it is not a rookie anymore; it has grown to greater heights, and it keeps growing.
To emphasize Bitcoin’s maturity, it recently set a new price record as the price of one Bitcoin went beyond the $4000 threshold. Ever since Bitcoin was launched in 2009, the cryptocurrency ecosystem has exploded.
Cryptocurrencies have become quite a powerful concept from the time Bitcoin shared the media’s attention with Litecoin and Dogecoin. At the time, Mt. Gox was a big player in the game, cupcake shops got into the spotlight by adopting online currencies and pizza was an important bitcoin-pricing metric.
At the moment, there are quite a few digital currencies worth eight figures and more are being launched nearly every day. In this current environment of newly announced coins is a fresh transaction type that is becoming famous by the day; the “Initial Coin Offering” (ICO). It is very similar to an IPO, albeit in temporal reverse (kind of).
ICO is a bit confusing, but lately, it has become a prominent and preferred method of launching a new digital currency. However, as it is typical of emerging crypto products, there are unethical players and legal questions involved.
So, what exactly is an ICO in today’s cryptocurrency market?
An ICO is a tool for fundraising that trades future cryptocurrencies in exchange for crypto coins of current liquid value. For example, you give the ICO Ethereum or Bitcoin, and you get the infamous CrunchCoin or whatever new coin.
According to the Financial Times, ICOs are, “unregulated issuances of crypto coins where users can raise money in either Bitcoin or other cryptocurrencies.” This is true, especially if you emphasize on “unregulated.”
The ICO transactions are not in good faith—they are simply investments that are made in the hope of quick, high returns. Smith + Crown research group believe that some ICOs are “launching ‘meta-tokens’ built on Ethereum, Bitcoin, NXT or others.”
In that light, ICOs can become “coins on top of coins paid for by the transfer of other digital currencies to accounts in the hunt for what’s next.” It seems crazy, but it keeps their heat bubbling. ICOs have become the new funding slingshot for flinging nascent cryptos into the world.
The ICO environment is not without bad actors. It does not come as a surprise given the tradition of bad behavior in the online currency world. Fraud is so common that even a quick search will reveal shocking headlines.
The digital currency market is blowing up. Is investing into an ICO a good idea? Yes, but if and only if, you have a huge appetite for risk, you can afford to lose your capital and you will be okay if the idea flops.