The Rise and Fall of ICOs: Understanding the Fundraising Method of Blockchain Projects

Initial Coin Offerings, commonly known as ICOs, have been a popular crowdfunding method for blockchain projects to raise capital and launch a new cryptocurrency. However, the ICO market has declined in popularity due to various factors. In this article, we will take a closer look at ICOs and how they work.

ICO vs IPO

At first glance, ICOs seem similar to Initial Public Offerings (IPOs) where companies sell shares to the public on a stock exchange. However, unlike IPOs that are regulated by the Securities and Exchange Commission, ICOs are often unregulated, and many ICO tokens have faced legal troubles for non-compliance with securities laws. Additionally, buying crypto tokens through ICOs does not necessarily give investors ownership stakes in the company.

How ICOs Work

For legitimate ICOs, the first step is developing a business model and exploring how blockchain technology will be utilized. Startups may seek feedback from ICO investors or venture capitalists before developing a white paper that explains the purpose of their digital currency, including forward-looking information about the potential return on investment for contributors.

ICO Challenges

However, many crowd sales struggle to gain momentum due to a lack of legitimacy, hype on social media, and a perception that the new token is a solution in search of a problem. According to Blockchain Simplified, up to 53.3% of ICO projects failed to close their token sales in 2018.

Successful ICOs

ICO projects that are successful need to get their digital assets listed on cryptocurrency exchanges. Ethereum has been commonly used for token sales because of its smart contract functionality.

Looking Ahead

While ICOs were popular in 2017 and 2018, other methods for token offerings are more popular now due to various factors. The decline in ICOs has led to a more regulated fundraising environment for blockchain projects. However, ICOs still offer a promising way for blockchain startups to raise capital and create new cryptocurrencies.