I was on the phone with my Dad the other day, he’s getting into cryptocurrency, which right now means that he’s watching the price of Bitcoin go up and thinking…there might be something to this cryptocurrency thing. The other day he asked me what I thought of Ethereum which I thought was pretty awesome and I dove into the whole concept of Ethereum and distributed computing. If you don’t associate distributed computing with Ethereum, read this.
The other day, thinking that my Dad was now totally in the know about all things crypto, I started talking about ICOs. That’s where I lost him. What’s an ICO? He asked me. My Dad is heavily involved in the stock market and has been investing in stocks for a LONG time, and he’s invested in a number of IPOs as well.
So I thought it would help if I explained ICOs to him using analogies to things he understand very well, stocks and IPOs. I explained it to him in under a minute and thought I might as well share the way I explained it with all of you since I think there are a lot of long drawn out articles out there that can make the entire ICO concept confusing.
So here it is, the answer to your question, “what’s an ICO?” with less than a minute of reading ahead of you.
Understanding ICOs in under a minute
ICO stands for Initial Coin Offering. In the stock market you have IPOs or Initial Public Offerings which is the very first sale of stock issued by a company to the public. So now you might be thinking, well then, an ICO must be the same thing except investors get stock in the coin itself? Almost but not quite…confused? Let me explain.
An ICO is actually an unregulated form of crowdfunding (think Kickstarter) except instead of getting some cool product that might never see the light of day, you get a coin that also, uh, might never take off. If you participate in an ICO, what you’re hoping is that the coin that you’re getting goes up in price, way up from what you paid, and you buy a Ferrari and start bragging to all your friends about how you’re a cryptocurrency guru. Unfortunately the ICO market is full of scammers so it take a lot of research and diligence to really understand what you’re actually investing in…and even if you figure it out you still have almost no chance of breaking even. Still, if participate in an ICO and the coin takes off, you’ll make a small fortune and yes, you can then go buy that Ferrari.
Unlike an IPO where you pay real cold hard cash for stock in a company, in an ICO you pay cold hard virtual cash using an already (relatively) proven cryptocurrency like Bitcoin or Ethereum in exchange for the new coin. While normal companies use an IPO as a mechanism to raise money for their business, ICOs are a way for new cryptocurrencies to raise money for their coin or the business/technology around their coin.
In short (for those who want the 20 second version) – an ICO is kinda like an IPO but it’s also a form of crowdfunding – a way to get people to buy something that you’re selling, in this case a coin or a cool blockchain-related technology that has a coin associated with it. Just like your kickstarter backers hope you ship that hoverboard because you convinced them it’s actually going to hover…your ICO backers hope that your coin actually takes off because if it does, they make a lot of money.
Is my one-minute explanation not enough? Here’s a five minute read from BlockGeeks that goes much deeper.