Initial Coin Offering is what’s abbreviated as “ICO.” When a new cryptocurrency or crypto-token is being launched, the developers will often offer investors the chance to purchase a limited number of units of the new cryptocurrency or crypto-token in exchange for other prominent cryptocurrencies such as Bitcoin or Ethereum.
Initial coin offerings (ICOs) are fantastic methods for rapidly raising money to assist the creation of new cryptocurrencies. If there is sufficient demand for the tokens being distributed during an ICO, those tokens will be able to be bought, sold, and traded on cryptocurrency exchanges.
One of the most famous achievements is the Initial Coin Offering for Ethereum, and the popularity of Initial Coin Offerings is increasing even as we speak.
A brief history of initial coin offerings
Ripple is very certainly the first cryptocurrency to be distributed through an initial coin offering. Ripple Labs initiated the process of developing the Ripple payment system at the beginning of 2013 and produced about one hundred billion XRP tokens at that time. An initial coin offering (ICO) was used to raise money for the development of Ripple’s platform.
Another cryptocurrency that held an initial coin offering in 2013 and sold a few million tokens in exchange for Bitcoin is called Mastercoin. By adding a new layer on top of the code that already existed for Bitcoin, Mastercoin aims to achieve its goals of tokenizing Bitcoin transactions and executing smart contracts.
There are, without a doubt, other cryptocurrencies that have been effectively funded through initial coin offerings (ICOs). During the Initial Coin Offering that took place in 2016, Lisk was able to raise around $5 million.
Despite this, the initial coin offering (ICO) for Ethereum, which took place in 2014, is possibly the most well-known one to date. The Ethereum Foundation was able to raise over $20 million through their initial coin offering (ICO) by selling ETH at a price of 0.0005 Bitcoin per token. By putting the power of smart contracts to use, Ethereum opened the way for the next era of Initial Coin Offerings (ICOs).
The Initial Coin Offering (ICO) of Ethereum: a winning formula
The ERC20 protocol standard has been incorporated into Ethereum’s smart contracts system. This standard establishes the fundamental guidelines for the production of compliant tokens that are capable of being traded on Ethereum’s blockchain. This opened the door for others to build their very own tokens that adhere to the ERC20 standard and are capable of being traded directly on Ethereum’s network for ETH.
The DAO is a particularly noteworthy instance of the successful use of Ethereum’s smart contracts. The investment firm successfully gathered a total of one hundred million dollars’ worth of ETH, and in exchange, the investors were given DAO tokens that gave them the ability to take part in the governance of the platform. Unfortunately, the DAO was unable to recover when it was hacked.
The most recent generation of blockchain-based projects that can be crowdfunded through Initial Coin Offerings has been detailed by Ethereum’s Initial Coin Offering (ICO) as well as its ERC20 platform.
Investing in other ERC20 tokens became a breeze as a result of this development as well. After only transferring ETH and pasting the contract into your wallet, the newly issued tokens will appear in your account, at which point you will be free to put them to any use you see fit.
Even though it is obvious that not all cryptocurrencies have ERC20 tokens that are actively alive on Ethereum’s network, almost any new blockchain-based startup can launch an Initial Coin Offering (ICO).
The current status of ICOs in the law
Whenever it comes to the question of whether or not initial coin offerings (ICOs) violate any laws, the landscape is somewhat murky. In principle, tokens are supposed to be traded like digital items rather than financial assets. As initial coin offerings (ICOs) have not been regulated in the majority of countries as of yet, the entire process should be able to take place digitally provided that the creators have an experienced lawyer on their team.
Despite this, several regions have become aware of initial coin offerings (ICOs) and are already focusing on regulating them in a manner that is analogous to how sales of shares and securities are regulated.
The United States Securities and Exchange Commission (SEC) decided in December 2017 that initial coin offerings (ICOs) should be considered securities. In other words, the SEC was making preparations to put a stop to initial coin offerings (ICOs) that they believe are deceiving investors.
There are a few scenarios in which the token is nothing more than a utility token. This indicates that the owner can merely use it to access a certain network or protocol, in which case they might not be considered as financial securities. To be sure, equity tokens, whose primary function is to increase in value over time, are conceptually quite similar to the idea of a security. To tell you the truth, the vast majority of token purchases are made expressly for the goal of investment.
ICOs are still operating in a legal limbo despite the efforts of authorities, and unless a more transparent set of restrictions is enforced, businesses will continue to try to profit from initial coin offerings.
It is also important to note that once rules have reached their final form, the expense and effort required to comply with them can make initial coin offerings (ICOs) less appealing compared to traditional funding sources.
There have been a number of successful initial coin offerings (ICOs), and there will likely be more in the future. ICOs continue to be an excellent method for funding new cryptocurrency-related initiatives.
However, keep in mind that everyone is launching ICOs these days, and many of these projects are either scams or lack the solid foundation they require in order to develop and make the investment worthwhile. Because of this, you should make it a priority to conduct extensive research and analyze the background of the team behind any cryptocurrency project in which you are considering making an investment. Simply doing a search on Google will yield a number of results for websites that feature initial coin offerings (ICOs). There are a lot of them.