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Initial coin offering (ICO) is an unregulated means of crowdfunding via use of cryptocurrency,[1] which can be a source of capital for startup companies.[2] In an ICO a percentage of the newly issued cryptocurrency is sold to investors in exchange for legal tender or other cryptocurrencies such as Bitcoin. The term may be analogous with 'token sale' or crowdsale, which refers to a method of selling participation in an economy, giving investors access to the features of a particular project starting at a later date. ICOs may sell a right of ownership or royalties to a project. According to Amy Wan, a partner at Trowbridge Sidoti LLP practicing crowdfunding and syndication law, "The coin in an ICO is a symbol of ownership interest in an enterprise—a digital stock certificate, if you will."[3] In contrast to initial public offerings (IPOs), where investors gain shares in the ownership of the company, for ICOs the investors buy coins of the company, which can appreciate in value if the business is successful.[4]

The first token sale (also known as an ICO) was held by Mastercoin in July 2013. Ethereum raised money with a token sale in 2014.[5] An ICO was held by Karmacoin in April 2014 for its Karmashares project.[6] ICOs and token sales are now extremely popular. As of May 2017 there were currently around 20 offerings a month,[7] and a new web browser Brave's ICO generated about $35 million in under 30 seconds.[8] There are at least 18 websites that track ICOs.[9] By the end of August 2017, ICO coin sales worth $1.8 billion had been conducted during the year, more than ten times as much as in all of 2016.[10][11][12]

Ethereum is (as of 2017) the leading blockchain platform for ICOs with more than 50% market share.[13] The Ethereum network ICOs have resulted in considerable phishing, Ponzi schemes, and other scams, accounting for about 10% of ICOs.[14][15]

In July 2017 the U.S. Securities and Exchange Commission (SEC) indicated that it could have the authority to apply federal securities law to ICOs.[16] The SEC did not state that all blockchain tokens (ICOs) would necessarily be considered securities, but that determination would be made on a case-by-case basis.[17] The SEC action may encourage more mainstream investors to invest in ICOs,[18][3] although ICOs typically prevent U.S. investor participation to remain out of the jurisdiction of the United States government.[19]

On September 4, 2017 seven Chinese financial regulators officially banned all ICOs within the People's Republic of China, demanding that the proceeds from all past ICOs be refunded to investors or face being "severely punished according to the law".[20][21][22] This action by Chinese regulators resulted in large sell-offs for most cryptocurrencies.[22] Prior to the Chinese ban, ICOs had raised nearly $400 million from about 100,000 Chinese investors.[23] A week later, however, a Chinese financial official stated on Chinese national television that the ban on ICOs is only temporary until ICO regulatory policies are in place.[24]

Other jurisdictions, such as Canada and the Isle of Man, are working on regulating ICOs rather than prohibiting them.[25][26]

See alsoEdit

ReferencesEdit

  1. ^ "ICO Bubble? Startups Are Raising Hundreds of Millions of Dollars Via Initial Coin Offerings". Inc.com. 14 July 2017. Retrieved 2017-07-18. 
  2. ^ Higgs, Stan (September 20, 2017). "Japanese Billionaire: ICOs 'Democratize Venture Financing'". CoinDesk. Retrieved 2017-09-21. 
  3. ^ a b "Why Your Initial Coin Offering Is Probably Regulated By Securities Law". Crowdfund Insider. 6 March 2017. Retrieved 27 July 2017. 
  4. ^ Ohtamaa, Mikko (September 7, 2017). "The regulation of token sales under international securities laws". TOKENMARKET.NET. Retrieved 2017-09-07. 
  5. ^ Marshall, Andrew (March 7, 2017). "ICO, Explained". CoinTelegraph. Retrieved 2017-03-08. 
  6. ^ "Karmacoin Becomes First Cryptocurrency to Issue Shares". Retrieved 27 July 2017. 
  7. ^ "ICO Alert". www.icoalert.com. Retrieved 2017-05-30. 
  8. ^ "$35 Million in 30 Seconds: Token Sale for Internet Browser Brave Sells Out". CoinDesk. May 31, 2017. Retrieved 2017-06-01. 
  9. ^ "The Ultimate List of ICO Resources: 18 Websites That Track initial Cryptocurrency Offerings". www.startupmanagement.org. Retrieved 2017-05-31. 
  10. ^ Hof, Robert (August 25, 2017). "Why initial coin offerings are exploding – and how companies can avoid the landmines". siliconANGLE.com. Retrieved 2017-08-31. 
  11. ^ "Bankers Ditch Fat Salaries to Chase Digital Currency Riches". Bloomberg.com. 2017-07-25. Retrieved 2017-08-05. 
  12. ^ "CoinDesk ICO Tracker". CoinDesk. September 1, 2017. Retrieved 2017-09-14. 
  13. ^ "ICO Market Research: The Leading Blockchain Platforms Of 2017 - ICO Watch List Blog". ICO Watch List Blog. 2017-08-17. Retrieved 2017-08-17. 
  14. ^ Bendella, Wassim. "Exploits, Hacks, Phishing, Ponzi Are on the Rise on Ethereum". COINTELEGRAPH. Retrieved 2017-08-20. 
  15. ^ "Ethereum Scam Database". ethereumscamdb.info. Retrieved 2017-08-20. 
  16. ^ Higgins, Stan (July 25, 2017). "SEC: US Securities Laws 'May Apply' to Token Sales". CoinDesk. Retrieved 2017-07-25. 
  17. ^ del Castillo, Michael (July 26, 2017). "'Not a Surprise': Blockchain Industry Saw SEC ICO Action Coming". CoinDesk. Retrieved 2017-07-26. 
  18. ^ Mougayar, William (July 26, 2017). "Token Summit Creator: SEC ICO Guidance a 'Breath of Fresh Air'". CoinDesk. Retrieved 2017-07-26. 
  19. ^ Buntinx, JP (July 29, 2017). "Blockchain CEOs Respond to SEC ICO Verdict". THE MERKLE. Retrieved 2017-07-29. 
  20. ^ Chuan, Tian (September 4, 2017). "China Outlaws ICOs: Financial Regulators Order Halt on Token Trading". CoinDesk. Retrieved 2017-09-04. 
  21. ^ Information and Communication Technology (September 4, 2017). "Seven departments on the prevention of tokens issued financing risk notice". Ministry of Industry and Information Technology. Retrieved 2017-09-04. 
  22. ^ a b Vigna, Paul (September 4, 2017). "China Bans Digital Coin Offers as Celebrities Like Paris Hilton Tout Them". The Wall Street Journal. Retrieved 2017-09-05. 
  23. ^ Ou, Elaine (September 6, 2017). "Go Ahead, Try to Stop Initial Coin Offerings". Boomberg View. Retrieved 2017-09-07. 
  24. ^ Young, Joseph (September 10, 2017). "China Ban on ICO is Temporary, Licensing to be Introduced: Official". CoinTelegraph. Retrieved 2017-09-10. 
  25. ^ Stanley, Aaron (September 6, 2017). "ICO Ban? Canada's Regulators Are Giving One Token Sale a Big Break". CoinDesk. Retrieved 2017-09-07. 
  26. ^ Higgs, Stan (September 6, 2017). "ICOs Welcome: Isle of Man to Unveil Friendly Framework for Token Sales". CoinDesk. Retrieved 2017-09-07.