ICO short for offering initial currency. When launching new cryptocurrencies or crypto-tokens, developers provide investors with a limited number of units in exchange for other large cryptocurrencies, such as Bitcoin or Etherium.
ICOs are amazing tools of quick fundraising to support new cryptocurrencies. Tokens issued during ICOs can be sold and bought on cryptocurrency exchanges, assuming they have sufficient demand.
Etherium ICO is a significant success and the popularity of initial coin offers is growing as we speak.
A brief history of ICOs
Ripple is probably the first cryptocurrency to be distributed through an ICO. In early 2013, Ripple Labs began developing the Ripple Payment system and generated about 100 billion XRP tokens. These were sold through an ICO to fund the development of Ripple’s platform.
MasterCoin is another cryptocurrency that sold millions of tokens for Bitcoin during the ICO in 2013.
Of course, there are other cryptocurrencies that have been successfully financed through ICOs. Back in 2016, Lisk collected about 5 5 million during their initial currency offer.
Nevertheless, the Etherium ICO that took place in 2014 is probably the most prominent so far. During their ICO, the Ethereum Foundation raised about TH 20 million and sold ETH at 0.0005 bitcoins each. As well as strengthening the power of the Ethereum Smart Contract, it has paved the way for the next generation of early currency offers.
The recipe for success is Ethereum ICO
Ethereum’s smart contract systems have implemented the ERC20 protocol standard, which sets the basic rules for creating other loyal tokens that can be traded in Ethereum’s blockchain. This allows others to create their own tokens, complying with the ERC20 standard that can be transacted directly for ETH on the Ethereum network.
DAO is a notable example of the successful use of Ethereum’s smart contracts. The investment firm has collected টি 100 million worth of ETHs and allows investors to participate in the operation of their platform in exchange for DAO tokens. Sadly, DAO failed after being hacked.
Etherium’s ICO and their ERC20 protocol outline the latest generation of crowdfunding blockchain-based projects through early coin offerings.
This makes it very easy to invest in other ERC20 tokens. All you have to do is transfer the ETH, stick the contract in your wallet, and new tokens will appear in your account so you can use them please.
Obviously, not all cryptocurrencies have ERC20 tokens in Ethereum’s network, but any new blockchain-based project could launch an initial coin offering.
Legal status of ICOs
There is a bit of a jungle out there when it comes to the legitimacy of ICOs. In theory, tokens are sold as digital products, not financial assets. Most jurisdictions do not yet regulate ICOs so assuming the founders have a seasoned lawyer in their team, the whole process should be paperless.
Nevertheless, some legislation has become aware of ICOs and is already working to regulate them in a similar manner to the sale of shares and securities.
In December 2017, the U.S. Securities and Exchange Commission (SEC) classified ICO tokens as securities. In other words, the SEC was preparing to stop ICOs that were considered misleading to investors.
In some cases the token is just a utility token. This means that the owner can easily use it to access a specific network or protocol without the owner defining it as financial security. Yet, equity tokens whose value is appreciated are very close to the concept of security. In fact, most token purchases are made specifically for investment purposes.
Despite the efforts of regulators, ICOs are still frozen in the gray legal zone and entrepreneurs will try to benefit from the initial currency offers until a clear regulation is imposed.
It is also worth mentioning that once the rules are finalized, the necessary expenditure and effort can be made to make ICOs less attractive than conventional funding options.
The final word
For now, ICOs have become an amazing way to fund new crypto-related projects, and many more are yet to come.
However, keep in mind that everyone is launching ICOs nowadays and many of these projects are either scandalous or lack the solid foundation to improve them and make it worth investing in. For this reason, you must do a thorough research and investigate the team and background of any crypto project you want to invest in. There are multiple websites that list ICOs, just search on Google and you will find some options.