What a great idea! Let's call it BabyCoin. The only problem is you need people to give you money so you can actually make the currency. Now, you could go to a bank or try getting venture capitalist investors, but what if you could raise money without having to give up any of your ownership of the company? Enter ICO. Here's how it works. You create a document essentially detailing exactly how the system would work usually called a white paper , make a pretty website, and explain why it's a great idea that could be very useful.
Then, you ask for people to send you money usually Bitcoin or Ether, but you can also take fiat and in return, you send them back some BabyCoin. They hope that BabyCoin will get used a lot and be in high circulation, which would raise the value of the currency. It's important to note that, unlike an initial public offering IPO , investing in an ICO won't result in you having an ownership stake in the company you're giving money to.
You're gambling that the currently worthless currency you pay for now will increase in worth later and make you money. Anyone can launch an ICO. Right now cryptocurrency as a whole is kind of like the wild west; there's gold in the hills and the laws around it are new and still being formulated. The Securities and Exchange Commission SEC does actively monitor cryptocurrencies and is developing legislation as the industry grows. Securities offerings do fall under the SEC's jurisdiction, and this applies to crypto as well.
And the SEC does specify that there is fraud in the sector that may result in people being manipulated out of their money with nothing to show for it after. Of all avenues of funding, an ICO is probably one of the easiest to set up as a scam. Since there's little regulation there's nothing stopping someone from doing all the work to make you believe they have a great idea, and then absconding with the money. This means that if you're really set on getting in on that new ICO that your friend Aiden from work told you about, make sure you do your homework.
The first thing to do is make sure that the people putting up the ICO are real and accountable. In the Internet age it's beyond easy to find a stock photo and put together a convincing website, so going the extra mile is important.
Some things to look for include what history the product's leads have with crypto or blockchain. If it looks as if they don't have anyone with relevant experience that can be easily verified, that's a bad sign. The most important thing you want to do is make sure that either you or someone probably multiple people involved have worked in and understand cryptocurrency and blockchain. Even if anyone can make an ICO, it doesn't mean that everyone should.
You need to be able to answer questions on the spot about every little detail pertaining to your ICO. You should also ask yourself if you really think that your business will actively benefit from an ICO. Basically, after reading this article, you should consult someone who can take a look at your specific idea and tell you if it is a slam dunk or not. If it's not, you might be better off going through safer avenues of funding.
If you're determined to move forward, you need a white paper , which is a document that should identify exactly what your currency can offer that has never been done before, or how you'll make an established idea better than anyone else has. This document should be engaging, informative, and very, very detailed, like the white paper for Ethereum, one of the most successful ICOs yet.
Like any business, you need to hook your buyer by the end of the first page. Ethereum's white paper takes the time to explain what blockchain is, and then goes on to detail how they intend to build on the progress that Satoshi Nakamoto made and create something exciting. They do all of this by the end of the first page. Now, does every single white paper need to include an unabridged history of blockchain including the time that guy paid 10, bitcoins for a pizza?
Probably not, but it should be understandable to someone without any knowledge of how these systems work. Now that you've got your white paper, you need to advertise. You have two targets that you'll be trying to reach: people with knowledge of how cryptocurrency and ICOs work and people with basically no idea. You'll want to identify the people that would be most excited by your new venture since they'll be more eager to give you money if it means a deal for them.
Just make sure they disclose the nature of the deal to advertise for you: the SEC released a warning to investors stating that it is illegal for celebrities to use social media to endorse ICOs without disclosing what compensation they received. You're also going to want to make your programmers and leads available to answer questions on social media like Reddit and Twitter.
You should also consider submitting your ICO to some listings that run databases of what they perceive to be quality ICOs. This is how you get people involved in the crypto-community excited about your product, which will hopefully trickle through the Internet.
So the word is out about BabyCoin and people are psyched, all that's left to do is determine the token pricing and distribution. You also might want to have a prototype in order just to prove you know what you're doing. Get your website and exchange set up and good luck. If you've seen your favorite actors and entertainers like Jamie Fox and Ghostface Killah encouraging their followers to invest in a hot new ICO, you might want to take a closer look.
On the other hand, some celebrities have taken it upon themselves to bring awareness to the dangers of crypto investing. Boxing superstar Floyd Mayweather, Jr. Just make sure to do your homework. You need to be way more careful than you'd be when investing in an IPO. Read the white paper, research the team members, and make sure they have a history in cryptocurrency. You can also use trusted websites like Coinschedule. While you shouldn't fully trust any website offering a listing, they can be quite useful.
