ICO is short for Initial Coin Offering. When launching new cryptocurrencies or crypto tokens, developers provide investors with a limited number of units in exchange for other major cryptocurrencies, such as Bitcoin or Ethereum.
ICO is an amazing tool that can quickly invest development funds to support new cryptocurrencies. Assuming there is sufficient demand, the tokens that can be provided during the ICO can be sold and traded on cryptocurrency exchanges.
The Ethereum ICO is one of the most famous successes, and with our speech, the popularity of the initial token product is growing.
Brief history of ICO
Ripple may be the first cryptocurrency issued through an ICO. In early 2013, Ripple Labs began to develop the Ripple payment system and generated approximately 100 billion XRP tokens. They are sold through an ICO to fund Ripple’s platform development.
Mastercoin is another cryptocurrency that also sold millions of Bitcoin tokens during the 2013 ICO. Mastercoin aims to mark Bitcoin transactions and execute smart contracts by creating a new layer on top of the existing Bitcoin code.
Of course, there are other cryptocurrencies successfully funded through ICOs. As early as 2016, Lisk raised approximately $5 million in its initial coin offering.
Nevertheless, the Ethereum ICO conducted in 2014 may be the most prominent ICO to date. During its ICO, the Ethereum Foundation sold ETH at a price of 0.0005 Bitcoin each, raising nearly $20 million. As Ethereum leverages the power of smart contracts, it paves the way for the next generation of initial coin offerings.
Ethereum’s ICO, the secret of success
Ethereum’s smart contract system has implemented the ERC20 protocol standard, which sets the core rules for creating other compliant tokens that can be traded on the Ethereum blockchain. This allows others to create their own tokens that comply with the ERC20 standard and can be directly traded in ETH on the Ethereum network.
DAO is a famous example of the successful use of Ethereum smart contracts. The investment company raised $100 million worth of ETH, and investors received DAO tokens in exchange to enable them to participate in the governance of the platform. Sadly, DAO failed after being hacked.
Ethereum’s ICO and its ERC20 protocol outline the latest generation of blockchain-based crowdfunding projects through the Initial Coin product.
This also makes it very easy to invest in other ERC20 tokens. You only need to transfer ETH, paste the contract into your wallet, and the new tokens will appear in your account, so you can use them as you wish.
Obviously, not all cryptocurrencies have ERC20 tokens on the Ethereum network, but almost all new blockchain-based projects can initiate initial token issuance.
Legal status of ICO
Regarding the legality of ICOs, there is a bit of jungle there. In theory, tokens are sold as digital commodities rather than financial assets. Most jurisdictions have not yet regulated ICOs, so assuming that the founder’s team has experienced lawyers, the entire process should be paperless.
Even so, some jurisdictions are aware of ICOs and are already regulating them in a similar way to the sale of stocks and securities.
As early as December 2017, the US Securities and Exchange Commission (SEC) classified ICO tokens as securities. In other words, the SEC is preparing to stop ICOs that they believe are misleading investors.
In some cases, the token is just a utility token. This means that the owner can simply use it to access a certain network or protocol, in which case they may not be defined as financially safe. However, stock tokens designed to increase value are very close to the concept of security. To be honest, most token purchases are made specifically for investment purposes.
Despite the efforts of regulators, ICOs are still hovering in the gray legal realm, and entrepreneurs will not try to benefit from the initial token issuance until a clearer set of regulations is implemented.
It is also worth mentioning that once the regulations reach their final form, the cost and effort required to comply with the regulations may make ICOs more attractive than traditional financing options.
For now, ICOs are still an amazing way to fund new crypto-related projects, and there have been many successful projects, and there are many more.
However, remember that everyone is launching ICOs these days, and many of these projects are scams or lack the solid foundation needed to thrive and make them worth investing in. Therefore, you should definitely conduct thorough research and investigate the team and background of any crypto project you might want to invest in. There are multiple websites that list ICOs, just do a search on Google and you will find some options.