What Is ICO Cryptocurrency? ICO Meaning and Breakdown
What is an ICO Meaning?
An ICO is an Independent coin offering.
Similar to an IPO (initial public offering) an ICO is a sale of coins or tokens before they are released on an exchange.
However, an IPO only allows accredited investors.
What Does It Mean To Be An Accredited Investor?
An "accredited investor" is a person or entity that can deal with securities not registered with financial authorities by satisfying one of the requirements regarding income, net worth, asset size, governance status or professional experience(1).
This is automatic if you have made over $200,000 for the past two years or maintaining a net worth of $1 million, minus residence.
How do ICO’s differ?
An ICO doesn’t, at this point, require someone to be an accredited investor.
In fact, right now they are an unregulated means of crowdsourcing funds.
The SEC has cracked down on a few ICOs that were scams, but otherwise, in the U.S. there aren’t any other regulations.
ICOs Are Global
Unlike residing in a territory like the U.S., with heavy regulations by the SEC, ICOs are global.
They both are and aren’t decentralized.
Here’s what we mean...
Each company may serve the purpose of a decentralized function, provided that the funds at the beginning are moving to that entity. Every company has a different set of usage terms and collections for the money.
Otherwise, think of ICOs like large crowdfunds that result in the participant getting a token.
The tokens can be classified in a few different ways:
- Security (which many stray from)
Let’s break down how each of these tokens differs in functionality.
The 3 Types of ICO Cryptocurrency Tokens
Security ICO Cryptocurrency Tokens
Most investors have heard of securities because these are what you would typically find in the stock market.
Because the barrier to entry is much lower (than with the stock market), this is beneficial.
Users can participate in the ICO and in return get securities.
Security is an investment that becomes tradable (like a stock share).
How these securities work is that through a smart contract, you are provided with a certificate (via tokens) that you will get paid out over time.
Essentially, it becomes similar to a bond, over time paying you back for what you put in.
However, with most of these ICOs it ends up being a lot more profitable.
Equity-Based ICO Cryptocurrency Tokens
Equity quite literally means “the value of shares issued by a company.”
For these, it means that you own a portion of a company.
Similar to the stock market, holding equity in a company allows you to have voting privileges, the ability to sell back, and other benefits (exclusive rights).
Now, not many tokens are equity-based or even securities, because they know that in the future the SEC will come in and set regulation.
When it does, they will most likely crack down on ICOs that are Equity or Security based.
Utility-Based ICO Cryptocurrency Tokens
On the other hand, we have utility based tokens.
Now utility tokens differ in that they have a use.
With a company like Lockchain, the tokens are redeemable and used to purchase a place to stay.
These tokens become something that doesn’t just get traded, but used.
This, of course, makes it harder to regulate.
When something is used for utility, like say food stamps, trading and selling regulations become harder, as the tokens have an actual use.
Many new ICOs are using this method of utility.
When the coin has a purpose, its actual price and valuation should also rise in time.
This is an incredibly important truth to realize: Creating a valueless coin just for trading is a saturation of the market.
Monetarily, something like Bitcoin makes sense, while useless coins won't hold much value in the long-term.
Where Can You Find ICOs?
Many new sites are coming online to help people find and invest in ICOs. However, if you are in the U.S., just be warned that any securities are a gray area.
Make sure to research anything you invest in.
Because it is currently unregulated, this can either be a shady area, or an area filled with unbridled innovation. It's up to you to figure it out (and is something we analyze on our Coins page)
Therefore, we see many ICOs fall, and a few even run with the money before giving anything else out.
Here are a few sites we recommend checking out:
* Remember: Read the whitepaper, investigate the team, and make sure everything checks out before buying the coin
A Few ICO Case Studies:
Before we leave you, we want to give you a few of the most significant case studies people will quote today.
- Ethereum (ETH): $.311 now at $450 : ROI = 146,859%
- Neo: $.032 now at $40 : 124,071%
- Omisego (OMG): $.244 Now at $10 : 3990%
There you have it.
That’s the ICO meaning, now get going!
The GCA Team