WHAT YOU NEED TO KNOW ABOUT ICO
If you are looking to invest and understand ICO, then this article is for you, it’s important that you have good knowledge of what ICO is and equally needs to understand the way to go about investing and managing your resources.
Blockchain and cryptocurrencies, especially Ethereum, has opened up a new kind of investment currently known as ICOs. When we think of ICOs, the first thing that comes to mind is a project and a token but it’s equally important to know that some heavy-duty accounting for a company to gain and keep investors.
WHAT IS ICO?
ICO is known as ‘Initial Coin Offering’, a fundraising mechanism in which new projects sell their underlying crypto tokens, which is somewhat similar to an Initial Public Offering (IPO) in which investors purchase shares of a company.
The operation is majorly carried out through crowd-funding but private ICOs are gradually becoming common. In an ICO, some part of cryptocurrency is sold in the form of “tokens” to investors, in exchange for legal tender or other cryptocurrencies such as Bitcoin or Ethereum.
The coins sold are seen as future functioning units of currency when the ICO’s fundraising goal is met and the project launches. There are also points where the likes of Ethereum the tokens are required to use the system for its purposes.
An ICO can also be a source of capital for start-ups companies, ICOs can allow start-ups to avoid regulatory compliance and intermediaries such as venture capitalists, banks and stock exchanges.
In 2013, it was revealed that a lot of projects used a crowd sale model to try and fund their development work. For example, ripple pre-mined 1 billion XRP tokens and sold them to willing investors in exchange for fiat currencies or bitcoin. Likewise, Ethereum was able to raise a little over $18 million in early 2014 which was the largest ICO ever completed at that time.
A BRIEF HISTORY OF ICO
It is widely known that the first report of ICO was conducted by Mastercoin in 2013, with the fundraising event running for almost one month.
The mastercoin was believed to have raised close to 5,000 bitcoins, valued around $500,000 at the period.
Ever since the first ICO, there has been a lot of ICO’s with a new ICO launching every other day. In the year 2016, about 54 major ICOs raised close to $103 million dollars, with SingularDTV ($7.5 million) being the front-runners.
The DAO also attempted fundraising for a new token on Ethereum. It guarantees to create a decentralized organization that would fund other blockchain projects.
Although the very first move to fund a token safely on the Ethereum platform failed, blockchain developers realized that using Ethereum to launch a token was much easier than chasing after seed rounds through the usual venture capital model.
IS ICO EVEN LEGAL?
The answer is probably maybe Legally, ICOs have existed in an extremely grey area because arguments can be made both for and against the fact that they’re unregulated financial assets. However, some of that grey areas have since been cleared up.
There are cases where the token is simply a utility token, which means it gives the owner access to a specific protocol or network; therefore, it may not be classified as a financial security.
While many individuals purchase tokens to access the underlying platform at some future point in time, it’s difficult to refute the idea that most token purchases are for speculative investment purposes.
