An initial coin offering (ICO) or initial currency offering, a type of crowdfunding using cryptocurrencies, is a means of raising capital that has been prone to scams and securities law violations. Fewer than half of all ICOs survive four months after the offering. An ICO can be a source of capital for startup companies. In an ICO, a quantity of the crowdfunded cryptocurrency is sold to speculators or investors in the form of "tokens", in exchange for legal tender or other cryptocurrencies such as bitcoin or ethereum. These tokens are promoted as future functional units of currency if or when the ICO's funding goal is met and the project launches. ICOs provide a means by which startups avoid regulatory compliance and intermediaries, such as venture capitalists, bank and stock exchanges, while increasing risk for investors. ICOs may fall outside existing regulations depending on the nature of the project, or are banned altogether in some jurisdictions, such as China and South Korea. Almost half of ICOs sold in 2017 failed by February 2018. Despite their record of failure and the falling prices of cryptocurrencies, a record $7 billion was raised via ICO from January-June 2018.
ICOs can be used for fraud, as well as legal activities such as corporate finance and charitable fundraising. The Securities and Exchange Commission (SEC) has warned investors to beware of scammers using ICOs to execute "pump and dump" schemes, in which the scammer talks up the value of an ICO in order to generate interest and drive up the value of the coins, and then quickly "dumps" the coins for a profit. Facebook has banned ICO and cryptocurrency advertisements on its platform stating that many of them were "not currently operating in good faith."Google, Twitter, and Bing have also banned ICO and cryptocurrency advertisements.
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ollowing a speculative boom in cryptocurrency prices that peaked in December 2017, regulation of cryptocurrencies has been rapidly changing. The pace of change has been driven in part by incidents of cybertheft, trading halts, and possible market manipulation. Cryptocurrencies are based on distributed ledger technologies which enable anyone to purchase or transfer their cryptocurrency holdings to any other person without the need for an intermediary (such as an exchange) or to update a central record of ownership. Cryptocurrencies can be transferred easily across national and jurisdictional boundaries. This makes it difficult for central authorities to control and monitor the ownership and movement of holdings of cryptocurrencies. Countries have different approaches to how they regulate cryptocurrencies. This can depend on the nature of the cryptocurrency itself. There are two main types of cryptocurrencies from a regulatory perspective: utility tokens and asset-backed tokens. Utility tokens may have value because they enable the holder to exchange the token for a good or service in the future, such as Bitcoin. Asset-backed tokens may have value because there is an underlying asset which the holder of the token can attribute value to. In many countries it is uncertain whether utility tokens require regulation, but it is more likely that asset-backed tokens do require regulation.