What Is an ICO in Cryptocurrency?

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ICO is the abbreviation of Initial Coin Offering. When launching a new cryptocurrency or crypto-token, developers offer investors a limited number of units in exchange for other major cryptographic pieces such as Bitcoin or Ethereum.

ICOs are incredible tools for quickly obtaining development funds to support new crypto currencies. Tokens offered at an ICO can be sold and exchanged on crypto-encrypted exchanges, provided that the demand is sufficient.

The Ethereum ICO is one of the most remarkable successes and the popularity of initial coin offers continues to grow.

A brief history of ICOs

Ripple is probably the first cryptocurrency distributed via an ICO. In early 2013, Ripple Labs began developing the Ripple payment system and generated approximately 100 billion XRP chips. These were sold via an ICO to finance the development of the Ripple platform.

Mastercoin is another cryptocurrency that sold a few million tokens for Bitcoin at an ICO, also in 2013. Mastercoin aimed to split Bitcoin transactions and execute smart contracts by creating a new layer over the existing Bitcoin code.

Of course, there are other cryptocurrencies that have been successfully funded by the ICOs. In 2016, Lisk raised approximately $ 5 million in their first coin placement.

Nevertheless, the Ethereum OIC that took place in 2014 is probably the most important to date. During their ICO, the Ethereum Foundation sold the ETH at 0.0005 Bitcoin, generating nearly $ 20 million. By harnessing the power of smart contracts, Ethereum has paved the way for the next generation of initial currency offerings.

Etherco & # 39; s ICO, the recipe for success

Ethereum's intelligent contract system has implemented the standard ERC20 protocol that sets the ground rules for creating other compliant tokens that can be processed on the Ethereum block chain. This allowed other users to create their own ERC20-compliant tokens, which can be exchanged for ETH directly on the Ethereum network.

The DAO is a remarkable example of successful use of Ethereum's smart contracts. The investment company raised $ 100 million from ETH and investors received CAD tokens in return for participating in the governance of the platform. Unfortunately, the DAO failed after being hacked.

Ethereum's ICO and its ERC20 protocol showcased the latest generation of blockchain-based crowdfunding projects via initial coin offerings.

It also made it easy to invest in other ERC20 tokens. You simply transfer ETH, paste the contract into your wallet and the new tokens will appear in your account so you can use them as you please.

Obviously, not all crypto-currencies have ERC20 chips alive on Ethereum network, but virtually any new project based on a chain of blocks can launch an initial offer of parts.

The legal status of ICOs

As for the legality of ICO, it's a little jungle. In theory, the chips are sold in the form of digital goods, not financial assets. As most jurisdictions have not yet regulated ICOs, the processes should be paperless, assuming the founders have experienced lawyers on their team.

Even in this case, some jurisdictions have become aware of ICOs and are already working to regulate them similarly to the sale of shares and securities.

In December 2017, the US Securities and Exchange Commission (SEC) rated ICO tokens as securities. In other words, the SEC was preparing to put an end to the ICOs that they consider to be misleading investors.

In some cases, the token is only a utility token. This means that the owner can simply use it to access a certain network or protocol, in which case they can not be defined as a financial guarantee. Nevertheless, equity chips whose purpose is to appreciate value are quite close to the concept of security. In fact, most symbolic purchases are made specifically for investment purposes.

Despite the efforts of regulators, ICOs remain in a gray legal area and until clearer regulation is imposed, entrepreneurs will attempt to take advantage of initial coin offerings.

It should also be noted that once the regulation has reached its final form, the costs and efforts required to comply could make investment activities less attractive compared to traditional financing options.

Final words

For now, ICOs remain a great way to fund new projects related to cryptography. Many projects have been successful and others are coming.

However, keep in mind that everyone is launching ICOs today and that many of these projects are scams or lack the solid foundation they need to thrive and be worth it. For this reason, you should thoroughly research and study the team and context of any cryptographic project in which you want to invest. There are several websites listing ICOs, so we recommend checking this out. ICO Calendar if you are interested in investing in a cryptography project.


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