Initial Coin Offering is referred to as ICO. When a new cryptocurrency or crypto-token is introduced, its creators provide investors with a finite number of units in exchange for other significant crypto coins like Bitcoin or Ethereum.
The use of initial coin offerings (ICOs) is a fantastic method for raising money for new cryptocurrency development quickly. If there is enough interest in the tokens offered during an ICO, they can be bought, sold, and traded on cryptocurrency exchanges.
One of the most notable successes was the Ethereum ICO, and initial coin offerings are becoming more and more well-liked.
A brief history of ICOs
The first cryptocurrency to be distributed through an ICO was probably ripple. Beginning in 2013, Ripple Labs started working on the Ripple payment system and created about 100 billion XRP tokens. To raise money for the creation of the Ripple platform, these were sold through an ICO.
Another cryptocurrency, Mastercoin, sold a few million tokens for Bitcoin in a similar ICO in 2013. With a new layer being added on top of the existing Bitcoin code, Mastercoin aimed to tokenize Bitcoin transactions and carry out smart contracts.
Of course, other cryptocurrencies have also used initial coin offerings to raise money successfully. The initial coin offering for Lisk in 2016 brought in about $5 million.
Even so, the most well-known ICO to date was probably the one for Ethereum, which occurred in 2014. The Ethereum Foundation raised close to $20 million during their initial coin offering (ICO) by selling ETH for 0.0005 Bitcoin each. The next generation of initial coin offerings was made possible by Ethereum’s use of smart contracts.
Ethereum’s ICO, a recipe for success
The ERC20 protocol standard, which lays out the fundamental guidelines for developing other compliant tokens that can be used for transactions on Ethereum’s blockchain, has been implemented in the smart contract system on Ethereum. This gave others the ability to produce their own ERC20-compliant tokens that can be exchanged for ETH instantly on the Ethereum network.
One well-known instance of utilizing Ethereum’s smart contracts effectively is The DAO. The investment firm raised $100 million in ETH, and in exchange, the investors received DAO tokens that allowed them to take part in platform governance. Sadly, after being compromised, the DAO was a failure.
The most recent wave of blockchain-based project crowdfunding through initial coin offerings has been described by Ethereum’s ICO and ERC20 protocol.
Additionally, it made it very simple to invest in other ERC20 tokens. Simply transfer ETH, paste the contract in your wallet, and the new tokens will appear in your account for you to use as you please.
Although not every cryptocurrency has ERC20 tokens that are active on the Ethereum network, practically any new blockchain-based project is able to launch an ICO.
The legal state of ICOs
It’s a little bit of a jungle out there when it comes to ICO legality. Tokens are theoretically sold as digital goods rather than as financial assets. If the founders have an experienced lawyer on their team, the process should be completely paperless since the majority of jurisdictions haven’t yet regulated initial coin offerings.
However, some jurisdictions are already working to regulate ICOs similarly to the sale of shares and securities after becoming aware of the phenomenon.
In December of last year, the U.S. ICO tokens were categorized as securities by the Securities and Exchange Commission (SEC). In other words, the SEC was getting ready to stop ICOs that they believed were deceiving investors.
The token may be used solely as a utility in certain circumstances. This indicates that they are not necessarily considered financial securities because the owner can simply use them to access a particular network or protocol. Equity tokens, on the other hand, are quite similar to the idea of security because they are meant to increase in value. Actually, the majority of token purchases are made with an eye toward future investments.
Despite regulators’ best efforts, initial coin offerings (ICOs) continue to operate in a murky legal space, and until more precise regulations are put in place, business owners will try to take advantage of them.
It’s also important to note that, once regulations are finalized, the expense and effort necessary to comply with them may reduce ICOs’ allure in comparison to traditional funding options.
Final words
There have already been a number of successful ICOs, and there will undoubtedly be more in the future. ICOs are still a fantastic way to finance new crypto-related projects.
Keep in mind that everyone is launching ICOs these days, and many of these projects are frauds or don’t have the foundational support they require to succeed and be worthwhile investments. This is why, before investing in any cryptocurrency project, you should definitely conduct in-depth research and look into the leadership and history of the project. You can find ICO listing websites on many different websites; just conduct a Google search to find some possibilities.