What Is an ICO in Cryptocurrency? Everything You Need to Know
ICO is brief term for initial coin offering. when launching a new cryptocurrency or crypto token, the developers provide crypto community with a limited number of tokens in exchange for bitcoin or anyother known cryptocurrency these funds will be later used for project development and market of that particular project.the tokens provided for the duration of an ico can be bought and traded on cryptocurrency exchanges, assuming there may be enough call for for them.the ethereum ico is one of the most brilliant successes and the recognition of initial coin offerings is growing as we communicate.
A brief history of ICOs
Ripple is the first ever cryptocurrency distributed through an ICO. In the beginning of 2013, Ripple starts to develop the Ripple payment system and generated around 100 billion XRP coins. Most of them were sold in an ICO to fund for Ripple's platform.
Mastercoin is another example of cryptocurrency that has sold some of its tokens for Bitcoin during an ICO at the same period of 2013. The idea behind Mastercoin is to tokenize Bitcoin and execute smart contracts by providing a new layer on top of the existing Bitcoin.
Nevertheless, Ethereum start its ICO in 2014 is probably the most popular one so far. During their ICO, the Ethereum company sold ETH for 0.0005 Bitcoin each and raise almost $20 million which is alot.Ethereum with a unique feature of of smart contracts, Provides a way which lead to next generation of Initial Coin Offerings.
Ethereum's smart contracts has implemented the ERC20 protocol that sets the core rules for creating new tokens on ethereum's blockchain.This allowed anyone to create their own tokens,that can be traded for ether directly on Ethereum network.
DAO is a best example of successfully using Ethereum's contracts. The Company raised $100 million in ETH and the investors received in exchange DAO allowing them to participate in the platform. But unfortunately, the DAO failed after it their system was hacked.
Ethereum's ICO and their ERC20 protocol point out the latest generation of crowdfunding blockchain-based projects using Initial Coin Offerings.
It also made it easy to invest in different ERC20 tokens. Just simply transfer ETH, to the smart contract in your wallet and the new tokens will be yours to trade.
Obviously, not all cryptocurrencies using ERC20 ethereum protocol living on Ethereum 's network but pretty much any new blockchain project prefer to use ethereum due to its ease of use structure.
The legal state of ICOs
When it comes to the legal status of ICOs, it's a bit of unclear. According to theory, tokens are sold as digital products, not financial assets. Most jurisdictions have not regulated ICOs yet so founders of ICOs have lawyers on their team, so that the whole process should be legal.
Even so, some jurisdictions have already working on regulating them.
In December 2017, The Securities And Exchange Commission issues a statement and called ICO tokens as securities. In other words,they consider to be misleading investors.
A tokens can be a utility token. Which means the company can only use it to access a certain network in which case they may not be defined as a financial security. however, equity tokens are quite close to the concept of security.
It's also worth mentioning that once regulations reach a final form, the cost and effort required to comply could make ICOs less attractive compared to conventional funding options.
For now, A ICO is are just a amazing way to fund new cryptocurrency projects and there have been multiple successful ones with more to come.
However,one should do a proper research before investing into any kind of ICO. From proper research i mean one should check team background,project scope and many other factors