KEY TAKEAWAYS

• Initial coin offerings (ICOs) are a popular way to raise funds for products and services usually related to cryptocurrency.
• ICOs are similar to initial public offerings (IPOs), but coins issued in an ICO also can have utility for a software service or product.
• A few ICOs have yielded returns for investors. Numerous others have turned out to be fraudulent or have performed poorly.
• To participate in an ICO, you usually need to first purchase a more established digital currency, plus have a basic understanding of cryptocurrency wallets and exchanges.
• ICOs are, for the most part, completely unregulated, so investors must exercise a high degree of caution and diligence when researching and investing in them.

How an Initial Coin Offering (ICO) Works

When a cryptocurrency project wants to raise money through an ICO, the project organizers’ first step is determining how they will structure the coin. ICOs can be structured in a few different ways, including:

• Static supply and static price: A company can set a specific funding goal or limit, which means that each token sold in the ICO has a preset price, and the total token supply is fixed. Static supply and dynamic price: An ICO can have a static supply of tokens and a dynamic funding goal—this means that the amount of funds received in the ICO determines the overall price per token. Dynamic supply and static price: Some ICOs have a dynamic token supply but a static price, meaning that the amount of funding received determines the supply.