ICO stands for Initial Coin Offers. When launching a new cryptocurrency or crypto token, the developers offer investors a limited number of units in exchange for other important crypto coins such as Bitcoin or Ethereum.
ICO & # 39; s are great tools for quickly raining development funds to support new cryptocurrencies. The tokens offered during an ICO can be sold and traded on cryptocurrency exchanges, assuming there is sufficient demand.
The Ethereum ICO is one of the most striking successes and the popularity of Initial Coin Offerings is growing at the moment.
A brief history of ICO & # 39; s
Ripple is probably the first cryptocurrency that is distributed via an ICO. At the beginning of 2013, Ripple Labs started developing the Ripple payment system and generated around 100 billion XRP tokens. These were sold through an ICO to finance Ripple & # 39; s platform development.
Mastercoin is another cryptocurrency that sold a few million tokens for Bitcoin during an ICO, also in 2013. Mastercoin wanted to sign 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 ICO & # 39; s. In 2016, Lisk collected around $ 5 million during their first coin offer.
Nevertheless, the ICO van Ethereum that took place in 2014 is probably the most prominent so far. During their ICO, the Ethereum Foundation sold ETH for 0.0005 Bitcoin each, raising almost $ 20 million. With Ethereum that uses the power of smart contracts, it has paved the way for the next generation Initial Coin Offerings.
Ethereum & # 39; s ICO, a recipe for success
The Ethereum smart contract system has implemented the ERC20 protocol standard that defines the core rules for creating other compatible tokens that can be handled on the Ethereum blockchain. This allowed others to create their own tokens that meet the ERC20 standard and that can be traded directly for ETH on the Ethereum network.
The DAO is a remarkable example of the successful use of Ethereum's smart contracts. The investment company raised $ 100 million in ETH and the investors received DAO tokens in exchange for participating in the platform's governance. Unfortunately, the DAO failed after it was hacked.
The ICO van Ethereum and their 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, stick the contract in your wallet and the new tokens appear in your account so that you can use them as you wish.
It is clear that not all cryptocurrencies have ERC20 tokens that live on the Ethereum network, but almost every new blockchain-based project can launch an Initial Coin Offer.
The legal status of ICO & # 39; s
When it comes to ICO's legality, it's a bit of a jungle out there. In theory, tokens are sold as digital goods, not as financial assets. Most jurisdictions have not yet regulated ICO's, assuming the founders have an experienced lawyer in their team, the entire process should be paperless.
However, some jurisdictions have become aware of ICO's and are already working on regulating it in a similar way to selling shares and securities.
In December 2017, the US Securities And Exchange Commission (SEC) classified ICO tokens as securities. In other words, the SEC was in the process of stopping ICO's that they regard as misleading investors.
There are some cases where the token is only a utility token. This means that the owner can easily use it to access a certain network or protocol, in which case they may not be defined as financial security. Nevertheless, equity tokens whose purpose is to value, are fairly close to the concept of security. The truth is that most token purchases are made specifically for investment purposes.
Despite the efforts of the regulators, ICO & # 39; s still remain in a gray legal field and until entrepreneurs impose a clearer set of rules, they will try to take advantage of the initial coin offering.
It is also worth mentioning that once regulations reach a definitive form, the costs and efforts needed to comply can make ICO's less attractive compared to conventional financing options.
For now, ICO & # 39; s remain a great way to fund new crypto-related projects and there have been several successful projects with even more.
However, keep in mind that nowadays everyone launches ICO's and many of these projects are scams or lack the solid foundation they need to thrive and make it worth the investment. For this reason you should certainly do thorough research and investigate the team and background of the crypto project in which you may want to invest. There are multiple websites that mention ICO's, we recommend checking this ICO calendar if you are interested in investing in a crypto project.