Initial Coin Offerings: The Ethereum ICO Boom | Gemini

Between 2017 and 2018, initial coin offerings (ICOs) took the cryptocurrency community by storm. This popular form of crowdfunding, the sale of tokens to finance the development and launch of a blockchain protocol or decentralized application (Dapp), primarily used the Ethereum network and raised billions of dollars for a variety of projects. icos finally launched a new generation of blockchain projects that have significantly shaped both ethereum and the broader crypto ecosystem. however, with over 2,000 unique token sales raising over $10 billion cumulatively in 2017 and 2018, the ico gold rush also spawned a number of exit scams and questionable business practices that led to resulting in negative attention and increased regulatory scrutiny.

Initial coin offerings, also known as token sales, are a hybrid of crowdfunding and initial public offerings (IPOs). ICOs allow companies in the crypto space to raise capital and finance development without having to go through the arduous and regulation-intensive process of a traditional IPO. Instead of giving buyers traditional shares (shares owned by a company), the tokens, which often (but not always) follow the erc-20 standard and function in the ethereum ecosystem, are generally touted as having future utility on the blockchain or dapps. that they finance however, depending on the specific tokens, how they were distributed, and the location of your jurisdiction, these tokens could still be considered securities and therefore subject to regulation.

Reading: Ethereum ico 2014

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although most icos have taken place on ethereum, the first ico, mastercoin, took place on the bitcoin network. In 2013, the Mastercoin team aimed to create a Layer 2 protocol in Bitcoin that would allow the issuance of new cryptocurrencies. The project embarked on a month-long fundraiser where anyone could buy Mastercoin by sending bitcoins to the Mastercoin Exodus bitcoin address. if you sent a bitcoin (btc) to the address, you would receive 100 mastercoin, plus an additional 10 mastercoin per week until the end of the sale. the mastercoin sale raised over 5,120 bitcoins, which were worth approximately $500,000 at the time.

ethereum was also originally funded through an ico, which took place in 2014. buyers received ether (eth) in exchange for bitcoin, and more than 7 million ether were sold in the first 12 hours of the sale, for an approximate value of $2.2 million. . at the end of the sale, more than 50 million ether were sold, worth approximately $17.3 million. controversially at the time, 9.9% of this ether was set aside for the ethereum founding team, with an additional 9.9% allocated to the non-profit ethereum foundation. this feature, which is sometimes called pre-mine, was adopted by many later icos.

ethereum’s open smart contract protocol allows developers to create new derivative tokens and platforms with relative ease, as well as run smart contracts that automatically calculate the amount of funds raised, distribute new tokens once the crowdsale is complete and govern the chain dynamics of the project network. As a result, most ICOs have taken place via the Ethereum network, and most have involved ERC-20 tokens, which are immediately interoperable with all other tokens on the Ethereum blockchain. It’s also important to understand that many investors who participated in ICOs bought protocol-specific tokens with ETH. this contributed to an exponential increase in the price of eth, further increasing the prevalence of initial coin offerings that initially fueled the ico boom.

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Between 2017 and 2018, thousands of projects conducted token sales. however, a significant portion of the ICOs did not meet existing securities registration requirements, were poorly constructed business operations, or were outright scams. icos raised $6.3 billion in the first three months of 2018 alone, 118% of the total funds raised during 2017., the creator of eosio, made the biggest ico ever, raising $4 billion in 2018. the messaging app Telegram held the second largest ICO, netting the company $1.7 billion in 2018. However, the sale of Telegram was a private sale and limited to large investors. Brave web browser pulled off another remarkable ico, raising $35 million in less than 30 seconds.

While many legitimate blockchain projects used their ICO funds to create established and successful projects, it gradually became apparent that many ICOs lacked serious teams or realistic business plans, and relied on the hype and marketing of the blockchain. industry to profit from unsophisticated investors. As a result, ICOs attracted regulatory scrutiny, particularly from the US. uu. securities and exchange commission (sec). The SEC issued a report after investigating a 2016 token sale for the DAO that concluded the sale was an unregistered securities offering. Some ICO Issuers Tried To Bypass U.S. regulations by excluding the us investors from their sales. however, investors were still able to access the sales through the use of virtual private networks (vpns). Ultimately, the SEC took action against many icos, including, which was required to pay a $24 million fine. likewise, telegram (ton) had to pay a fine of $18.5 million and return $1.2 billion to investors. the project was basically killed because the sec classified ton as a value.

In general, the adoption of ethereum was accelerated by the popularity of icos, many of which planned to build their products on top of the ethereum blockchain. As a result, Ethereum found widespread community support and developer interest, and its ERC-20 tokens became a widely recognized industry standard. Although the ICO boom may be over, ICOs continue to happen. In blockchain history, icos provide yet another example of the paradigm shifts and disruptive innovations made possible by decentralized technology.

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