What is an ICO Initial Coin Offering? We discusse the meaning, definition, explanation and process.
ICO is the abbreviation of Initial Coin Offering. It means that someone offers investors some units of a new cryptocurrency or crypto-token in exchange for cryptocurrencies like Bitcoin or Ethereum. Since 2013 ICOs are often used to fund the development of new cryptocurrencies. The pre-created token can be easily sold and traded on all cryptocurrency exchanges if there is demand for them.
With the success of Ethereum there has been an increase in the number of ICOs to fund the development of new cryptocurrency projects. As a result, the ICO token could become the securities and shares of tomorrow.
Here is a short history:
One of the first cryptocurrencies distributed by an ICO was Ripple. In early 2013 Ripple Labs created around 100 billion XRP tokens. The company sold these tokens to fund the development of the Ripple platform.
Later in 2013, Mastercoin promised to create a layer on top of Bitcoin to execute smart contracts and tokenize Bitcoin transactions. The developer sold some million Mastercoin tokens in exchange for Bitcoin and received around $1 million.
Several other cryptocurrencies have been funded with ICO, for example, Lisk, which sold its coins for around $5 million in early 2016. The most well-known is Ethereum. In mid-2014 the Ethereum Foundation sold its coin for 0.0005 Bitcoin each. With this, they received nearly $20 million. This was one of the largest crowdfundings ever provided.
The most prominent demonstration of the potential of Ethereum’s smart contracts has been Decentralized Autonomous Organization or The DAO that, in turn, raised Ether worth $100m. The investors received in exchange the Ether Dao Token which had its own market price.
The DAO also demonstrated the need for increase security measures. The DAO was hacked and Etherium had to use a hard fork to claw back the improperly acquired tokens.
Let’s talk about legality. A recent SEC’s decision clears up some of the question. First, if a token a utility token, meaning it gives the owner access to a specific protocol or network it may not be classified as a financial security. On the other hand, if the token is an equity token, meaning that it’s only purpose is to appreciate in value, then it looks a lot more like a security.
So, many ICOs are going offshore. This is done by forming an offshore company with a foreign address and telephone number. Since our company is a leader in offshore company formation, many people have called our company to establish such entities. I have been in the offshore company formation world for 27 years as of this year.
The key is this – Like one of the wealthiest, most well-respected investors, Warren Buffet, says “It’s okay to lose a little money. But it is not okay to lose a little reputation.” If you do an ICO, first and foremost, keep your investor’s best-interest in mind. And follow the rules. Get good legal counsel and make sure you obey the law of the land – wherever that may be. We can set up a company for you, but you are responsible for using the company legally and ethically.
If you have questions, give us a call at 1-800-959-8819 or visit offshore company dot com.
This material is to provide insight and opinions but is not a substitute for legal, tax or other professional advice. If such services are needed, seek the counsel of a licensed attorney or accountant.
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