The number of Initial Coin Offerings (ICOs), has grown steadily over the past two years, as more and more companies joined in the bandwagon of this new and controversial fundraising method.
In an ICO, companies create a coin or a digital token and then sell it to investors in exchange for cash or cryptocurrency, like Bitcoin or Ether.
According to blockchain research company Smith+Crown, funds raised through ICOs are growing at a rapid pace despite increasing scrutiny from regulators worldwide.
Around $6.6 billion was raised through 217 ICO sales for the first quarter of 2018 compared to the $3.9 billion raised in the fourth quarter of 2017.
Cryptocurrencies are supported by the blockchain technology, which accounts for the reason why most ICOs are carried out mostly by blockchain startups.
However, many other types of companies are draw into ICOs today, even if those companies do not have or use blockchain.
A huge part of ICOs show signs of fraud. In a review of 1,450 ICOs, the Wall Street Journal discovered that about 19% of these raised red flags including missing or fke executive teams, fake or plagiarized investor documents and promises of guaranteed returns.
Despite the huge risks involved in launching and buying ICOs, there can be huge payoffs for founders and investors who want to raise capital and earn money too.
The Ethereum project is one of the most successful ICOs launched and it has even become the world’s second largest cryptocurrency. The Ethereum project sold more than 60 million ether coins in 2014.