ICO stands for Initial Coin Offering. Projects and companies sell coins or tokens in an ICO to raise money.
An ICO is to some extent similar to an IPO (Initial Public Offering), here shares of a company are sold for the first time to raise money. New projects sometimes need money to develop further. This money is needed, for example, for legal advice, developers and an office building. Ethereum also raised money with an ICO in 2014, raising $17.3 million at the time. Ethereum is a good example of a coin that has emerged from an ICO. Early investors also benefited. In fact, the price for 1 ETH was $0.32.
To improve the stability of a coin, vesting is used. Coins bought in an ICO cannot be sold immediately but are first fixed for a certain period of time. This is because if investors sell their coins immediately when prices rise, the value drops. The tokens or coins that are still in the treasury are then also worth less, so a project has less money.
To raise money with an ICO, investors need to be convinced that a project will be successful, a good white paper is vital for this. More than 2,000 ICOs took place in 2017 and 2018, not all of them equally successful. In fact, not all projects conducting an ICO have a good whitepaper. In addition, the team behind an ICO is not always reliable. During the period from 2017 to 2018, many people were scammed for this reason. People hoped to make a good investment but it was not always properly investigated whether a project really has a future. Scammers take advantage of this by offering an ICO themselves. After money is raised, the project falls silent and the money is gone.
With IPOs, the financial authorities of a country set conditions for issuing shares. With ICOs, there is no regulatory body, so because of this, there are often projects that are based on air where people lose their money.
