[Captain_Usher]

An ICO is an "Initial Coin Offering", it's supposed to be like an IPO except instead of offering shares, you're selling cryptocurrency coins. ICOs are usually framed as a way to fund a project or business, usually related to cryptocurrencies or blockchain technology in some way. The idea is that the project's success will increase the value of the coins you bought and you'll be able to sell them for more later.

The main difference is that the coin is just a coin, buying it won't make you a shareholder and you aren't subject to the regulation that IPOs and shareholders are. That regulation makes it difficult to scam investors by starting a dummy company, pretending it's a valuable operation, selling shares in an IPO, and then running away with the money. Doing this with an ICO is much easier, and there's a lot of concern about how many ICOs are frauds.

[themagician]

Is the company required to buy back the coins?

I’m not sure I get the point of an ICO. It seems like a company issuing monopoly money. It even seems like this would have been possible before crypto—literally just Monopoly money to people and let them trade amongst themselves.

I guess Monopoly money is easy to duplicate… but so is crypto in a way because you can just start your own currency that uses the same block chain to create more tokens.

[RIMR]

Do you understand the concept of a stock share?

Well, just remove the company, the product, and the regulation, and that's an ICO.

The issuer of the coins/tokens do not have to buy anything back. The idea is that they will increase in value and function, and others will want to buy them from you.

It goes like this:

1. "RichCoin" is created and the creators begin selling them at 5,000 Richcoins for 1 Bitcoin. Ads are pushed across social media platforms and web communities are seeded with information that encourages people to invest.

2. 50,000 people spend a total of 1000 Bitcoins buying the first 5,000,000 RichCoins.

3. After public launch, 5,000 people sell their RichCoins to late investors, netting ~20% profits.

4. The remaining 45,000 people "HODL", hoping that their $1 RichCoins will one day become $100 RichCoins so that they can move to a private island and never work again.

5. RichCoins fall to 10% or less of their ICO value as all official websites disappear.

6. The creators of RichCoin, who long ago converted their 1000 Bitcoins to $5,000,000 USD, move to a private island and never work again.

[mikeschmatz]

> 6. The creators of RichCoin, who long ago converted their 1000 Bitcoins to $5,000,000 USD, move to a private island and never work again.

Is it that easy to turn BTC to cash? I heard most exchanges have no way to withdraw real dollars.

[aiCeivi9]

Shouldn't be a problem with coinbase or other large exchanges. Getting the cash out of bank might be actually harder, AML systems will flag huge transfers from known crypt-exchanges.

[themagician]

Sweet.

Time to start RichCoin 2: Totally Different This Time

[Captain_Usher]

The "monopoly money" perspective isn't wrong, and in general an ICO for a coin that's, say, "bitcoin but a little different" doesn't make much sense. Bitcoin is supposed to be a currency, so an ICO for something bitcoin-ish is like taking investments for a new kind of dollar. You have to get them into circulation somehow, and trading currencies like commodities is a real thing, but it doesn't really explain the current ICO hype.

It makes more sense if you look at most of the ICO tokens from the ethereum point of view, rather than bitcoin. Ethereum and its derivatives let you use tokens as components of distributed applications. Unlike a "pure" currency, which is useful only as a medium of exchange and has no intrinsic value, these tokens let you use the distributed application so they're worth whatever the application is. They aren't really currency, although you can usually buy and sell them and they're used to give the application some kind of market behavior.

Something like filecoin is a better example. The filecoin project intends to build a distributed storage system. If their project succeeds, the filecoin network will let you exchange coins for the network's storage, and storage is valuable so the coins are valuable too. Ideally, they'll use the funding from selling coins in an ICO to make the project so useful that a coin's worth of access will be worth more than what you paid for it during the ICO and the people who participated come out ahead.

Personally I'm still not very impressed with most ICO projects, but at least all of them aren't completely insane when you look at them this way.