In this article, we will embark on a journey through a highly influential period in the history of cryptocurrency known as the initial coin offering (ICO) boom.
The ICOs burst onto the cryptocurrency scene in early 2017, enabling numerous new blockchain-based projects to quickly raise substantial amounts of capital by selling tokens before their official release directly to investors. These projects offered their tokens in exchange for funding to launch new networks and decentralized applications (DApps).
What exactly is an ICO? It is a token sale that combines the traditional finance model of an initial public offering (IPO) with crowdfunding. The tokens are sold to raise funds for a blockchain-based project.
It is important to note that while the ICO boom is often remembered as a time when projects and investors earned significant returns, it was also plagued by exit scams and fraudulent schemes that later attracted the attention of regulators and financial authorities.
Despite the various regulatory and financial challenges faced during the ICO boom, it served as the launchpad for some of the largest projects in the cryptocurrency industry today, including Ethereum, EOS Network (EOS), Chainlink (LINK), Filecoin (FIL), Tezos (XTZ), and Telegram (TON).
The largest ICO was conducted by a private company called Block.one, the creator of the EOS network. In 2018, EOS raised an astonishing $4 billion. The second-largest ICO was carried out by Telegram, which raised $1.7 billion. However, unlike many other ICOs that were available to retail investors, Telegram’s ICO was primarily limited to private investors with substantial capital.
The third-largest ICO was held by the decentralized storage network Filecoin, which raised over $257 million in 2017.
Interestingly, Ethereum itself was initially funded through an ICO. Between July 22 and Sept. 2, 2014, Ethereum raised a total of $18 million. Participants in the Ethereum ICO received Ether (ETH) in exchange for Bitcoin (BTC), and more than $2.2 million worth of Ether was sold within 24 hours of the ICO’s launch.
During the 2017-2018 period, the majority of ICOs took place on the Ethereum network. The use of smart contracts on Ethereum allowed developers to easily create new tokens and launch protocols compared to other blockchain networks.
The Ethereum network’s functionality resulted in a rapid increase in the price of Ether, surging from around $10 in January 2017 to almost $1,400 in January the following year. The rise in Ethereum’s usage during the ICO boom established ERC-20 tokens as the industry standard and contributed to Ethereum’s continued prominence in the crypto ecosystem today.
Unfortunately, not all ICO projects were legitimate or well-planned. Many relied on hype and questionable marketing tactics without a clear roadmap or genuine development plans. As these illegitimate projects began to emerge, they caught the attention of the United States Securities and Exchange Commission (SEC).
The SEC first became aware of the issues associated with ICOs in 2017 when it investigated an ICO conducted in 2016 by an organization called “The DAO.” The SEC concluded that the sale was illegal and involved the offering of unregistered securities.
As a result, the SEC took legal action against Block.one, the parent company of the EOS network, and ordered them to pay $24 million in fines. The agency also ordered Telegram to pay $18.5 million in fines and return $1.2 billion to its ICO investors. Telegram was forced to abandon its project as its native TON token was deemed a security. However, the TON network was later salvaged by a community of developers since the project’s codebase was open-source.
Despite facing regulatory scrutiny, ICOs played a crucial role in fundraising for some of the most significant blockchain projects in existence today. The ICO boom, particularly, paved the way for Ethereum’s rise to dominance in the crypto ecosystem, established ERC-20 tokens as the industry standard, and significantly increased Ethereum’s adoption by developers.
Stay tuned for the next installment in our History of Crypto series, where we will explore the crypto winter of 2018 and delve into the key developments of Ethereum during that period. Follow Cointelegraph for insightful updates on the evolution of cryptocurrency history.