The financial landscape has rapidly evolved with cryptocurrency and blockchain technology, introducing new fundraising models like the Initial Coin Offering (ICO). ICOs allow startups to raise capital by issuing digital tokens in exchange for cryptocurrencies or fiat money, bypassing traditional financial intermediaries and enabling global investor participation.
First gaining momentum during the 2017 crypto boom, ICOs raised billions across numerous projects. While their popularity has seen highs and lows, they remain a key funding method in 2025. However, they come with significant risks, including regulatory uncertainty and potential fraud. Understanding how ICOs work, how they differ from traditional investments, and the legal complexities involved is essential for anyone considering participation.

ICOs vs. Traditional Fundraising

At its nature, an Initial Coin Offering is similar to an Initial Public Offering (IPO). Both are fundraising events where investors provide capital in exchange for a financial asset—shares in the case of an IPO, and tokens in the case of an ICO. However, the comparison only goes so far. Unlike IPOs, which are heavily regulated and require companies to undergo strict financial and legal scrutiny, ICOs are typically launched with fewer regulatory requirements, depending on the jurisdiction.
ICOs are primarily used by startups in the blockchain and cryptocurrency sectors. Instead of shares, they offer tokens—digital assets that can be used within a specific platform or traded on crypto exchanges. These tokens may represent access to a product, a utility within an ecosystem, or, in some cases, an investment interest in the company itself.

The ICO Process: Step-by-Step

Launching an ICO involves several key steps that combine business planning, technical development, and community engagement.

Conceptualization and Whitepaper Development
Every ICO begins with an idea. The founders identify a problem they aim to solve using blockchain technology. They then publish a whitepaper—a detailed document outlining the project's vision, goals, token economics, technical specifications, use of funds, and roadmap. A well-structured whitepaper serves as a pitch to potential investors, offering insight into how the project intends to achieve its goals and why it's worth supporting.
Transparency is key at this stage. Reputable projects clearly state how funds will be used, what returns (if any) token holders can expect, and how long the development will take. Vague or overly promotional whitepapers can be a red flag, signaling potential fraud or incompetence.

Token Creation
Tokens are typically created using existing blockchain platforms. Thanks to its smart contract functionality, Ethereum is the most widely used, though other platforms like Binance Smart Chain, Solana, and Cardano are also popular. Tokens can be pre-mined—created before the sale—or minted dynamically during the offering.
Crypto smart contracts play a critical role here, automating token distribution, vesting schedules, and investment caps. A poorly coded smart contract can result in bugs, security vulnerabilities, or fund loss, so thorough auditing is essential.

Promotion and Marketing
To attract investors, projects engage in extensive marketing campaigns, often leveraging social media, email newsletters, influencer partnerships, and blockchain communities. However, due to past abuse and cryptocurrency scams, platforms like Facebook and Google have restricted or banned ICO advertising.
The goal is to build momentum and community interest before the fundraising window opens. Public engagement and transparency during this period are crucial. Developers may also host AMAs (Ask Me Anything sessions), publish progress updates, or release prototypes to gain trust.

The Fundraising Period
When the ICO officially launches, investors can purchase tokens using supported currencies—usually Ethereum, Bitcoin, or fiat. The ICO can be structured in different ways:

• Static supply and price: Fixed number of tokens at a fixed price.
• Static supply and dynamic price: The price per token fluctuates depending on total funds raised.
• Dynamic supply and static price: More tokens are created as more money comes in.

Fundraising periods can last anywhere from a few days to several weeks. Some projects offer bonuses to early investors, encouraging early participation. If the minimum fundraising goal (soft cap) isn't met, many projects return the funds and cancel the ICO.

Token Distribution
After the ICO ends, tokens are distributed to buyers, often through an automated smart contract. Speed and accuracy are crucial. Delays or errors in token distribution can undermine investor trust. Once tokens are in circulation, they may be listed on cryptocurrency exchanges, allowing holders to trade or use them depending on their utility.

Types of ICOs: Public vs. Private

ICOs can be divided into two broad categories:

Public ICOs

These are open to the general public. Anyone can participate, making public ICOs a form of democratized investing. They tend to attract a broad, global base of small-scale investors. However, they also face greater regulatory scrutiny, especially in jurisdictions that treat ICOs as securities offerings.

Private ICOs

In a private ICO, token sales are restricted to a limited number of investors—typically accredited investors or institutions. Private ICOs offer more control and often involve larger investments. From a legal and compliance standpoint, they're often easier to manage, but they lack the broad exposure of public offerings.

The Appeal of ICOs

Fast, Global Capital
ICOs remove geographical and institutional barriers. Anyone with internet access and a crypto wallet can participate. This global reach enables startups to raise millions quickly, often without relying on traditional venture capital networks.

Early Investment Opportunities
Investors get early exposure to innovative projects, often at discounted rates. Early token holders can benefit from significant price appreciation if the project succeeds. Projects like Ethereum, Solana, and Polkadot are frequently cited as ICO success stories, delivering outsized returns for early supporters.

Decentralization and Autonomy
Because ICOs rely on blockchain infrastructure, they often operate without centralized control. This can foster transparency, direct engagement between projects and their communities, and the potential for decentralized governance.

Risks and Challenges of ICOs

Despite their potential, ICOs are not without significant risks.

Regulatory Uncertainty
ICOs often operate in a legal gray area, with regulations varying widely across regions. In the U.S., the Securities and Exchange Commission (SEC) applies the Howey Test to determine if a token sale qualifies as a securities offering, with non-compliance potentially resulting in fines or refunds. While countries like China and South Korea have banned ICOs entirely, others such as Australia, the UAE, and New Zealand have issued regulatory guidelines, creating a fragmented global landscape that adds uncertainty for both investors and project developers.

Fraud and Scams
ICOs are easy to launch, which makes them attractive to scammers who use fake whitepapers, fictitious teams, and misleading claims to deceive investors—Centra Tech being a prime example. To avoid fraud, investors should verify team credentials, check for independent audits, review technical documentation like GitHub repositories, and assess the project's transparency and community engagement.

Price Volatility
Even legitimate tokens can experience extreme volatility. Hype, speculation, and market manipulation can cause prices to soar or crash without warning. Unlike traditional assets, most ICO tokens lack intrinsic value or stable cash flows, making them especially susceptible to speculative bubbles.

Security Risks
Because ICOs involve large sums of money and digital wallets, they are prime targets for cyberattacks. Hacks, phishing scams, and faulty smart contracts have led to significant losses. Proper cybersecurity measures and investor education are essential.

ICOs in 2025: Still Relevant?

Though the peak of ICO hype has passed, the model remains relevant in 2025 as startups use it to bypass traditional funding channels and reach global crypto investors. Newer alternatives like Initial Exchange Offerings (IEOs) and Initial DEX Offerings (IDOs) have gained traction by offering more transparency through exchange partnerships and decentralized platforms. However, ICOs are valuable when backed by a clear vision, compliance for cryptocurrency business,  and a reliable team.
As regulations evolve, legal guidance is essential for navigating this complex space. Whether launching or investing in an ICO, working with experts in crypto law ensures better protection and compliance. Bulldog Law, a trusted law firm for crypto matters in California, provides tailored legal support, helping innovators and investors confidently move forward.