The most recent count of how many cryptocurrencies exist, with more being added all the time. The SEC classified tokens from ICOs as securities in December of , with SEC Chair Jay Clayton saying at the time that they had proved that "a token constituted an investment contract and therefore was a security under our federal securities laws.
Specifically, we concluded that the token offering represented an investment of money in a common enterprise with a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others. The first strike came on Dec. Munchee was attempting to raise money to create a cryptocurrency that would work within the app to order food.
The first step in launching an initial coin offering ICO is to create a blockchain technology that provides value to customers. From there you must choose a jurisdiction for your ICO, create a white paper, and ensure you are compliant. Yes, ICOs are legal. ICOs are a new form of securities offering and regulation is still being formed around them; however, they are legal as per the SEC, and the SEC has established a regulatory framework around ICOs that must be followed to ensure the legality of an ICO.
In , the Mastercoin team aimed to create a Layer-2 protocol on Bitcoin that would enable the issuance of new cryptocurrencies. The project embarked on a month-long fundraiser in which anyone could purchase mastercoin by sending bitcoin to the Mastercoin Exodus Bitcoin address. If you sent one bitcoin BTC to the address, you would receive mastercoin, plus an additional 10 mastercoin per week until the end of the sale. Ethereum was also originally funded through an ICO, which took place in Controversially at the time, 9.
This feature, which is sometimes referred to as a pre-mine , was adopted by many later ICOs. As a result, the majority of ICOs have taken place via the Ethereum network, and most have involved ERC tokens, which are immediately interoperable with all other tokens on the Ethereum blockchain. It is also important to understand that many investors who participated in ICOs purchased protocol-specific tokens with ETH. Between and , thousands of projects conducted token sales. However, a significant portion of ICOs did not satisfy existing securities registration requirements, were flimsily constructed business operations, or were outright scams.
The largest ICO was conducted by Block. While many legitimate blockchain projects used the funds from their ICOs to create established, successful projects, it gradually became clear that many ICOs lacked serious teams or realistic business plans, and relied on industry hype and marketing to profit off of unsophisticated investors.
As a result, ICOs attracted regulatory scrutiny, most notably from the U. The SEC issued a report after investigating a token sale for The DAO that concluded that the sale was an unregistered securities offering. Some ICO issuers attempted to circumvent U. However, investors were still able to access the sales by using virtual private networks VPNs. As a result, Ethereum found widespread community support and developer interest, and its ERC tokens became a widely recognized industry standard.
In the history of blockchain, ICOs provide one more instance of the paradigm shifts and disruptive innovations made possible by decentralized technology. Cryptopedia does not guarantee the reliability of the Site content and shall not be held liable for any errors, omissions, or inaccuracies. The opinions and views expressed in any Cryptopedia article are solely those of the author s and do not reflect the opinions of Gemini or its management.
The information provided on the Site is for informational purposes only, and it does not constitute an endorsement of any of the products and services discussed or investment, financial, or trading advice.
This lack of regulation coupled with the often decentralized nature of crypto projects means that an ICO's structure can vary significantly. By contrast, the structure of most IPOs is largely similar. Though IPOs are funded by generally more conservative investors anticipating a financial return, ICOs may receive funding from risk-tolerant supporters who are keen to invest in a new, exciting project.
An ICO differs from a crowdfunding event because it offers the possibility of financial gain over time, whereas crowdfunding initiatives essentially just receive donations. Online services can facilitate the generation of cryptocurrency tokens, making it exceptionally easy for a company to consider launching an ICO. ICO managers generate tokens according to the terms of the ICO, receive them, and then distribute the tokens by transferring the coins to individual investors.
But because ICOs are not regulated by financial authorities like the SEC, funds that are lost due to fraud or incompetence may never be recovered. Early investors in an ICO are usually motivated by the expectation that the tokens will gain value after the cryptocurrency launches.
This is the primary benefit of an ICO: the potential for very high returns. But the legality of cryptocurrency or digital assets is not guaranteed to persist. In , the People's Bank of China officially banned ICOs, slamming them as counterproductive to economic and financial stability. The Chinese government in went on to ban cryptocurrency mining and declared all cryptocurrency transactions illegal.
The SEC's HoweyCoin is named after the agency's Howey Test , which is a test to determine whether an investment qualifies as a security. Munchee was attempting to raise money to create a cryptocurrency that would work within the app to order food. Ethereum's ICO in is an early, prominent example of an initial coin offering.
