Initial coin offering

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An initial coin offering (ICO) is a method in which companies can raise money using cryptocurrency. Investors in the ICO are offered the chance to buy into a new company using cryptocurrency in exchange for virtual tokens. These tokens offer investors access to a product or service offered by the company and can fluctuate in value.[1]

Typically, an ICO includes a new digital currency at a discount - also known as a token. If that cryptocurrency increases in value, the investor can make a profit. The tokens, however, do not grant the investor any stake or ownership in a company like a stock.[2]

ICOs are not bound by the same rigorous rules that govern initial public offerings.

In 2018 the Securities and Exchange Commission began issuing subpoenas and information requests in an investigation of the multibillion-dollar U.S. initial coin offering market, following a series of warning shots suggesting that many token sales might be violating securities laws.[3] The SEC has also warned investors about scams involving ICOs.

Background

The first known ICO was held in July 2013 by a firm called Mastercoin, later renamed Omni, owned by J.R. Willett. Willett, a software engineer, published a white paper in January 2012 called "The Second Bitcoin Whitepaper" which outlined the concept. In it, he posited the idea that "new currency layers" and "new protocol layers" could raise funds for services. Ethereum, the cryptocurrency, held an ICO in 2014.[4]

In the first nine months of 2017, ICOs raised more than $2 billion in token sales in about 140 ICOs.

References

  1. SEC And The ICO. Crow & Cushing.
  2. The ICO craze, explained. Recode.
  3. Cryptocurrency Firms Targeted in SEC Probe. The Wall Street Journal.
  4. Here's The Man Who Created ICOs And This Is The New Token He's Backing. Forbes.