As I understand it, they're a new way of raising money (as Fred Wilson put it, "disrupting Silicon Valley").
Normally, you sell of portions of your company to investors in exchange for funding. You get money to run your business, and they get a stake that could be worth 10x in a few years time if you get acquired or go public.
With an ICO, you can't really sell off portions of your company, because you'll run afoul of securities laws (I'm speaking of the U.S. here). So what do you sell? Typically, companies sell tokens that will be users' way of interacting with their future product. So if you're a decentralized file storage company, the ICO token is what users will eventually use to buy storage.
What's exciting for some is that coin offerings provide a way to fund interesting and meaningful companies even if they are outside of the "venture capital loop". In some ways, ICOs are more democratic and egalitarian than any funding system currently available.
Mind you, I don't think ICOs provide any new value whatsoever, and I don't really see the point, but you asked for an explanation and there it is.
Normally, you sell of portions of your company to investors in exchange for funding. You get money to run your business, and they get a stake that could be worth 10x in a few years time if you get acquired or go public.
With an ICO, you can't really sell off portions of your company, because you'll run afoul of securities laws (I'm speaking of the U.S. here). So what do you sell? Typically, companies sell tokens that will be users' way of interacting with their future product. So if you're a decentralized file storage company, the ICO token is what users will eventually use to buy storage.
What's exciting for some is that coin offerings provide a way to fund interesting and meaningful companies even if they are outside of the "venture capital loop". In some ways, ICOs are more democratic and egalitarian than any funding system currently available.
Mind you, I don't think ICOs provide any new value whatsoever, and I don't really see the point, but you asked for an explanation and there it is.