WTF is an ICO?” has become a popular headline since the current crypto-frenzy started. But the question should be: “WTF is a token?”
The answer will determine the fate of token sales. Tokens could be utilities (think of Bitcoin, which was invented as a payment protocol). Or they could be securities – things whose primary function is being investment vehicles with some expectation of profit. Despite the lexical gymnastics coin-peddlers engage in, some tokens are definitely securities. In July 2017, the US Securities and Exchange Commission (SEC) declared that the DAO’s tokens were securities, and that many other tokens, depending on their individual features, were likely to be securities too. It recommended caution to investors, due to the risk of fraud and the near-impossibility to recover money if that happened. Token-issuing companies started forbidding their ICOs to US individuals, unless they were accredited investors – high-net-worth individuals able to partake under SEC regulations. (Some Americans use internet proxies to circumvent the prohibition.)
In early September 2017, China banned ICOs, labelling them illegal fundraising. South Korea followed suit shortly after. “There was a phase in Korea, when it could happen that ICOs were pitched on the phone, without even a white paper [being released],” says Yiseul Cho, an investor at Blockchain Partners Korea.