An ICO ( initial coin offering) is a crowdfunding mechanism for crypto projects to raise money. The money raised is typically in cryptocurrencies such as BTC or ETH. The idea behind the ICO is to create a community of early supporters who are vested in the success of the network (ex. Bitcoin), as early supporters will be incentivized to jumpstart the ecosystem and make it grow much faster due to the network effect.
What do you mean by network?
A network startup is a network of non-cooperative individuals to work together and create products and services according to certain rules (ex. a blockchain technology’s consensus engine). By contrast, a corporation has a clear command and control structure. For a corporation, trust among parties and suppliers is established by central authority.
How do ICO contributions work?
ICO contributors purchase coins, not shares, in a company. Many ICO projects are run, in fact, by non-profits with the goal to building a network. There is no promised economic returns.
What is the state of ICOs?
The recent crypto bear market has hindered ICOs, leaving many prospectives on the sidelines. As timing can be everything, there has been a wait-and-see effect at play. And though an ICO still is a relatively easy, largely unregulated crowdfunding mechanism by which projects can raise money, a significant number of these have proven, in the past, to be simply unviable. While an ICO can be a godsend for newer projects and startups, the ICO, like the IPO, inevitably will transform in time. The SEC already is looking at regulations for security tokens and the ICO market is maturing accordingly.
How can ICOs be vetted?
Do due diligence. If a project is not backed by a strong, bonafide team and a solid business proposition—some projects don’t even have a basic white paper!—then that can be a red flag. Consider BTC ETF. There probably is (or was) illegal price manipulation, which is why the SEC ( security Exchange Commission) launched an investigation—to enforce regulations against “pump and dump” before approving derivatives (like ETF) for retail investors. That’s just one example.
What about the future?
The strongest potential is those that are building public networks to connect and collaborate with communities outside the organization (example. through cryptocurrency incentives), as opposed to building another internal asset management system on the blockchain.
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Credit: Dr. Michael Yuan, Wikipedia.JOIN OUR COMMUNITY