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.