ICO Stands for Initial Coin Offering and is a play on the popular term “IPO”‘ standing for Initial Public Offering. Unlike IPOs, which are for companies to list their stock on a public exchange, Initial Coin Offerings are for blockchain projects to raise money without depending on private finances such as Venture Capital (VCs).
Crowdfunding for crypto
Thinking about how ICOs operate reminds me of how useful Kickstarter was when it first came out. If you haven’t heard of Kickstarter, it’s a website where people with ideas can collect money to carry out a project. But there are a couple of problems with this: Kickstarter takes a cut of all successful funding initiatives, and the financial contributors receive absolutely nothing in return for their savvy investment.
ICOs can be used to crowdfund, but there’s also a huge profit motive driven by speculation that brings in the funding for ICOs. Because of the chance to make quick money, investors are jumping at the opportunity to get a piece of these ICOs. We’re even seeing some ICOs bring in hundreds of millions of dollars, often selling out in seconds.
Regulation and ICO bans
And of course, where there is speculation on potential securities, there is potential regulation around the corner. We’ve seen countries temporarily ban ICOs, and there are constant rumors that other countries will follow. ICOs have caught the SEC’s attention. While they have not explicitly banned them, they have put companies on notice, as very few ICOs actually register with the agency.
ICOs are still a fairly new concept, so these regulatory agencies are scrambling to determine which regulations will be implemented.
Unlike centralized models in the past, ICOs allow for direct & censorship-resistant way for users to contribute to projects. Initial investors are still rewarded for the project succeeding. Although the tokens can have value, they don’t necessarily represent any voting rights or equity. Often, they are just a license to use the platform. As we’ve seen, many projects will pivot or fail. Some may be outright scams, so be sure to do your research before getting involved.
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