ICOs and IPOs are fund raising mechanisms in which new projects sell their underlying crypto tokens or stocks to the public. Think of an IPO or initial public offering. This is the very first sale of a company – the stock is sold to the public. This would mean that the firm or company is a privately held company. If you own your own company, you can use banks to sell stock to the public, and keep for example, 10 percent of the outstanding stock. When GM, Facebook, IBM or Apple sold their stock, there were some founders who held 5 to 10 percent of the stock, which could be worth billions of dollars once the stock is bought and rallies.
In the Initial Coin Offering of ICO, crypto tokens are sold in exchange for Bitcoin or Ether. The only difference is that in an IPO the investors buy shares in the company. In the ICO they buy tokens. ICOs are a new phenomenon, with are usually used to fund blockchain projects. The concern about ICOs is that they are not regulated and this can be dangerous. Why? If you buy 100 shares of a stock in an IPO, everything is confirmed by the bank selling the stock. You have several checks to confirm that origin and confirmations of the transactions. However, in ICOs, you may think you are buying coins for a new project when in fact the sellers are Russian or US mafia. They pocket the funds raised by the coin sale and they disappear with millions – sometimes never heard from again. Organized crime selling drugs and guns have used crypto as regulators still do not have full control over these transactions.
Recently, some ICO issues have been arrested in the United States as they have issued coins that were bogus and they were caught after pocketing the cash. The most important point is this. When an ICO takes place, money is collected from a pool of global investors and the size of the transaction and cash stolen by crime organizations can be in the hundreds of millions of dollars, even more.