A brief overview of ICO's (Initial Coin Offering)
Initial Coin Offering (ICO) is a revolutionary crowdfunding tool to solicit investors and accumulate funds for a blockchain startup.
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Updated November 2026. This was first published on 26 May 2020. The idea is the same. Any number below is what the original piece said then. It is not a new count.
Key takeaways
- Initial Coin Offering (ICO) is a revolutionary crowdfunding tool to solicit investors and accumulate funds for a blockchain startup.
- One of the leading examples of this is the Tezos project developed by Arthur Breitman that raised about $232 million worth of Bitcoin and Ethereum back in July 2017.
- Without a doubt 2017 was the heyday of the ICO’s.
Initial Coin Offering (ICO) is a revolutionary crowdfunding tool to solicit investors and accumulate funds for a blockchain startup. One of the leading examples of this is the Tezos project developed by Arthur Breitman that raised about $232 million worth of Bitcoin and Ethereum back in July 2017. Without a doubt 2017 was the heyday of the ICO’s.
After the initial hype, ICO’s have been on a decline as investors now begin to look at the track record of some previous issuers.
Initial Coin Offerings bypass angel investors and Venture Capital Firms. An example of some fly by night operators operating in this space is the well known case of CryptoKami that mysteriously dis-appeared after raising about $12 million.
Given the grey area in which ICO’s operate, there is little that law enforcement can do. Investors typically get attracted by the ‘slow rates of production’ of the coins promised by the issuers.
So, What Exactly Is an ICO? #
ICO is an abbreviation for Initial Coin Offering. Initial Coin Offerings or an ICO is a type of fundraising or crowdfunding tool with the aim of raising money to fund a blockchain startup’s project by selling a cryptocurrency in the form of tokens or coins.
ICO’s esacpe the traditional scrutiny that is applied to equity and other financial instruments as ICO’s do not trade or any recognized financial exchanges. So there is no obligation on the issuers to have their prospectus reviewed or their offerings rated by any third party or any securities regulator.
The first Initial Coin Offering was held by Mastercoin way back July 2013. The start-up wound up with less than half that amount in usable money because the majority of its take was in an liquid alternative crypto-coin, Mastercoin. Not surprisingly, two weeks later the SEC issued an alert to investors about investing is such offerings.
So far the track record of ICO’s is littered with stories of funds and those that raised them, conveniently disappearing.
A study in 2018 concluded that 80% of all ICOs in 2017 were a scam. with studies like that even genuine offerings would be viewed with caution.
A Temporary Bubble** - Some big investors and experts considered ICO is a bubble that about to burst anytime.
The chart above was sourced from https://blog.bitmex.com/initial-exchange-offerings/ and clearly the ICO market has fallen dramatically.
Are Initial Coin Offerings still worthwhile? #
To conclude that all ICO’s are fraudulent and all ICO activity is on hold would be a wrong conclusion to make.
Earlier this month France approved the issuance and trading of digital assets that are utility tokens. The tokens would be created by WPO a firm that runs 600 wind farms and solar parks in many countries. The company reports a capacity of more than 5 gigawatts, or 1700 wind turbines, and 12 million photovoltaic modules.
Purchasers may buy a token (named GTK) at ?95/each with a minimum of ?100. The offering kicks off on September 8, 2020.
John McAfee, the founder of McAfee software, has been a big believer in privacy including digital money. It is worth noting that he fled the US in January 2019 as a result of some tax issues. There are reports that the fleeing may be a stunt. He has his own digital exchange and has announced a new privacy coin named Ghost.
Only the holders of a specific coin will be eligible for hold Ghost.
Things to consider before running an ICO #
Building a team** - Building a credible management team is vital for ICO. Given the grey history, a start up in this space should inspire confidence and trust. Creating an** extensive whitepaper - A lot of ICO’s were preying on the greed factor of a limited supply of the coin itself. But a limited supply of a commodity that no one cares about is unlikely to generate long term interest. Making a whitepaper for your project is a must, whitepaper must be a straight-forward on what problem that you solving, what your token be like, token technicality, and road map. Also, consider hiring a professional writer to write you a whitepaper that knows cryptocurrency and have experience in writing business documents or a legal document. Hiring a credible advisor** - A credible advisor will help you a lot in the development of your project and also in the marketing strategy for the adoption of your project. Follow the rules and regulations in conducting an ICO** in your country to avoid penalties or legal charges.
How investors participate in an Initial Coin offering? #
The common method to participate in an ICO is by owning a cryptocurrency like Bitcoin and Ethereum. Bitcoin and Ethereum are cryptocurrencies or digital money that can be sent from user-to-user on the peer-to-peer network without intermediaries, you can buy Bitcoin and Ethereum in reputable cryptocurrency exchanges like Coinbase, OKex, Binance and via over-the-counter using LocalBitcoins platform.
The ICO issuer using an ICO platform to handle transactions made by the investors and also the platform manages the distribution. The ICO platform that commonly uses is via the smart contract of Ethereum.
Initial Coin Offering vs Initial Coin Offering vs Security Token Offering #
Digital money and blockchain ventures raise finances using the three most well-known crowdfunding method. They are Initial Coin Offering, Initial Coin Offering, and Security Token Offering. Every one of them has its points of interest and difficulties, which you should learn before picking. Anybody of these alternatives might be appropriate for your necessities. Be that as it may, it’s fundamental to evaluate the dangers before exploring them.
Initial Coin Offering (ICO),** as we discussed above, ICO is a type of crowdfunding tool to raise money by selling a cryptocurrency in the form of tokens or coins. The poor track record of ICOs has lead to alternatives in this space being developed. Initial Exchange Offering (IEO)** These are identical to an ICO except that all the work for coin issuance, smart contracts etc are downloaded from the company raising the funds to a partner exchange.
As exchanges have an interest in ensuring a fairer distribution of coins so that both existing and new investors trade actively, typically an IEO is fairer than a traditional ICO. Popular crypto exchanges in the IEO space are Binance Launchpad, followed by Gate.io Startup and Okex Jumpstart. The disadvantage of an IEO is that an investor may be required to meet a minimum investment threshold.
Security Token Offering (STO)** STO’s are tied to real registered assets. As a result the legal documentation requirement has a higher bar. STO’s may not be suitable for small projects. STO’s are legally approved in many jurisdictions.
Summary #
The Wild West days of the ICO market may be over. But, it may be too early to write off the concept of an ICO altogether.
Along with all the other threats that mainstream financial sector faces, the birth and the future of the STO version of the ICO is something to keep a close eye on.
Questions and answers #
What is the main point? #
Initial Coin Offering (ICO) is a revolutionary crowdfunding tool to solicit investors and accumulate funds for a blockchain startup.
What else did the original piece say? #
One of the leading examples of this is the Tezos project developed by Arthur Breitman that raised about $232 million worth of Bitcoin and Ethereum back in July 2017.