What is an Initial Coin Offering?
An initial coin offering (initial coin offering) is the offering of cryptocurrency or digital currency for sale to the public for the first time in exchange for Bitcoin, Ether, or fiat currency. An ICO The phrase is borrowed from the "initial public offering" or IPO where a private company issues equity to the public markets. An ICO differs from an IPO in that tokens or coins are sold as a form of crowdsourcing to the public whereas IPOs result in the sale of an ownership interest entitled to residual profits in the company.
I hope to explain to you that an ICO is unique. The entity that undergoes an ICO is not a public entity nor does it public a public entity in a legal sense. No equity shares are offered to the public, the entity offering the shares is not under legal obligations to disclose information to the public, and the entity does not have stock trading on a regulated stock exchange. However, the ICO creates a "quasi-public" entity. The ICO is a public endeavor. The exemption provided by 506(c) of the Regulation D as it has been updated by the JOBS ACT paired with modern communication, transparency of the blockchain, and the global nature of ICO capital raising has created a legally private operating company that becomes highly accountable to it's accredited investors who communicate with the token offering entity in a highly public way via messaging platforms such as Telegram and through social media outlets such as Facebook and accompany Facebook groups. Moreover, many coins/tokens do trade on exchanges and have ticker symbols. These ticker symbols are not provided or obtained through FINRA and with DTCC eligibility and trade on the OTC markets, NASDAQ, or NYSE or any other standard stock exchange as is the case with equities. Cryptocurrencies have their own exchanges and there is a hierarchy - some say there are four tiers of exchanges. The higher the tier the harder it is for an ICO's coins to be listed on the that exchange. The higher the tier, the more exposure a particular coin will receive. The higher the tier, there is a vast likelihood the coin will see large amounts of appreciation, and that appreciation comes very quickly.
ICOs mostly accept funds in mostly Fiat (U.S. dollars, Euros, etc.), Bitcoin (BTC), and Ethereum (ETH). The funds are often held in a "wallet" that is accessed through several methods, primarily a "private key" or encrypted password. All transactions on the bitcoin and Ethereum networks are recorded for public view. Most ICOs are done on top of the Ethereum network. One can use various websites to see incoming money from investors as well as expenditures. Once you know who owns what address, you know how much they have sent or received from anyone on the blockchain. Keep in mind that a person or entity may have as many wallets as they desire. If the ICO contains one master wallet, all funds coming in and leaving can be tracked in an extremely public manner.
An ICO solicits for investors through public online communications, lists on exchanges, trades with the equivalent of ticker symbols, and almost all transactions are recorded publicly. Seems more than a private company. We are in new territory, yet we are not in the "wild west". There are rules and guidance from regulators has come out and more will surely follow.
Many cryptocurrency investors are unaware or blend stock ownership with stock ownership and this creates challenges for the private company that undergoes an ICO. There is a great variety of coins that have been created. Most coins are securities regardless of their designation as utility tokens. The most notable tokens tend to address an idea suitable for blockchain technology or boast superior technology when compared to the Ethereum or Bitcoin networks. Many investors are entering the so-called alternative coin space because they feel they missed the rise in Bitcoin. They are correct and wrong at the same time. You will never replace the first of anything, but there is much value and appreciation and new tokens that are seen as worthy in the cryptocurrency community.
Please contact me if you have any questions and would like more information.
The Law Offices of Destiny Aigbe | Securities & Going Public Lawyer
Destiny Aigbe, Securities Attorney
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Washington, DC 20036
Telephone: (202) 854-8386
Email: destiny@aigbelaw.com
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