ICO is the abbreviation 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 crypto coins such as Bitcoin or Ethereum .
ICOs are amazing tools for quickly Kryptowährungen Kurse raising development funds to support new cryptocurrencies . The tokens offered during an ICO can be sold and traded on cryptocurrency exchanges if there is sufficient demand.
The Ethereum ICO is one of the most notable successes and the popularity of Initial Coin Offerings is growing as we speak.
A brief history of ICOs
Ripple is probably the first cryptocurrency to be distributed via an ICO. In early 2013, Ripple Labs started developing the Ripple payment system and generated approximately 100 billion XRP tokens. These were sold via an ICO to fund Ripple’s platform development.
Mastercoin is another cryptocurrency that sold a few million tokens for bitcoin during an ICO, also in 2013 . Mastercoin aimed to tokenize bitcoin transactions and run 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 , which took place in 2014, is probably the most prominent to date. During their ICO, the Ethereum Foundation sold ETH for 0.0005 Bitcoin each, raising nearly $20 million. As Ethereum harnessed the power of smart contracts, it paved the way for the next generation of initial coin offerings.
Ethereum’s ICO, a recipe for success
Ethereum has implemented the ERC20 protocol standard, which sets the core rules for creating other compliant tokens that can be run on Ethereum’s transactions Blockchain . This allowed others to create their own tokens that conform to the ERC20 standard and can be traded for ETH directly on the Ethereum network.
The DAO is a notable example of the successful use of Ethereum smart contracts. The investment company raised $100 million worth of ETH, and investors received DAO tokens in exchange, which allowed them to participate in the management of the platform. Unfortunately, the DAO failed after being hacked.
Ethereum’s ICO and its ERC20 protocol have outlined the latest generation of crowdfunding Blockchain based projects via Initial Coin Offerings.
It also made it very easy to invest in other ERC20 tokens. You simply transfer ETH, add the contract to your wallet, and the new tokens will appear in your account for you to use as you please.
Obviously not all cryptocurrencies have ERC20 tokens living on the Ethereum network , but pretty much any new blockchain -based project can launch an Initial Coin Offering.
The legal status of ICOs
When it comes to the legality of ICOs, it’s quite a jungle out there. In theory, tokens are sold as digital goods, not financial assets. Most jurisdictions have not yet regulated ICOs. Provided the founders have an experienced lawyer on their team, the entire process should be paperless.
Nevertheless, some jurisdictions have taken notice of ICOs and are already working to regulate them in a similar way 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 they deem to be 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. Nevertheless, equity tokens, whose purpose is to increase value, come quite close to the concept of security. To be honest, most token purchases are made specifically for investment purposes.
Despite the efforts of regulators, ICOs still linger in a gray legal area, and until a clearer rulebook is imposed, entrepreneurs will look to cash in on initial coin offerings.
It’s also worth noting that once the regulations reach a final form, the cost and effort required to comply could make ICOs less attractive compared to traditional funding options.