What is an ICO? This is how a cryptocurrency is launched
In the world of cryptocurrencies or cryptocurrencies, an instrument known as ICO (Initial Coin Offering in English) is used to finance the development of new protocols. This expression, translated literally into Spanish, means Initial Currency Offer.
The reasons why investors are willing to invest in an ICO Listing Online I explained in my article 'Tokens and protocols: keys to understand investing in bitcoin and other cryptocurrencies' so today it is time to list and delve into some of the main ICOs that are have placed on the market. To do this, we will equate an ICO with an IPO, and define the characteristics that a quality ICO must possess compared to others, which have become "frauds", which have also existed.
The relevance of mining in a cryptocurrency ICO
There are two main mining methods, Proof of Work (PoW) and Proof of Stake (PoS), which are relevant for us to understand how an ICO works. On the one hand, the Proof of Work mining model is used in the Bitcoin, Litecoin or Ethereum protocol to name just a few examples. Although in the case of Ethereum, its developers are considering changing to Proof of Stake in the future.
The Proof of Stake is a model in which cryptocurrency owners are progressively rewarded - in a lottery among cryptocurrency holders themselves - with new tokens of the same type. In this model, holders of more units of account or currencies are more likely to increase their holdings with new cryptocurrencies.
The Proof of Stake model, unlike the Proof of Work model, allows a distribution of cryptocurrencies or tokens based exclusively on the priorities of the protocol developers, a circumstance that has allowed the creation of List ICOs with a fraudulent or dishonest tone. The advantage of the PoS system is that it does not consume energy to secure the system unlike the Proof of Work model, but unlike the PoW the distribution of the coins can be unbalanced.
Cryptocurrency pre-mining at ICOs
In the Proof of Stake model, there have been many cases where pre-mining has been used, which simply means that the developers of the protocol distribute a fixed number of cryptocurrencies to a small and initial group of investors. Later - distribution to the general public now open - they try to inflate the prices of this new cryptocurrency in order to sell them with great benefits to new investors. Of course, the promotion or marketing campaign must be successful and attract new capital.
Obviously, this does not mean that all Proof of Stake models are all fraudulent, but it is true that they favor them, unlike the Proof of Work system in which the developer of a protocol can hardly control the distribution of the coins. That said, some people speculate that Satoshi Nakamoto owns at least a million bitcoins out of the 21 million that will be issued in the Bitcoin protocol. But not because of a pre-mining operation. At the dawn of technology, only Satoshi found, between useful and fascinating, mining bitcoins.
But to understand the economic meaning of an ICO in the world of protocols, we are going to mention, below, some of the best known ICOs.
Ethereum ICO
Ethereum raised 31,531 bitcoins ($ 15 million at the moment) during its launch campaign, with a pre-mining system, in the summer of 2014. Investors had to wait a year to be able to trade their ethers in the market, because this was stipulated. in the ICO investment pact. A measure taken to curb initial speculation. As of today, 31,531 bitcoins have a market value of $ 26 million.
The launch of ether was, at the time, one of the most successful crowdfunding campaigns registered in any protocol and positioned Ethereum and its cryptocurrency - ether - as a serious competitor that could receive attention from developers and investors in the cryptocurrencies, compared to the Bitcoin protocol. Some of the most notorious and important ICOs of new decentralized protocols have used Ethereum as a reference protocol as we will see in the following examples.
TheDAO ICO
The Ethereum ecosystem made a new history in the world of cryptocurrencies and in the world of crowdfunding campaigns in 2016. On April 30, the startup of the Ethereum ecosystem Slock.it announced the launch of TheDAO articulating a crowdfunding campaign that It put DAO (Decentralized Autonomous Organization, i.e., Decentralized Organization) tokens up for sale for the first time, raising 12.07 million ETH (ETH is the code for ethers as BTC is for Bitcoin).
This crowdfunding campaign raised more than $ 150 million, buoyed by the spectacular appreciation of ether since its launch and the high expectations of the Ethereum community to be present in one of the first invertible projects presented to them. TheDAO was an open venture capital fund where anyone in the world could participate, to invest in projects based on the Ethereum protocol automated with smart contracts, without the need for a management structure.
TheDAO failed because a hacker managed to block 3.6 million ether and although this issue was resolved weeks later it caused a break in the Ethereum community because of how it had been resolved. This situation led to a division in the Ethereum community, which led to the creation of Ethereum Classic (its token is called Ether Classic or ETC) and Ethereum (ETH) that changed its initial system, forking into two separate protocols.
The crisis of TheDAO and a series of other technical problems throughout 2016 caused the price of ether to drop from its highs of $ 21.50 per ether at the peak of TheDAO to the current price of $ 7. Despite this significant drop, the revaluation of ether in 2016 alone was 700%.
In the first six months of 2016, the price of ether rose by 2,000%, trading from a price of $ 0.93 per token to the high of 21.50 recorded in mid-June.