During an ICO, or Initial Coin Offering, developers of new, blockchain-based technologies essentially solicit funds from investors online; as opposed to what happens during an IPO on the stock market, these investors do not receive a particular share in the company. Instead, they receive a number of tokens or coins in the native cryptocurrency of the ICO, which may, one day, become worth more than they invested – if, that is, the developers have the necessary skill and luck to make their currency successful! This seems a risky business to invest money in – why, then, do so many people invest in ICOs?
The primary reason: profit
The primary reason people invest in ICOs is the primary reason people invest in anything: to make a profit. Since the goal of each legitimate ICO is on some level to reinvent a particular industry, or invent a brand-new technology, users who see the potential early and invest at this initial stage could potentially be rewarded hugely.
This is particularly the case because, while developers can choose entirely freely the price at which they choose to offer their initial coins, usually they realize it is to their advantage to keep this price low; since there is usually only a limited quantity of a particular cryptocurrency available at any given time, therefore, users who stock up early on reasonably-priced tokens may be able to sell these for large profits later on, when other, later adopters are scrambling to get hold of their own tokens.
A tempting lack of regulations
Simultaneously, and unlike IPOs, which have brokers who assess potential buyers for accreditation, ICOs are by nature largely unregulated. On the one hand, this makes an ICO a risky venture by definition, since investors themselves are responsible for rooting out scams, but it also makes the process a particularly democratic investment opportunity. Anyone with a cryptocurrency wallet and an Internet connection can participate and potentially profit.
All of the above are therefore reasons why, from the point of view of profit, ICOs can be tempting investment opportunities. A good example here is Ethereum, which launched with an ICO in 2015 and which, approximately two years later, had a return on investment on the price of these original coins of more than 85,000% – a huge profit for those who bought tokens initially and held on to them for only a few years!
A matter of belief
But ICOs are not just about profit – by their very nature, they do not usually end up as pure investment opportunities for seasoned traders, interested purely in making a quick profit. Instead, like much of the cryptocurrency industry as a whole, they also driven by belief, and many investors decide to spend their money on particular tokens because they believe the ICO introduces blockchain technology in a new, innovative, and necessary way. Often, it is the emphasis on decentralization and anonymity that draws investors to cryptocurrencies: in this way, they hope to assist in helping to deconstruct the near-monopoly previously held by financial institutions such as banks. New ICOs, then, often attempt to apply this same principle of anonymity and decentralization to other industries, such as software development, the betting market, and more.