Let’s define an Initial Coin Offering (ICO) first:
With more and more people getting into cryptocurrency every day, there is no doubt about the opportunity this represents for technology entrepreneurs or people with an -otherwise- enterprising mind. An ICO (Initial Coin Offering) is that opportunity, it is how tech enthusiasts set up a capital raising campaign, without the involvement of banks or other regulatory authorities. What happens, is an ICO offers a few tokens (a new cryptocurrency) to the people interested in the project in exchange for other cryptocurrencies (usually Bitcoin or Ethereum) or money.
The process of doing such a thing initially requires a plan, a whitepaper outlining the purpose of the project, it describes the solution and area it is going to address. The ICO mentions the running time of the crowdfunding sale, the amount of money they are looking to make through the sale and, once the goal is reached, an estimated time frame for the project to go live.
An ICO offers a few tokens (a new cryptocurrency) to the people interested in the project in exchange for other cryptocurrencies (usually Bitcoin or Ethereum) or money.
Think of this as an IPO (Initial Public Offering) where a company offers to sell its shares to the public for money. An ICO does the same by offering the investors the new crypto coins (called tokens), in exchange for another cryptocurrency or your regular $$s. If the fund raised through this process meets the minimum required by the startup, they go through with the next phase of the project, be it a launch of the product or its supporting infrastructure, etc. If the funds raised in the specified time are not sufficient, the buyers get their money back. Unless, of course, the ICO was fraudulent.
Why Invest in such an offering?
For the early adopters of the new coin, the hope here is that once the launch is successful, it could gain a stronger hold in the crypto world and, they can potentially sell their token for a higher value and get a decent return on their investment. Look at Ethereum for example, its ICO raised $18 million in Bitcoins; about $0.4 per Ether. Once the project went live in 2015, Ethereum raised quickly in its market valuation, rising to a $14 value. Currently Ethereum sits at about $300.
Take care though, when looking to invest in such projects. ICOs can be fraudulent, something which is easy to do in the crypto world due to the nature of the ICO itself we mentioned earlier. It’s inherent feature of not being involved with regulatory authorities, means that in case of any future issues with the project, the ICO owner can just up and run, with the money not seeing the light of the day.
If you are looking for pursuing an ICO, though, do your research. Google is an amazing tool for doing random research, plus there are several reddit communities you can head to with your queries on specific ICOs. Communities such as the Cryptocurrency, or Bitcoin can help you make a good decision on which ICO to pursue. There are also resources out there where you can look at the ICOs currently on going, with backing numbers and all. This is one of the examples of such consolidating platforms.