What is an ICO?

An ICO is a recently emerged concept of crowdfunding projects in the cryptocurrency and blockchain industries, an alternative to the venture capital concept.
ICO stands for Initial Coin Offering, sometimes referred to as crowd sale. When a company unveils her blockchain project or cryptocurrency , ICO is employed to raise needed fund for the execution or implementation of the project. It usually releases a certain number of crypto-tokens and then sells those tokens to its intended audience directly at a discounted rate in exchange got Bitcoin , Ethereum or fiat currency (USD, GBP, YEN etc)
Through this process, the company gets the capital it needs to fund its product development and the audience members get their crypto token’s shares.
ICO can be compared to IPO (Initial Public Offering) in the sense that both have the same goal; to source and raise fund for projects from the public. One of the things that makes ICOs unique is that it is borderless, transparent and its driven by digital currencies. While IPOs, a company’s shares , released during an IPO, always denote a share of ownership in the respective company. This is not, by default, a case with crypto tokens that are sold to the public in an ICO.
Another crucial difference is that IPO’s are heavily regulated by the government. This requires a partaking company to prepare large amounts of paper work before releasing its shares. Cases of non-compliance are met with severe consequences. On the other hand, cryptocurrency crowdfunding is a new scene, largely untouched by government regulation. That means that any project can launch an ICO at any time with little preparation and any person can take part in it and contribute their money, no matter what country they reside in. This liberal environment carries both new opportunities and risks when compared to the more conservative IPOs.
Crypto tokens released during an ICO are sold at a fixed price denominated in Bitcoin, Ethereum or fiat currency. That price is not backed by anything but the community’s faith in the development team to release a finished product at some point in the future, so tokens are highly discounted. Sometimes as much as 50% less than actual value at the products launch time. After the project is developed and launched, the tokens value becomes secured by a real, working product. And that almost always lead to an increase in price. At this point, a lot of people who didn’t get the opportunity to buy the token at the ICO will want in on the project’s success. When this happens, the original backers may sell their tokens for a nice and substantial profit.
During the ICO of Ethereum in 2014, the tokens were sold at a price ranging from $0.3 to $0.4 per token. After the project’s main platform was released in July 2015, the price of each token had risen significantly, reaching as high as $19.42 at one point. This means that some of the participants were able to claim an ROI of over 6000%.
It is important that you should keep in mind that profits are not guaranteed. This a risk that participants must be aware of before partaking in any ICO.