Initial Coin Offering (ICO) is a crowdfunding method used by new cryptocurrency companies to raise capitals. In ICO, some percentages of the newly issued cryptocurrencies are sold to people who are interested in supporting the project. They are sold to exchange for other established cryptocurrencies such as Bitcoin, Fiat and Ether.Checkout ethereum contract for more info.
Backers purchase the new cryptocurrency with an intention to make a profit when it increases in value. It is similar to the principle of people making a profit when the share they bought at the stock market increases in value. ICO is different than purchasing shares at a stock market because you don’t get a share of the ownership right when you invest in the new tokens.
Brief History on ICOs
In the beginning stage, ICO was conducted by companies such as Mastercoin, Ethereum and Karmacoin. Ethereum conducted one of the biggest ICO in 2014 by raising a total of $18 millions in the early stage of 2014. They break the record by raising 3,700 Bitcoins which is equivalent to $2.3 million dollars within the first 12 hours of the campaign. Kik conducted the first mainstream ICO in September 2017 but the project was interrupted by a phishing scam via the circulation of a false URL in the social media. Ripple sold $1 billion worth of XRP tokens to investors in exchange for bitcoins and fiats in 2013.
Today, ICO sales have become increasingly popular with around 50 token sales being conducted every month. Starting from 2017, ICO has been growing at a fast pace with at least $2 billion worth of token sales successfully conducted. This proves that it is not going to be a temporary method used by new cryptocurrency company to raise funds but it is here to stay for long term.
Nowadays, ICO token sale is so popular that at least a few ICO begins every day. It has been predicted that over $4 billion worth of token sales will be conducted this year. Genesis Vision, a Russian based company, conducted an ICO campaign that runs from the 15th October 2017 to the 15th November 2017. They manage to raise a total of $2.3 million in the token presale.
How Does ICOs Fundraising Work?
A cryptocurrency company that wants to raise capitals through ICO must provide a few details including project description, project purpose, amount need to be raised, percentage of tokens the company will keep, types of virtual currencies accepted, and the timeframe of the ICO campaign. Backers who are interested can email the seller and ask for more details of the project before performing a transaction. If they successfully raise the amount for the campaign, they will carry out the scheme to complete the project. If not, they will return the money back to the backers.
How Scammers Use ICO to Carry Out Fraud?
ICO can be conducted to help raise funds for various types of businesses and charity organization. It has also been used as a tool by scammers to conduct frauds. Scammers would use means to increase the ICO value temporarily and abandon the project afterwards to make a quick profit. Scams happen because of the lack of regulation by the government. Just like any investment, there is a risk when coming to invest in the initial coin offering.
No statistic on the company that runs the ICO is given so it is hard to make a prediction. Backers usually would only check out data such as who will receive the collected money, and the social media profile. To make a successful investment in ICO, one needs to be patient and willing to spend time to conduct research on the company.