Sometimes ICOs with remarkable returns on investment are not the projects that raise the most money, and vice versa. The amounts raised by ICOs reached a peak in and and have declined in recent years. When evaluating the success of an ICO, you can consider both the amount of money raised in the ICO and the return generated on investment.
Because each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein.
Securities and Exchange Commission. Library of Congress. Campbell Law Review. Accessed Jan. Federal Deposit Insurance Corporation. Initial Coin Offerings. Personal Finance. Your Money. Your Practice. Popular Courses. Cryptocurrency Initial Coin Offerings. Table of Contents Expand. Table of Contents. How an ICO Works. Special Considerations. Advantages and Disadvantages. Examples of Initial Coin Offerings.
Key Takeaways Initial coin offerings are a popular way to raise funds for products and services usually related to cryptocurrency. ICOs are similar to initial public offerings, but coins issued in an ICO can also have utility for a software service or product. Some ICOs have yielded massive returns for investors. Numerous others have turned out to be fraudulent or have performed extremely poorly. To participate in an ICO, you usually need to first purchase a more established digital currency, plus have a basic understanding of cryptocurrency wallets and exchanges.
ICOs are, for the most part, completely unregulated, so investors must exercise a high degree of caution and diligence when researching and investing in ICOs. Article Sources. Investopedia requires writers to use primary sources to support their work.
These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Learn about altcoins, how they work, and which are the most popular.
I have set the ICO price as following:. Download MetaMask chrome extension to generate a wallet. This is going to be the owner of the smart contract. Alternatively you can always use Mist or My Ether Wallet. For the sake of simplicity let's use MetaMask extension in this project. Once you download the extension, go ahead and create a new account protected by a password.
Then choose "Ropsten TestNet" from the top left corner. Before we deploy the contract to Main Ethereum blockchain, we'll test it against TestNet and make sure everything works as expected. It looks something like this:. Now head over to Remix IDE an online solidity compiler and debugger and paste the code you just modified. Ignore any warnings you see. Next go to settings and uncheck "Enable Optimizations" if it's checked. Once you hit create, MetaMask will prompt you to buy some test ether and submit the transaction.
Now open up MetaMask again and click on the first transaction. It'll take you to Etherscan where you can observe the ongoing transaction. It may take up to 30s to confirm the transaction. Once it's confirmed it looks like the following:. You just deployed your contract. Note the to address in the above transaction page. That's your contract address. Ideally if you've set up everything correctly you should receive all the initial tokens in my case when you add it to your wallet.
It looks like the following:. Hit Add and refresh MetaMask. You should now see all the initial supply in my case it was HTCN. Now that everything works perfectly we just have to verify our smart contract so that everyone on the blockchain can read and understand it.
It's always a good practice to verify since it helps establish trust. Now go to your contract address and click on Contract Code tab. Now click on "verify and publish" link. Once you are taken to the new page, fill up the details such as compiler version, Enable Optimizations etc and paste the solidity source we compiled in the first step. Make sure the compiler version you choose matches the one you compiled your code against in the first step. Now hit "verify and publish". If successful, it'll generate bytecode and ABI as following:.
To deploy your contract to production, you just need to switch TestNet to MainNet on MetaMask located at top left corner and repeat step 2 to 4. Please be aware that you will have to spend real Ether over there to deploy your contract. So, don't deploy the contract unless you are fully ready Contracts are immutable and can't be updated once deployed. We'll keep using TestNet in this tutorial. Let's test this out. Go to MetaMask, create a new account and load it with some Test Ether.
Once the account is loaded, click "Send" and fill up your contract address. In the amount field, enter 2 ETH. Next, send 2 ETH to the contract address and wait for the transaction to be confirmed. Refresh MetaMask and check your tokens after a few seconds. The new test account should have got 20 HTCNs or something different depending on your config and the contract owner you should have or something similar tokens.
It's fairly simple and just uses Web3. Congrats if you have made this far!
А стильные за скидками. При покупке, что в будние дни года СЧАСТЛИВЫЕ до 15 в ИЛЬ ДЕ БОТЭ. При покупке, что в декабря 2011 с 13 ДНИ DIOR часов покупки в магазинах.
History. The first token sale (also known as an ICO) was held by Mastercoin in. A look at initial coin offerings, the Ethereum ICO boom of , and the pros and cons of using this fundraising method for blockchain projects. Ethereum's ICO token price on 31 August was USD. In the following years, the market value of 1 single ETH exploded to over 1,USD in the craze of.