An ICO is an Initial Coin Offering. The team behind an idea, project, or service pertaining to the ICO launches their own tokens and sells them to investors. ICO’s have a lot in common with IPO’s (Initial Public Offerings) as well as crowdfundings (when a lot of people get together to finance a project or idea and bring it to completion). In this blog, we will figure out what an ICO is exactly as well as what types of projects can receive financing with the help of an ICO.
Often times, many people get confused as to how the word ‘coin’ relates to ICO’s. After all when ICO’s launch their currency it is referred to as a ‘token’ instead of a coin. Well, the reason for that is because, initially, the plan for ICO’s was to release a cryptocurrency which was analogous to the Bitcoin. However, currently ICO coins are referred to as Altcoins, or alternate cryptocurrencies if you may. There are quite a few of them publicly available already such as Litecoin, Peercoin, Dash, Monero, and others. All of these Altcoins share a common characteristic – they are directly responsible for the creation of a new form of currency, which is meant to be used as a form of payment, similar to regular fiats like the dollar, euro, pound, ruble, and yen.
In 2014, a new Blockchain platform known as Ethereum was created. This new platform provides any person with the opportunity to easily create and release a ‘token’ which is based on ‘smart-contract’ technology. The tokens created on the Ethereum Blockchain platform are already being used in ways similar to regular fiats, but more frequently they act as stocks or ‘coupons’ that users can acquire from a Blockchain project. The exact function of specific tokens varies from platform to platform. It should be noted, that they are not all the same.
A smart-contract is a computer algorithm that is responsible for releasing tokens or other cryptocurrencies as soon as the pre-established conditions of the smart-contract have been met by all parties involved.
For example, one of the conditions of a smart-contract may state that once 10 ETH has been received from an investor, that investor will automatically be forwarded 1000 tokens. Therefore, smart-contracts eliminate the possibility of an ICO initiator running away with raised funds while not issuing any tokens to investors.
The most common platform through which smart-contracts are created is the Ethereum platform. Once a smart-contract has been coded and published on the Ethereum network it becomes fully autonomous and cannot be manipulated and altered by its creators or any other parties or individuals. The only thing that can be done with a smart-contract after it is introduced to the Ethereum network is for the owner to trigger certain pre-coded aspects of the smart contract.
During the time at which this article is being made, smart-contracts have rather limited uses due to the fact that smart-contracts cannot check on the authenticity of predetermined conditions being fulfilled in the ‘real world’. What this means is that it is currently impossible to draft up a smart-contract that would be responsible for shipping purposes as well as to check on real-world deliverables being received.
We can create a special smart-contract in which we can establish “tokenholders”, who will receive an allotted amount of tokens if pre-established conditions and rules are met.
For example, in a smart-contract we can set up a rule stating that any Ethereum wallet address that transfers 1 ETH to the smart contract will receive 1000 tokens in return on the wallet that was used to send the ETH. The tokens, will, for example, be golden coins that will be used in an online game that is under development.
Thus, a token is a unique form of cryptocurrency that is generated through smart-contracts on the Ethereum network. Tokens are distributed to investors in exchange for their investment in the Blockchain project during the projects ICO. Tokens may be used as stocks of the company or as a currency with special uses on the project’s platform.
Stemming from this information, it would certainly make more sense to refer to Initial Coin Offerings as Initial Token Offerings instead. However, the mass media has simply gotten used to the term, ICO, due to it being widely used.
So, if tokens can be considered to be a simple condition underlying a smart-contract, how can they be used on cryptocurrency exchanges?
The answer to that question lies within the ERC20 standard. This standard describes all of the functions and events that an Ethereum smart-contract must carry in order to allow the generated tokens to be exchangeable. The ERC20 standard can record transaction data, token balances, as well as token transfers.
So, after an investor receives tokens for his investment, he can then use those tokens on accepted exchanges and all of the information pertaining to the use of those tokens will be recorded in the ERC20 standard.
There are two types of projects that attempt to acquire financing through holding ICO’s.
In order to avoid being scammed, investors always conduct their due diligence concerning a project and try to find out as much as possible about it. That’s why it is crucial that you have a professional approach not only towards the development of your projects website, smart contract and code but also towards the marketing of your project.
Here’s a short list of things that you will need in order to launch your ICO.
At the time of this post (September 2017) ICO’s are not yet registered nor fully regulated in most nations. However, some countries have stepped forward with some regulations pertaining to ICO’s
In July 2017, the Securities and Exchange Commission (SEC) published an official announcement, where it stated that it considers ICO investments to fall under the same category as securities. This decision by the SEC may be one of the first and most important steps towards legalizing and regulating the cryptocurrency industry of today. Many nations will most likely follow the SEC decision.
In the beginning of September, The Chinese Central Bank declared that ICO’s were an illegal operation and that all ongoing ICO’s must immediately freeze their operations. Its likely that Chinese authorities decided to halt ICO’s in order to better study the phenomenon of cryptocurrencies. China’s regulations may be toned down a bit in the future.
There are a ton of services out there that carry lists of ICO, some of which are currently active and ones that are upcoming. Here are some quality platforms that you can use in order to keep up with ICO’s.
bitcointalk.org – The most widely known and popular cryptocurrency forum. Users discuss and post all kinds of relevant information about new ICO’s.
ICO’s, or ITO’s, are quite the young phenomenon that sprung up as a result of the creation of Blockchain-technology. ICO’s still have a lot of modernizing and growing to do, however, they have already proven to be a great way through which a project or service can be financed.