ICO short for initial currency offer. When launching a new cryptocurrency or crypto-token, developers offer investors a limited number of units in exchange for other major cryptocurrencies, such as Bitcoin or Etherium.
ICOs are amazing tools for accelerating development funding to support new cryptocurrencies. Tokens issued during ICOs can be sold and traded on cryptocurrency exchanges, assuming there is sufficient demand for them.
The Ethereum ICO is one of the most significant successes and the popularity of the initial currency offerings is growing as we speak.
A brief history of the ICO
Ripple is probably the first cryptocurrency to be distributed through an ICO. In early 2013, Ripple Labs began creating Ripple payment systems and created nearly 100 billion XRP tokens. These were sold through an ICO for Ripple’s platform development.
MasterCoin is another cryptocurrency that sold millions of tokens for Bitcoin during an ICO, even in 2013. Mastercoin’s goal is to tokenize bitcoin transactions and execute smart deals by creating a new layer on top of existing bitcoin codes.
Of course, there are other cryptocurrencies that have been successfully financed through ICOs. In 2016, Lisk raised about $ 5 million when offering their initial currency.
However, Ethereum’s ICO which took place in 2014 is probably the most prominent so far. During their ICO, the Ethereum Foundation raised about $ 20 million by selling ETH for every 0.0005 bitcoin. Ethereum uses the power of smart compacts, paving the way for the next generation of early currency offers.
Ethereum’s ICO, a recipe for success
Ethereum’s smart contract system has implemented the ERC20 protocol standard, which sets the basic rules for creating other compliant tokens that can be transacted in Ethereum’s blockchain. This allows others to create their own tokens, complying with the ERC20 standard that can be traded directly to Ethereum’s network for ETH.
DAO is a significant example of Ethereum’s successful use of smart contracts. The investment company raised T 100 million worth of ETH and investors received DAO tokens in exchange that allowed them to participate in the management of their platform. Sadly, DAO failed after being hacked.
Ethereum’s ICO and their ERC20 protocol outline the latest generation of crowdfunding blockchain-based projects through initial coin offering.
This makes it much easier to invest in other ERC20 tokens. You simply transfer the ETH, paste the agreement into your wallet and the new tokens will appear in your account so you can use them if you wish.
Obviously, not all cryptocurrencies have ERC20 tokens on Ethereum’s network, but virtually any new blockchain-based project could launch an initial currency offer.
Legal status of ICO
When it comes to the legitimacy of ICOs, it’s a bit like a jungle. Theoretically, tokens are sold as digital products, not financial assets. Most jurisdictions have not yet regulated ICOs so assuming the founders have an experienced lawyer in their team, the whole process should be paperless.
Nonetheless, some jurisdictions have become aware of ICOs and are already working to control them, similar to the sale of shares and securities.
In December 2017, the US Securities and Exchange Commission (SEC) classified ICO tokens as securities. In other words, the SEC was preparing to stop ICOs which they considered to be misleading to investors.
There are cases where the token is only a utility token. This means that the owner can only use it to access a specific network or protocol in cases where they may not be defined as financial security. Nevertheless, an equity token whose purpose is to appreciate value is very close to the concept of security. Truth be told, most token purchases are made specifically for investment purposes.
Despite the efforts of regulators, ICOs are still stuck in a gray legal area and entrepreneurs will try to benefit from initial currency offers until a clear regulation is enacted.
It is also worth noting that once the regulations are finalized, the costs and effort required to comply may make ICOs less attractive than conventional funding options.
For now, ICOs have remained an amazing way of financing new crypto-related projects, and many more have been successful.
However, keep in mind that everyone is launching ICOs nowadays and many of these projects lack scams or solid foundations that need to be improved and made investable. For this reason, you should thoroughly research and investigate the team and background of the crypto project you want to invest in. There are multiple websites that list ICOs, just search on Google and you will find some options. .