How do ICOs work? What are the advantages and disadvantages of ICOs?

When a cryptocurrency project aims to collect resources through an ICO, the first step is to determine the structure of the token. There are a variety of ways that an ICO can be structured. For example, a company can set a specific resource goal or limit, meaning that each token distributed in the ICO has a preset price and the total token supply is static. Alternatively, an ICO can have a static token supply and a dynamic resource goal, meaning that the amount of resources received in the ICO determines the overall price of each token. Some ICOs have a dynamic token supply but a static price, meaning that the amount of resources received determines the final token supply.

ICO vs. Traditional Fundraising Methods: ICOs differ from traditional funding methods in several ways. Unlike venture capital or crowdfunding platforms, ICOs can collect resources directly from anyone in the world with a crypto wallet. This method of collecting resources is straightforward, provides liquidity, and requires minimal bureaucracy. However, it is important to note that while ICOs can provide startups with a funding mechanism and an innovative method of collecting resources, they also carry risks. Due to the lack of regulation and enforcement of securities laws, ICOs have become a vehicle for scams and fraud. Therefore, participants must be highly cautious and diligent when researching and participating in ICOs.

ICO Pros and Cons: ICOs may offer multiple benefits, including immediacy, liquidity, and the absence of gatekeepers. They can attract early adopters and allow an early user base to support the success of a project. However, they also present significant disadvantages. ICOs are largely completely unregulated, meaning that participants must exercise a high degree of caution. Many ICOs have proven to be fraudulent or underperformed, with less than half surviving four months after launch.