An ICO is a token/coins generating event, distributing tokens that will be used for accessing the service or features of the platform issuing the token. There are a lot of startups out there raising money this way and it looks like the list of companies wanting a part of this just keeps on growing.
What is an ICO?
When someone does an Initial Coin Offering(ICO) they are creating a new token or a coin that the investors can use for buying their service when they launch in the future. In other words, an ICO has nothing to do with the more known type of gathering money, Initial Public Offering (IPO).
ICOs are a relatively new phenomenon but has in a very short time become the biggest subject for discussion from people into Blockchain technology. Even if you might do an ICO without using Blockchain technology it does not make so much sense.
Are ICOs regulated?
Lately there has been a lot of focus on regulations of ICOs around the world. For example, The U.S. Securities and Exchange Commission (SEC) has recently reached a decision regarding the status of tokens issued in the infamous DAO ICO which has forced many projects and investors to re-examine the funding models of many ICOs. The important thing to consider is if the token passes the Howey test, if it does it should be treated as a security and should follow rules set by SEC.
In China, they have actually banned ICOs. Hopefully, this is just a step on the way to regulate them. I guess time will tell.
How does an ICO work?
Usually, the company that is working on the ICO will launch a web page and a whitepaper describing the ICO and detailing out all information needed to do an assessment of the project. During the ICO, investors will transfer their Ether and Bitcoin to a smart contract holding they money until a given time or some conditions are met. After that, the smart contract will distribute the newly created tokens/coins back to the investor.
Did people succeed raising money through ICOs?
Aragon raised around $25 million in just 15 minutes, Basic Attention Tokenraised $35 million in only 30 seconds, and Status.im raised $270 million in a few hours. These are just examples of the successful launches out there, I have seen white papers with just minimum information raising millions and many more failing. I truly believe in this new way of raising money, but are hoping for some kind of regulations from for example EU that will make this legit and trustworthy in the future.
Any problem so far?
In both the real world and in the digital world, there are people that are more interested in enriching themselves than to create something awesome that can change the world. So far we have seen, just like the real world, hacking of wallets, hacking of web pages for changing the public key in an ICO and many other attempts to steal information and money from people. This world exists both in the digital world and in the real world.
If we look beyond the problems with people stealing there are other people setting up ICOs that might look real and promising but are basically just people that gather the money and walk away with the money as fresh millionaires. We are trying to keep an eye out for this things for you, so please sign up for our newsletter and we will keep you posted on the latest trends.