ICO is short for Initial Coin Offering. When launching a fresh cryptocurrency or crypto-token, the developers offer investors a small number of units in trade for other major crypto coins such as Bitcoin or Ethereum.
ICOs are amazing tools for quickly raining development funds to aid new cryptocurrencies. The tokens offered during an ICO could be sold and traded on cryptocurrency exchanges, assuming there is sufficient demand for them.
The Ethereum ICO is one of the very notable successes, and the popularity of Initial Coin Offerings is growing once we speak.
A brief history of ICOs
Ripple is probably the initial cryptocurrency distributed via an ICO trending xrp news. From the beginning of 2013, Ripple Labs began to develop the Ripple payment system and generated approximately 100 billion XRP tokens. These were sold via an ICO to fund Ripple’s platform development.
Mastercoin is another cryptocurrency that’s sold a couple of million tokens for Bitcoin during an ICO, also in 2013. Mastercoin aimed to tokenize Bitcoin transactions and execute smart contracts by making a new layer on the surface of the existing Bitcoin code.
You can find other cryptocurrencies that have been successfully funded through ICOs. In 2016, Lisk gathered approximately $5 million throughout its Initial Coin Offering.
Nevertheless, Ethereum’s ICO that took devote 2014, is the most prominent one so far. In their ICO, the Ethereum Foundation sold ETH for 0.0005 Bitcoin each, raising almost $20 million. With Ethereum harnessing the ability of smart contracts, it paved just how for the following generation of Initial Coin Offerings.
Ethereum’s ICO, a menu for success
Ethereum’s smart contracts system has implemented the ERC20 protocol standard that sets the core rules for creating other compliant tokens, which may be transacted on Ethereum’s blockchain. This allowed others to generate their tokens, compliant with the ERC20 standard that can be traded for ETH entirely on Ethereum’s network.
The DAO is a significant exemplary instance of successfully using Ethereum’s smart contracts. The investment company raised $100 million worth of ETH, and the investors received in trade DAO tokens permitting them to participate in the governance of the platform. Sadly, the DAO failed after it was hacked.
Ethereum’s ICO and its ERC20 protocol have outlined the newest generation of crowdfunding blockchain-based projects via Initial Coin Offerings.
Also, it made it super easy to purchase other ERC20 tokens. You simply transfer ETH, paste the contract in your wallet, and the brand new tokens will arrive in your account, so you need to use them nevertheless, you please.
Not absolutely all cryptocurrencies have ERC20 tokens living on Ethereum’s s network, but pretty much any new blockchain-based project can launch an Initial Coin Offering.
The legal state of ICOs
In regards to the legality of ICOs, it is a bit of a jungle out there. Theoretically, tokens can be bought as digital goods, not financial assets. Most jurisdictions haven’t regulated ICOs yet, so assuming the founders have a veteran lawyer on their team, and the complete process must undoubtedly be paperless.
However, some jurisdictions are becoming conscious of ICOs and already are focusing on regulating them in the same manner as sales of shares and securities.
In December 2017, the U.S. Securities And Exchange Commission (SEC) classified ICO tokens as securities. Quite simply, the SEC was preparing to halt ICOs they consider to be misleading investors.
There are some cases in which the token is a utility token. This implies the dog owner can simply use it to access a particular network or protocol by which case they may not be defined as financial security. Nevertheless, equity tokens whose purpose is to comprehend in value are quite near to the thought of security. Honestly, most token purchases are manufactured, especially for investment purposes.
Regardless of the efforts of regulators, ICOs continue to be lingering in a gray legal area. Until a more precise set of regulations is imposed, entrepreneurs will try to benefit from Initial Coin Offerings.
It’s also worth mentioning that once regulations reach a final form, the price and effort required to comply could make ICOs less attractive compared to conventional funding options.
For now, ICOs remain an incredible method to fund new crypto-related projects, and there were multiple successful ones with more to come.
However, bear in mind everyone is launching ICOs nowadays, and a number of these projects are scams or lack the solid foundation they need to thrive and make it worth the investment. For this reason, you should do thorough research and investigate the team and background of whatever crypto project you might want to invest in. You can find multiple websites on the market that list ICOs, and we recommend checking this ICO calendar if you’re interested in choosing the crypto project.