What Is Initial Coin Offering (ICO)?
An Initial Coin Offering or most commonly known as an ICO in the crypto world is a method for raising funds.Let’s assume that you’re a startup with a great idea, which will work very well with the cryptocurrency system you will use the ICO for your new projects and sell your underlying cryptocurrency tokens in exchange for any of the big cryptocurrencies i.e. Bitcoin, Ether, Litecoin and sometimes using fiat currency deposits in USD, EUR, GBP etc.
This way it seems a lot like Initial Public Offering (IPO) in which the interested investors purchase shares of a company but in ICO instead of shares they receive TOKENS for their investment.
This is what makes ICOs riskier than IPOs because if the ICO is a scam they will run away with your investment and you will get nothing in return or if the project developer doesn’t follow the Roadmap that they have laid out the investors might start losing interest in the project and the small investors might have to suffer the consequences.
However, I would like to warn you that not all ICOs are going to be successful some of them even might turn out to be a scam so proceed with caution and always Do Your Own Research (DYOR) before proceeding to make any investments.
Try only to invest in ICOs that already have a proven business model or better yet a reputable company that is looking to delve into the world of Cryptocurrency. Read their White-paper and also participate in discussions on social media (Facebook, Twitter, Telegram, Reddit, Bitcointalk)
Due to lack of strict regulations (right now), it is hard to spot reliable ICOs but due to the recent interest of masses in Cryptocurrency investments and in Blockchain technology big corporations are also taking a keen interest in it and are engaged in adopting this technology.
This doesn’t necessarily mean that all the ICOs are a scam or they won’t be successful, a recent successful example would be Ripple (XRP) Ripple Labs in 2013 started development on Ripple (RXP) which is a payment system and they created 100 Billion XRP tokens.Ripple called payment system and created around 100 billion XRP token. Ripple started selling these tokens to fund the future development of the project. Lately, you may have seen news coverage regarding this new cryptocurrency.
The biggest example would be Ether (ETH) or better known as Ethereum which itself started off as an ICO back in mid-2014 and the Ethereum Foundation sold 1 ETH against 0.0005 Bitcoin each at that time. Now, look at the price of Ethereum its closer to 1000 USD already. In January 2018 it reached the All Time High (ATH) of $1200 per ETH. Now Ethereum itself has a very robust platform which allows you to create and launch “Smart Contract” based ICOs. I will give you more details regarding Ethereum based smart contracts in another post.
What is the Legal Status of ICOs?
It is a tricky question but the simple answer to this question is “Maybe”. Legally speaking ICOs operate within a gray area in some countries are regulated while in many countries the lawmakers are making legislation to either legalize ICOs or to completely ban them. Mostly because of the fact that almost every day new companies are adopting the blockchain technology and there are 1000’s of projects/ideas floating around.
So there is still confusion regarding the legal status of ICOs since the utility of each and every ICO is different from one another. i.e. Some ICOs maybe related to Finance Industry, VR Technology, Game Streaming, Shopping & e-Commerce.
SEC in December 2017, classified tokens from ICOs as securities. Which means that they will start cracking down hard on ICOs that they deem are misleading the investors. According to Autonomous Next ICOs raised more than $5 Billion last year alone.
In September 2017, The Chinese government banned ICOs. Meanwhile the Japanese government licensed cryptocurrency exchanges in April last year, while the South Korean government banned anonymous trading accounts that failed to comply with new regulations in late January this year.