ICOs are fantastic tools for rapidly raising development funds for new cryptocurrencies. If there is enough demand for the tokens offered during an ICO, they can be sold and traded on cryptocurrency exchanges.
One of the most notable successes has been the Ethereum ICO, and the popularity of Initial Coin Offerings is growing as we speak.
A Brief History of Initial Coin Offerings
Ripple is most likely the first cryptocurrency to be distributed through an ICO. Ripple Labs began developing the Ripple payment system in early 2013 and generated approximately 100 billion XRP tokens. These were sold in an ICO to fund the development of Ripple's platform.
Mastercoin is another cryptocurrency that sold a few million tokens for Bitcoin during an initial coin offering (ICO) in 2013. By building a new layer on top of the existing Bitcoin code, Mastercoin aimed to tokenize Bitcoin transactions and execute smart contracts.
Of course, other cryptocurrencies have successfully raised funds through ICOs. During their Initial Coin Offering in 2016, Lisk raised approximately $5 million.
Nonetheless, Ethereum's initial coin offering (ICO) in 2014 was probably the most well-known. During their initial coin offering (ICO), the Ethereum Foundation sold ETH for 0.0005 Bitcoin each, raising nearly $20 million. Ethereum's use of smart contracts paved the way for the next generation of Initial Coin Offerings.
Ethereum's Initial Coin Offering (ICO), a recipe for success
Ethereum's smart contracts system has adopted the ERC20 protocol standard, which establishes the fundamental guidelines for developing other compliant tokens that can be transacted on Ethereum's blockchain. This enabled others to create their own ERC20-compliant tokens that can be traded for ETH directly on Ethereum's network.
The DAO is a notable example of smart contracts being used successfully. The investment firm raised $100 million in ETH, and the investors received DAO tokens in exchange, allowing them to participate in platform governance. Unfortunately, the DAO failed after being hacked.
The Ethereum ICO and ERC20 protocol have defined the latest generation of blockchain-based project crowdfunding through Initial Coin Offerings.
It also made investing in other ERC20 tokens very simple. Simply transfer ETH, paste the contract into your wallet, and the new tokens will appear in your account for you to use as you see fit.
Although not all cryptocurrencies have ERC20 tokens on the Ethereum network, any new blockchain-based project can launch an Initial Coin Offering.
The legal status of initial coin offerings (ICOs)
It's a bit of a jungle out there when it comes to the legality of ICOs. Tokens, in theory, are sold as digital goods rather than financial assets. Because most jurisdictions have not yet regulated ICOs, the entire process should be paperless assuming the founders have a seasoned lawyer on their team.
Nonetheless, some jurisdictions have become aware of ICOs and are already working to regulate them in a manner similar to share and security sales.
The Securities and Exchange Commission (SEC) of the United States classified ICO tokens as securities in December 2017. In other words, the SEC was planning to halt ICOs that they believe are misleading investors.
In some cases, the token serves only as a utility token. This means that the owner can simply use it to connect to a specific network or protocol, in which case it may not be classified as a financial security. Nonetheless, equity tokens with the goal of increasing in value are very close to the concept of security. To be honest, the majority of token purchases are made specifically for investment purposes.
Despite regulators' efforts, ICOs remain in a legal grey area, and until a clearer set of regulations is imposed, entrepreneurs will attempt to profit from Initial Coin Offerings.
It's also worth noting that once regulations are finalized, the cost and effort required to comply may make ICOs less appealing when compared to traditional funding options.
For the time being, ICOs continue to be an excellent way to fund new crypto-related projects, and there have been numerous successful ones, with more to come.
However, keep in mind that everyone is launching ICOs these days, and many of these projects are scams or lack the solid foundation required to thrive and make the investment worthwhile. As a result, you should conduct extensive research and investigate the team and background of any crypto project in which you are interested. There are numerous websites that list ICOs; simply do a Google search to find some options."""