ICO is an acronym for the initial placement of coins. 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 Ethereum.
ICOs are amazing tools for quickly raising development funds to support new cryptocurrencies. Tokens offered during the ICO can be sold and traded on cryptocurrency exchanges, provided there is sufficient demand for them.
ICO Ethereum is one of the most notable successes, and the popularity of the original coin offerings is growing when we speak.
A brief history of the ICO
Ripple is probably the first cryptocurrency to be distributed through the ICO. In early 2013, Ripple Labs began developing the Ripple payment system and received about 100 billion XRP tokens. They were sold through the ICO to fund the development of the Ripple platform.
Mastercoin is another cryptocurrency that sold several million tokens for bitcoin during the ICO, also in 2013. Mastercoin aimed to tokenize transactions with bitcoins and execute smart contracts, creating a new layer over the existing Bitcoin code.
Of course, there are other cryptocurrencies that are successfully funded through the ICO. Back in 2016, Lisk raised about $ 5 million during the initial coin placement.
However, ICO Ethereum, which took place in 2014, is probably the most famous to date. During the ICO, the Ethereum Foundation sold ETH for 0.0005 bitcoins each, raising nearly $ 20 million. Thanks to Ethereum, using the power of smart contracts, it paved the way for the next generation of original coin offerings.
ICO Ethereum, the recipe for success
The Ethereum smart contract system has implemented the ERC20 standard, which sets out the basic rules for creating other compatible tokens that can be implemented in the Ethereum blockchain. This has allowed others to create their own ERC20-compliant tokens that can be traded on ETH directly on the Ethereum network.
DAO is a notable example of the successful use of Ethereum smart contracts. The investment company raised $ 100 million from ETH, and investors received DAO tokens in exchange, allowing them to participate in the management of the platform. Unfortunately, DAO failed after it was hacked.
Ethereum’s ICO and their ERC20 protocol outlined the latest generation of blockchain-based crowdfunding projects, through initial coin offerings.
It also made it very easy to invest in other ERC20 tokens. You just transfer the ETH, insert the contract into your wallet, and new tokens will appear in your account so you can use them as you wish.
Obviously, not all cryptocurrencies have ERC20 tokens living in the Ethereum network, but virtually any new blockchain-based project can launch an initial coin offering.
Legal status of the ICO
When it comes to ICO legality, it’s a bit of a jungle. Theoretically, tokens are sold as digital goods, not financial assets. Most jurisdictions have not yet regulated the ICO, so assuming the founders have an experienced lawyer on their team, the whole process should be paperless.
Despite this, some jurisdictions have learned about ICOs and are already working to regulate them in the same way as selling stocks and securities.
Back 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, which they believe are misleading investors.
There are some cases where a token is just a useful token. This means that the owner can simply use it to access a specific network or protocol, and in this case they cannot be defined as financial security. However, stock tokens aimed at raising value are quite close to the concept of security. Truth be told, most token purchases are made specifically for investment purposes.
Despite the efforts of regulators, ICOs still remain in the gray legal zone, and until a clearer set of rules is introduced, entrepreneurs will try to benefit from initial coin offerings.
It should also be noted that once the rules are finalized, the costs and effort required to implement them may make ICOs less attractive than conventional funding options.
At the moment ICOs remain an amazing way to fund new crypto projects, and there have been several successful ones that are still ahead.
However, keep in mind that everyone today is launching an ICO, and many of these projects are scams or do not have a solid foundation needed in order to thrive and justify investment. For this reason, you should definitely conduct a thorough research and study the team and prerequisites of any crypto project in which you could invest. There are several websites that list ICOs, just do a Google search and you will find several options.