An Initial Coin Offering (ICO) is a kind of crypto token sale that is used as a method of fundraising, similar to an Initial Public Offering (IPO), in which stocks are sold to raise money for a company.
In order to launch an ICO, a company simply needs to create a website, issue a token, and set a time and date for the sale.
Investors buy ICO tokens in exchange for another cryptocurrency, like Bitcoin or Ethereum; after a set amount of time, they receive the tokens they purchased in the sale.
Accompanying most major ICOs has been the prevalence of a whitepaper.
A whitepaper serves as both a persuasive sales pitch, and in-depth report on a specific topic that presents a problem and provides a solution.
Most marketers relied on whitepapers to educate their respective audience about a particular issue, or explain and promote a particular methodology that an ICO could potentially solve.
The information enclosed in whitepapers have historically been met with skepticism.
Why ICOs Have Fallen Out of Favor
This is due in large part to the early days of ICOs, as this practice was highly unregulated and extremely risky.
Because there were no regulations delineating who could and could not hold an ICO, many bad actors or incompetent technologists saw the practice as an opportunity to grab a lot of fast cash.
As a result, many investors have lost quite a lot of money – their tokens were either never returned to them, or the companies who issued the tokens failed within several months of the token’s official launch.
Regulators around the world have cracked down on the practice, which has resulted in a slightly “cleaner” ICO space.
However, ICOs have garnered a pretty bad reputation and are still regarded as generally untrustworthy.
As such, other methods of fundraising, such as Initial Exchange Offerings (IEOs) and Security Token Offerings (STOs) have been born.