Cryptocurrency What is an ICO?

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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 funds to support new cryptocurrencies. Tokens issued during the ICO can be sold and traded on cryptocurrency exchanges, assuming there is sufficient demand for them.

The Ethereum ICO is one of the most notable successes, and the popularity of early currency offers 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 they offered their initial currency.

However, Ethereum’s ICO that took place in 2014 is probably the most prominent so far. During their ICO, the Ethereum Foundation sold ETH for 0.0005 bitcoins each, raising about $ 20 million. Ethereum uses the power of smart contracts, 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 traded on Ethereum’s blockchain. This allows others to create their own tokens, which comply with the ERC20 standard that can be traded directly on Ethereum’s network for ETH.

DAO is a significant example of the successful use of Ethereum’s smart contracts. The investment company has raised T 100 million worth of ETH and investors have received DAO tokens in exchange so they can participate in the operation of the platform. Sadly, DAO failed after being hacked.

Ethereum’s ICO and their ERC20 protocol outline the latest generation of crowdfunding blockchain-based projects through early coin offering.

This makes it very easy to invest in other ERC20 tokens. You simply transfer ETH, paste the agreement into your wallet, and new tokens will appear in your account so you can use them if you want.

Obviously, not all cryptocurrencies have ERC20 tokens on Ethereum’s network, but pretty much 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 of the judiciary is not yet regulated by the ICO 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 on their control similarly 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 think are misleading to investors.

In some cases the token is just 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, equity tokens whose purpose is to appreciate value are quite close to the concept of security. Honestly, most token purchases are made specifically for investment purposes.

Despite the efforts of regulators, ICOs are still stuck in a gray legal area and until a clear regulation is imposed, entrepreneurs will try to benefit from the initial currency offers.

It is also worth noting that once the regulations are finalized, the costs and effort required to comply may make the ICO less attractive than conventional financing options.

Last word

For now, ICOs have remained an amazing way to finance 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 improve them and make it investable. For this reason, you must do thorough research and investigate the team and background of the crypto project you want to invest in. There are multiple websites that are ICO listed, just search on Google and you will find some options. .

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