First of all, ICO stands for Initial Coin Offering. And it’s a mean for cryptocurrencies to raise money, after a crypto airdrop. As I said in the introduction, only the early adopters (friends, family, partners) distribute a new coin initially. And they generally start by accumulating a massive amount of coins that they offer for sale.
If they’re lucky, individual investors, like you and me, take a look at their projects and say: Why not! And they buy thousands of coins of this new crypto-currency for a handful of dollars. As a result, the currency starts to gain in value, which will allow co-founders to raise funds. This is what we call crowd-investing, or equity crowd-funding. The traction of the project and the currency will then encourage investors to invest, and users to commit and work for the project.
The value of the currency will depend on the fact that it’s used on the platform and that it gives a right to vote on the direction of the project, since it is open source.
While an ICO coin tends to be a bit more complicated, I think it’s simply summarized.
Let’s dig a bit further. An initial coin offering is a token (a share, if you prefer) put up for sale before a currency is placed on the market. So during the ICO, you’ll buy tokens that you’ll be able to convert into the currency, should the ICO succeed. And if the ICO is a fail (the founders didn’t meet their objectives), you’ll get your money back.
There are many new ICOs that appear every day. What is important to check as part of an ICO is the purpose of the new currency, the team behind it and the rules of the currency transactions. Normally, you should be able to find all all these elements the ICO white paper. This is the equivalent of a business plan. Obviously, some ICOs are scams, so you should always be careful before investing in an ICO.