ICOs are comparable in certain respects to IPOs (initial public offerings) in that they are used a way to raise capital for a business.
A huge distinction though is that in an IPO, an investor, you receive shares in the company, actual equity.
In an ICO, you receive NO equity at all. Zip. Nada. No ending up like Bezos or Zuck for you.
All you get is the cryptocurrency (or digital token) that the company is issuing in the ICO.
If you buy ICO tokens, you are not an investor. You are basically a future customer for a software product/service that does not (in most cases) even exist yet.
It’s like an arcade shop owner asking you to buy tokens to use at his arcade that hasn’t been built yet or is still under construction.
You end up spending money now and holding onto tokens that can only be used at this specific arcade that hasn’t even opened yet with absolutely no assurance that you’ll even like the games they will offer!
It’s the same thing with an ICO. You spend money now on a product/service that may be provided later with absolutely no assurance about the quality of the product/service.
And to top it all off, the company who is doing the ICO gets to keep all the equity and (potential) profits once they’re up and running…if they get up and running.
Lastly, according to a survey from Bitcoin.com, 46% of all ICOs in 2017 either flopped at the funding stage or have gone out of business since launch. The survey went on to say that a further 13% are currently labeled as “semi-failed.”