ICO short for initial currency offer. When launching a new cryptocurrency or crypto token, developers provide investors with a limited number of units in exchange for other large cryptocurrencies, such as Bitcoin or Etherium.
ICOs are amazing tools for rapid fundraising to support new cryptocurrencies. Tokens issued during the ICO can be sold and bought on cryptocurrency exchanges, assuming they have a substantial 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 IPO 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 funded through ICOs. Back in 2016, Lisk raised 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 $ 20 million and sold ETH to 0.0005 bitcoins each. As well as strengthening the power of Ethereum Smart Contracts, it has paved the way for the next generation of early currency offerings.
The recipe for success is Ethereum ICO
Ethereum’s smart contract systems have implemented the ERC20 protocol standard that 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 collected ETH worth TH 100 million and received DAO tokens in exchange for allowing investors to participate in the operation of their platform. 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 their Etherium network, but it could launch a new blockchain-based project offering an initial coin.
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 goods, 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 the same way as 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 simply a utility token. This means that the owner can only use it for access to a specific network or protocol in which case they may not be defined as financial security. Yet, the equity token whose purpose is appreciated is 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 a gray legal zone and entrepreneurs will try to benefit from initial currency offers until a clear regulation is imposed.
It is also worth noting that once the rules are finalized, the necessary spending and effort can be made to make ICOs less attractive than conventional financing 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 scandalous or lack the foundation to make them worthwhile to improve and invest. For this reason, you must do a thorough research and investigate the team and background of any crypto project you may want to invest in. There are multiple websites that list ICOs, just search on Google and you will find some options.