ICO stands for Initial Coin Offering, which is also called Initial Public Coin Offering (IPCO). It is a novel means of crowfunding or 'token sale' which uses some cryptocurrency.
In an ICO campaign, a percentage of the cryptocurrency is sold to early backers of the project (pre-ICO) in exchange for legal tender or other cryptocurrencies, but usually for Bitcoin. ICOs may also sell a right of ownership or royalties to a project.
An Initial Coin Offering is often seen as a controversial way to raise funds for a new cryptocurrency venture, because ICOs are unregulated in several countries.
The lack of ICO-related regulation in many areas allows startups to bypass the rigorous and regulated capital-raising process required by venture capitalists or banks.
ICOs are being used for a wide range of economic activities: from corporate finance to charitable fundraising. Due to lack of regulation and poor public education, ICOs are sometimes used in fraud or "pump and dump" schemes.
For instance, the UK Financial Conduct Authority has warned that ICOs are high risk and speculative investments, even scams in some cases, and often offer no protections for investors.
However, an ICO may provide fair and lawful investment opportunities.
Brief History of ICOs
The first ICO was held by Mastercoin in July 2013.
Ethereum also held a token sale in 2014, raising 3,700 BTC in its first 12 hours, equal to approximately $2.3 million dollars.
Later, an ICO was held by Karmacoin in April 2014 for its Karmashares project.
ICOs became extremely popular during 2017. In the first half of 2017, there were around 20 new ICOs each month.
In July 2017 the U.S. Securities and Exchange Commission (SEC) announced that it may apply federal securities law to ICOs.
On September 2017, China officially banned all ICOs within the country, demanding that the proceeds from all past ICOs be refunded to investors or face being "severely punished according to the law".