ICO is the abbreviation for the initial supply of coins. When launching a new cryptocurrency, 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 rapidly pouring development funds to support new cryptocurrencies. Tokens offered during an ICO can be sold and exchanged on cryptocurrency exchanges, assuming there is enough demand for them.
Ethereum’s ICO is one of the most notable hits and the popularity of the initial coin offerings grows as we speak.
A brief history of ICOs
Ripple is probably the first cryptocurrency distributed through an ICO. In early 2013, Ripple Labs began developing the Ripple payment system and generated approximately 100 billion XRP tokens. These were sold through an ICO to fund the development of the Ripple platform.
Mastercoin is another cryptocurrency that has sold several million tokens for Bitcoin during an ICO, also in 2013. Mastercoin aimed to symbolize Bitcoin transactions and execute smart contracts by creating a new layer on top of the existing Bitcoin code .
Of course, there are other cryptocurrencies that have been successfully funded through ICOs. In 2016, Lisk raised approximately $ 5 million during its initial coin offering.
Still, Ethereum’s ICO that took place in 2014 is probably the highlight so far. During its ICO, the Ethereum Foundation sold ETH for 0.0005 Bitcoin each, raising nearly $ 20 million. With Ethereum harnessing the power of smart contracts, it paved the way for the next generation of initial coin offerings.
The ICO of Ethereum, a recipe for success
Ethereum’s smart contracting system has implemented the ERC20 protocol standard that sets the ground rules for creating other compatible tokens that can be traded on the Ethereum blockchain. This allowed others to create their own tokens, which meet the ERC20 standard which can be exchanged for ETH directly on the Ethereum network.
The DAO is a notable example of successfully using Ethereum smart contracts. The investment company raised $ 100 million in ETH and investors received DAO tokens in return that allowed them to participate in the governance of the platform. Unfortunately, the DAO failed after being hacked.
Ethereum’s ICO and its ERC20 protocol have described the latest generation of blockchain-based crowdfunding projects using Initial Coin Bids.
It also facilitated investment in other ERC20 tokens. Simply transfer ETH, paste the contract into your wallet, and the new tabs will appear in your account so you can use them as you wish.
Viously, obviously, not all cryptocurrencies have ERC20 tokens that live on the Ethereum network, but almost any new blockchain-based project can launch an initial coin offering.
The legal status of ICOs
When it comes to the legality of ICOs, there is a bit of jungle. In theory, tokens are sold as digital assets and not as financial assets. Most jurisdictions have not yet regulated ICOs, so assuming the founders have an experienced attorney on their team, the whole process should be paperless.
However, some jurisdictions have become aware of ICOs and are already working to regulate them in a manner similar to sales of stocks and securities.
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 that they consider misleading investors.
There are some cases where the witness is only a useful witness. This means that the owner can only use it to access a certain network or protocol, in which case it may not be defined as financial security. Nevertheless, equity tokens whose purpose is to appreciate their value are very close to the concept of security. The truth is that most tile purchases are made specifically for investment purposes.
Despite the efforts of regulators, ICOs still persist in a gray legal framework and until a clearer set of regulations is imposed, employers will try to benefit from the initial Currency Offers.
It is also worth mentioning that once the regulations reach their final form, the cost and effort required to comply with them could make ICOs less attractive compared to conventional funding options.
For now, ICOs continue to be an amazing way to fund new cryptography-related projects and there have been many successes and others to come.
However, keep in mind that everyone launches ICOs today and many of these projects are scams or do not have the solid foundation they need to thrive and make the investment worthwhile. For this reason, you need to do a thorough research and research the equipment and background of any cryptography project you want to invest in. There are several websites that list ICOs, just do a Google search and you will find some options.