How does ICO works?

Initial Coin Offerings can be considered as an alternative form of crowdfunding that has emerged outside of the traditional financial system. This model has helped a lot of successful projects and companies get the funding required to start their business. In 2013, over US$5.1 billion were raised via crowdfunding worldwide, which increased to US$16 billion in 2014 and was estimated at over US$34 billion in 2015.

Initial Coin Offerings, also known as ICOs is the cryptocurrency version of crowdfunding and are a part of the crypto world that is most likely here to stay. It's one of the easiest and most efficient methods for companies and individuals to fund their projects and for regular users to invest in projects they see value in. An Initial Coin Offering is an event that usually extends over a period of one week or more and in which everyone is allowed to purchase newly issued tokens in exchange for established cryptocurrencies like Bitcoin (BTC) or Ether (ETH).

In an ICO, there can be a specific goal or limit for project funding, meaning that every token will have a pre-designated price that will not change during the Initial Coin Offering period, which also means that the token supply is static.

It is also possible to have a static supply with a dynamic funding goal, in which the distribution of tokens will be made according to the funds received, meaning that the more funds the project receives the higher the token price will be.

You can also have a dynamic token supply that will be determined by a number of funds that are received, meaning that the price for each token is static (e.g 1 ETH – 1 token) but every time one Ether is sent a new token is created. A limit can be set in terms of goals or time frame.

The cryptocurrency market is hot once again. And while it continues to set new records, a host of altcoins will demand its slice of the market.

Should you buy into an ICO? Only if you have a massive appetite for risk, zero fear of losing your capital and are willing to take a flying chance on an idea that could flop.

Then again, crowdfunding has similar risks and seems perfectly healthy. Your call.