ICO stands for Initial Coin Offering, a variation on the idea of an IPO (Initial Public Offering). Entrepreneurs looking to launch a new cryptocurrency can do so through an ICO.
In an ICO, newly created tokens are shared in exchange for existing cryptocurrencies such as Bitcoin or Ethereum.
ICOs are used for corporate financing and charitable fundraising. They can also be a source of capital for startup companies. ICOs can allow startups to avoid regulations that prevent them from seeking investment directly from the public.
However, ICOs are often used for fraud. The US Securities and Exchange Commission (SEC) has warned investors to beware of scammers using ICOs to execute so-called “pump and dump” schemes. In these schemes, the scammer talks up the value of an ICO in order to generate interest and drive up the value of the coins, then quickly dumps the coins for a profit.