What is an Initial Coin Offering (ICO) and how does it work?

TL;DR: Initial Coin Offerings (ICOs) are a method of gathering resources for a cryptocurrency-related project. They involve distributing new cryptocurrency tokens to participants. The process of an ICO can be structured in a variety of ways, and while they can bring benefits, they also carry risks due to a lack of regulation.

What is an ICO: An Initial Coin Offering (ICO) is a funding mechanism in the cryptocurrency industry, similar to an Initial Public Offering (IPO) in the traditional financial sector. Companies that aim to gather resources for the creation of a new token, application, or service can launch an ICO. Participants interested in the project can purchase tokens during the ICO and receive a new cryptocurrency token issued by the company. The token may have utility related to the product or service provided by the company, or represent a stake in the company or project.

Example of an Initial Coin Offering: Ethereum’s ICO was one of the early success stories using this type of fundraising mechanism, raising $15.5 million in 2014. 50 million Ether was issued at a price of $0.311 per ether, and on May 12, 2021, it hit a high of $4,382.73, generating returns for participants. Now, Ethereum is a recognized cryptocurrency that has enabled an ecosystem of decentralized applications to grow from its technology.