An ICO is a way a project can raise money over the internet. You invest in an ICO by sending money or crypto assets to a blockchain project. In return, you receive digital tokens related to that project.
ICOs are speculative, high-risk investments. Many ICOs are for projects that:
- are experimental
- are at a very early stage of development
- may not have even started yet
ICOs are related to other terms associated with raising funds for blockchain products such as initial exchange offerings (IEOs) and initial decentralised exchange (DEX) offerings (IDOs). IEOs and IDOs occur on exchanges, while ICOs can be made directly by the project developers.
Some projects may take years before they become commercially viable, if at all. A large number of ICOs fail or do not increase in value.
ICOs sound similar to initial public offerings (IPOs). But ICOs may not offer any legal rights and protections. Investing in an IPO means you are investing in an established company or asset, rather than a project.
While ICOs use the internet to raise money they are not the same as crowd-sourced funding. Crowd-sourced funding offers basic investor protections under Australian law.
ICO white papers
There will usually be a 'white paper' that contains information about the ICO and the project it is funding. The white paper typically includes:
- the names and contact details of the people behind the scheme
- information on what they are planning to do with your money
The information in the white paper isn't always accurate. Sometimes the information can be unbalanced or misleading. It may overestimate how profitable the project will be to convince you to invest. Projects can also change after the white paper is published.
The white papers can be very technical. This can make it difficult to understand what your rights and obligations will be after you've bought the ICO tokens.
Read more about cryptocurrencies.