ICO basically stands for “Initial Coin Offering” and is a vital stage in the launch of any new blockchain company. You see, for the system to function correctly, a blockchain requires people to hold tokens in their digital wallets. The ICO works in two ways, first, is the distribution of those coins and secondly, the tokens are used as a means to raise funds for the company and new blockchain system.
Unfortunately, a lot of investors have lost money due to purchasing fraudulent or incompetent tokens from new startup companies. The issues that continue to arise are due to the inability to establish what an ICO is precisely. Tokens that are issued will fall into three different categories. Some are released to be used as a means to be exchanged for services and goods. Others are delegated to show ownership of businesses. While other tokens issued are seen as a form of currency.
Because there is much confusion surrounding ICOs and their meaning, it is difficult for law enforcement agencies to pen relevant laws to crack down on fraudulent crypto-currencies.
For any investor to know where to put their funds, they must understand the three R's of ICOs. Risks, Responsibilities, and Rewards
Risks, Responsibilities, Rewards: The 3 R's of ICO
In layman's terms when it comes to finding a suitable company or token to invest in one must understand the Risks, Responsibilities, and Rewards of each token according to the SEC.
It is imperative that the tokens be regulated for what they are created for. If ICOs are securities, the tokens need to be registered as such. It is important to note that not all coins distributed are securities. Some companies mask their true nature by mislabeling the coin and the company in hopes of raising more funds. It should also be stated that ICOs are risky and should be looked at in the same terms as stocks of a company before purchasing any tokens.
It is crucial for investors to be overly cautious and do their homework before jumping to the newest startup and ICO. An investor should take the time and look at the business model and the team the ICO to assess if the company is worth buying into.
For official information from the SEC on ICO's, head to their website. Here are some related topics that are worth reading to find out more about SEC's stance on ICO's.