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ICO stands for Initial Coin Offering. When introducing a new cryptocurrency or crypto token, the developers offer investors a limited number of units in exchange for other large crypto-coins such as Bitcoin or Ethereum.
ICOs are amazing tools for quickly raining development funds to support new cryptocurrencies. The tokens offered during an ICO can be sold and traded on cryptocurrency exchanges if there is sufficient demand.
The Ethereum ICO is one of its most notable achievements, and Initial Coin Offerings’ popularity is growing as we speak.
A brief history of the ICOs
Ripple is likely the first cryptocurrency to be distributed through an ICO. In early 2013, Ripple Labs began developing the Ripple payment system and generated around 100 billion XRP tokens. These were sold through an ICO to fund Ripple’s platform development.
Mastercoin is another cryptocurrency that sold several million tokens for Bitcoin during an ICO, also in 2013. Mastercoin aimed to tokenize bitcoin transactions and execute smart contracts by creating a new layer on top of the existing bitcoin code.
Of course, there are also other cryptocurrencies that have been successfully financed through ICOs. In 2016, Lisk raised approximately $ 5 million during their Initial Coin Offering.
Nevertheless, the Ethereum ICO that took place in 2014 is probably the most prominent so far. During their ICO, the Ethereum Foundation sold ETH for 0.0005 bitcoin each and raised nearly $ 20 million. As Ethereum harnesses the power of smart contracts, it paves the way for the next generation of initial coin offerings.
Ethereum’s ICO, a recipe for success
Ethereum’s smart contracts system has implemented the ERC20 protocol standard, which sets the core rules for creating other compliant tokens that can be processed on Ethereum’s blockchain. This allowed others to create their own tokens that correspond to the ERC20 standard and can be traded directly on the Ethereum network for ETH.
The DAO is a notable example of the successful use of Ethereum’s smart contracts. The investment company raised ETH worth $ 100 million and investors received DAO tokens in exchange, which allowed them to participate in the governance of the platform. Unfortunately the DAO failed after being hacked.
Ethereum’s ICO and its ERC20 protocol have outlined the latest generation of crowdfunding blockchain-based projects via Initial Coin Offerings.
It also made it very easy to invest in other ERC20 tokens. You simply transfer ETH, paste the contract into your wallet and the new tokens will appear in your account so you can use them however you want.
Obviously, not all cryptocurrencies have ERC20 tokens that live on the Ethereum network, but pretty much any new blockchain-based project can start an initial coin offering.
The legal status of ICOs
When it comes to the legality of ICOs, it’s a bit of a jungle out there. In theory, tokens are sold as digital goods, not financial assets. Most jurisdictions have not yet regulated ICOs. Provided the founders have an experienced lawyer on their team, the entire process should be paperless.
Nonetheless, some jurisdictions have become aware of ICOs and are already working on regulating them in a manner similar to the sale of stocks and securities.
As early as December 2017, the US Securities and Exchange Commission classified ICO tokens as securities. In other words, the SEC was preparing to stop ICOs they consider misleading investors.
There are some cases where the token is just a utility token. This means that the owner can use it to easily access a specific network or protocol. In this case, they may not be able to be defined as financial security. Still, share tokens, the purpose of which is to increase value, come pretty close to the concept of security. To be honest, most token purchases are made specifically for investment purposes.
Despite the efforts of regulators, ICOs are still lingering in a gray area of law and until clearer regulations are enforced, entrepreneurs will try to take advantage of Initial Coin Offerings.
It’s also worth noting that the cost and hassle of compliance could make ICOs less attractive compared to traditional funding options once the regulations are in a final form.
last words
Right now, ICOs remain an amazing way to fund new crypto-related projects, and there have been several successful projects with more to follow.
Remember, however, that everyone is launching ICOs these days and many of these projects are scams or lack the solid foundation they need to thrive and make the investment worthwhile. Because of this, you should definitely do a thorough research and examine the team and background of any crypto project that you might want to invest in. There are several websites that list ICOs. Just do a search on google and you will find some options.
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Source by Alexandra Vasiliu