when a cryptocurrency project wants to raise money through an ico the project organizers first step is determining how they will structure the coin icos can be structured in a few different ways including 
these three different types of icos are illustrated below image by sabrina jiang investopedia 2022alongside structuring the ico the crypto project usually creates a pitchbook called a white paper in the crypto industry that it makes available to potential investors via a new website dedicated to the token the promoters of the project use their white paper to explain important information related to the ico the project releases the white paper as part of its ico campaign which it designs to encourage enthusiasts and supporters to buy some of the project s tokens investors can generally use fiat or digital currency to buy the new tokens and it s increasingly common for investors to pay using other forms of crypto such as bitcoin or ethereum these newly issued tokens are similar to shares of stock sold to investors during an ipo if the money raised in an ico is less than the minimum amount required by the ico s criteria the funds may be returned to the project s investors the ico would then be deemed unsuccessful if the funding requirements are met within the specified period the money raised is spent in pursuit of the project s goals anyone can launch an ico however regulators in the u s and other developed nations monitor icos closely to ensure they are registered if necessary but this still means that someone might do whatever it takes to make you believe they have a legitimate ico including fake registration approval letters emails or forms of communication that might fool someone of all the possible funding avenues an ico is probably one of the easiest to set up as a scam even if anyone can establish and launch an ico that doesn t mean everyone should if you re considering starting an initial coin offering ask yourself if your business would substantially benefit from one you ll likely need to go through the process of registering a security with the sec if you re set on buying into a new ico that you ve heard about make sure to do your homework the first step is ensuring that the people putting up the ico are real and accountable next investigate the project leads history with crypto and blockchain if it seems that the project doesn t involve anyone with relevant easily verified experience the scam alarms in your head should start ringing identifying icos and scamsico activity began to decrease dramatically in 2019 partly because of the legal gray area that icos inhabit 2 if you re interested you can research and find icos in which to participate but there is no surefire way to stay abreast of all the latest initial coin offerings websites like topicolist com compare different icos against one another you can also look at registered cryptocurrency exchanges to see what new coins they have listed and which they don t most of these will not list coins they have not vetted so checking exchanges can add a measure of safety cryptocurrency aggregators can also help you identify potential scams or real opportunities aggregators do not vet new cryptocurrencies they are only informational in nature many will provide links to the project s gihub pages websites and social media pages and discuss issues the project is attempting to solve if there is no section dedicated to describing a coin and no readily available information on websites other than nonsensical phrases like teh dankest cornur of teh interwebs where teh perfict hooman specinem gathur you might want to pass 3the u s securities and exchange commission sec can intervene in an ico if necessary for example after the creator of telegram raised 1 7 billion in an ico in 2018 and 2019 the sec filed an emergency action and obtained a temporary restraining order alleging illegal activity on the part of the development team 4 in march 2020 the u s district court for the southern district of new york issued a preliminary injunction telegram was ordered to return 1 2 billion to investors and pay a civil penalty of 18 5 million 5there is no guarantee that you won t be on the losing end of a scam when investing in an ico but there are some other steps you can take to avoid ico scams some icos require that another cryptocurrency be used to invest in an ico so you may need to purchase other coins to invest in the project icos can generate a substantial amount of hype and there are numerous sites online where investors gather to discuss new opportunities famous actors entertainers or other individuals with an established presence like steven seagal have also encouraged their followers or fans to invest in a hot new ico 6 however the sec released a warning to investors stating that it is illegal for celebrities to use social media to endorse icos without disclosing any compensation they received 7boxing superstar floyd mayweather jr and music mogul dj khaled once promoted centra tech an ico that raised 30 million at the end of 2017 8 centra tech was ultimately deemed a scam in court resulting in the two celebrities settling charges with u s regulators plus three centra tech founders pleading guilty to ico fraud 9you should always familiarize yourself with cryptocurrency and understand everything about an ico before participating because fake icos are caught rather than prevented prospective investors should exercise extreme caution when investing initial coin offering ico vs initial public offering ipo initial public offerings ipos must follow a very structured process that includes marketing roadshows brochures and capital investment by the company itself the process informs investors and entices them to purchase shares after they are publicly listed and begin trading on public exchanges in many jurisdictions creating a cryptocurrency is not illegal however if it meets the criteria set by whatever test regulators in each country use it will likely be considered a security in that country thus becoming an ico in the u s the howey test is used if a coin issue meets the criteria of this test the sec will consider it an unregistered security sale and force compliance the howey test is not something only the sec can use look an ico over for yourself if a project requires an investment of money in a common enterprise with the expectation of profits from the work of others it is an investment contract no matter what it is labeled if the project s management doesn t treat it as one it s likely not an investment worth your money however there are circumstances where it might not be a scam but it s best to let others find out unless you have money to spare examples of initial coin offeringsethereum s ico in 2014 is an early prominent example of an initial coin offering the ethereum ico raised 18 million over 42 days 10in another example during a one month ico ending in march 2018 dragon coin raised about 320 million 11 also in 2018 the company behind the eos platform shattered dragon coin s record by raising a whopping 4 billion during a yearlong ico 12the first instance of the sec cracking down on an ico occurred on dec 11 2017 when the agency halted an ico by munchee a california company with a food review app munchee was attempting to raise money to create a cryptocurrency that would work within the app to order food the sec issued a cease and desist letter treating the ico as an unregistered securities offering 13