ICO is short for Initial Coin Offering. 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.
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ICOs are amazing tools for rapid rain from development funds to support new cryptocurrencies. The tokens offered during the ICO can be sold and traded on cryptocurrency exchanges, assuming that there is sufficient demand for them.
ICO Ethereum is one of the most notable successes, and the popularity of initial coin offerings 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 developing the Ripple payment system and generated 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 aims to tokenize bitcoin transactions and execute smart contracts by creating a new layer on top of existing Bitcoin code.
Of course, there are other cryptocurrencies that are successfully funded through ICOs. Back in 2016, Lisk raised about $ 5 million during the initial coin offering.
Yet ICO Ethereum, which took place in 2014, is probably the most famous to date. During their time, the Ethereum ICO fund sold ETH for 0.0005 bitcoins each, raising nearly $ 20 million. Ethereum, using the power of reasonable contracts, paved the way for the next generation of primary coin offerings.
ICO Ethereum, a 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 traded on the Ethereum blockchain. This allowed others to create their own ERC20-compliant tokens that could be traded on ETH directly on the Ethereum network.
DAO is a prime example of the successful use of Ethereum smart contracts. The investment company raised $ 100 million from ETH, and investors received DAO tokens in return, which allow them to participate in the management of the platform. Unfortunately, DAO failed after the hack.
ICO Ethereum and their ERC20 protocol have 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 simply transfer 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 start the initial coin offering.
The rule of law is ICO
When it comes to the legitimacy of the ICO, it’s a bit of a jungle. In theory, tokens are sold as digital goods, not as financial assets. Most jurisdictions do not yet regulate the ICO, so assuming the founders have an experienced attorney, the whole process should be paperless.
Despite this, some jurisdictions have learned about ICOs and are already working on their regulation similarly to the sale of 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 the token is just a utility token. This means that the owner can simply use it to access a specific network or protocol, in which case they may not be defined as financial security. However, equity tokens, the purpose of which is to estimate in price, are very close to the concept of security. Truth be told, most token purchases are made specifically for investment purposes.
Despite the efforts of regulators, ICOs are still stuck in the gray legal zone, and until a more precise set of rules is introduced, entrepreneurs will try to benefit from the initial coin offerings.
It should also be noted that once regulations reach their final form, the costs and effort required to implement them may make ICOs less attractive compared to conventional funding options.
At the moment, ICOs remain an amazing way to fund new projects related to cryptography, and there are a few successful ones with a few more.
However, keep in mind today everyone is running an ICO, and many of these projects are scams or don’t have the solid foundation they need to grow and make it worth the investment. For this reason, you should definitely do a thorough research and study the team and history of any crypto project in which you might invest. There are several websites that list ICOs, just do a Google search and you will find some options.