ICO - the new world trade for fundraising in quantities

ICO is an acronym of Initial Coin Offering. It is a term which represents an entire industry of capital fundraising in huge proportions on 2017. So lets dive straight into the definitions of the terms and meanings. ICO is an act very similar to stock exchange securities issuing (IPO). A certain company creates a new kind of virtual currency, in a quantity of several millions of tokens of that kind, and afterwards sells it to the public in order to raise equity capital in an amount that does not fall from the vast quantity of money which can be raised in the stock exchange.

For example, let's say that a startup company named Avi Ron ltd. is interested in raising funds for its project to create watermelon tasted popsicles. It creates a new coin and calles it Avicoin. It creates a quantity of 30 million coins of Avicoin, and is interested in selling each individual for the price of one dollar, wherein each coin will represent the riht to receive one watermelon tasted popsicle, once a month in the summer days. Avi Ron ltd. company sells 30 million coins, raise the desired amount, and opens a factory to manufacture these popsicles.

Afterwards, the coins are being traded in virtual currencies exchanges, and their value goes up or does just like any security.

The intention of the term ICO was to deliberately sound like the term IPO - a first offering of securities to the public. In IPOs, the stocks/bonds/certificates (or any other security) are first being offered to the public in the stock exchange, and in return the company raise its funds. Afterwards these securities are being traded between the public, also in the stock exchange, and this phase is called the "secondary market".

Nevertheless, there are a few significant differences between the ICO and the IPO, wherein the differences are mainly in the asset which is being offered - one offers a right to a product or service, wherein the other offers a security:

• The coin does not give a right in the company or in the company's profits, but only in the company's product, just like a coupon in the supermarket.
• The coin does not gives voting rights in the company's resolutions.
• The coin does not gives the holder a statues of creditor in case of insolvency. In simple language, if the product is over, if the service is stopped being delivered, the holders of the coins have no right to claim anything from the company.

Nevertheless, lately investigations have been conducted by the US securities authorities (the "SEC") upon several companies the coins of which have given rights in the issuing company - something which clearly turns the coin into a kind of security - and its offering to the public without a permit - to a federal offence. Moreover, all the virtual currency exchanges who have allowed and supported trading in these coins which were deems as securities were subject to  investigations as well because the trading of these coins which were deemed as securities, allegedly turned these virtual currency exchanges, into stock exchanges without licenses!

Therefore, each virtual currency exchange is required to run a due diligence on each and every coin before it puts it into trade, but the issuing company itself must take preemptive steps and make sure that the coin which is being issued in the ICO has low risk of being considered by the authorities, at least the Americans (the most severe), as a security.

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