Understanding Initial Coin Offerings

Chris Speed

In collaboration with:


A designerly approach to describing ICOs by Karthik Reddy, helping us think through the attributes of these new economic models.

Design Informatics have been exploring the pros and cons of ICOs for a while now. Recently Karthik Reddy suggested using their graphic to explain what ICOs are and what they mean to the financial world.

If you already have some basic idea of how cryptocurrencies work in general, then understanding ICOs shouldn’t be much of a problem. Basically, a tech startup launches an ICO to gain funds for its development. Investors from all over the world participate by investing certain amount of digital currency (usually Bitcoin or Ethereum), and in return they get the startup’s tokens at cheap rates.

If all goes well and according to the startup’s business plan, the token’s value should increase as time progresses and the business develops. Investors can then sell them for, hopefully, good return.

To illustrate how successful ICOs can be, reports that 54 major ICOs successfully raised almost $103 million, while in 2017 the numbers went up and 92 major ICOs raised $1.25 billion. The outcome of these initial coin offerings made many individuals millionaires, thus leading to a wider popularity of ICOs.

Even though all this may sound compelling, you should be aware that investing in an ICO should be a well thought out, deliberate decision. Before spending your bitcoins into a project, you should check it by conducting a thorough research about the startup and its proposed business objectives.

This said, every serious and promising ICO must have a white paper. This is a document with all the details about concept of the project, its team, business goals, technical outline how the crypto token will function, etc. If there is no white paper or it is poorly written document without the details that we just mentioned, then you should stay away from the ICO.

Such ICO might either be a scam or a project that will most likely fail. Unfortunately, both scenarios happen pretty often, leading many interested people to abstain from investing in new crypto projects. Such events have spurred certain countries to impose bans or consider different types of regulations on ICOs and crypto markets in general in order to protect people from losing their money by being ripped off.

To sum up, an ICO could be a very promising investment opportunity that can bring you a lot of money. However, you should be very careful with investing in any project before conducting a serious research about the startup and its proposal.

Additionally, it is not realistic to expect returns on investment promptly. It could take years before the business develops and begins to show first signs of success. That is why you should be patient and keep your tokens as long as possible. Remember – ICOs are long-term investments.