An ICO (short for Initial Coin Offering) can be viewed as nothing else but crowdfunding that uses a blockchain solution. Backers of your proposal are your future customers. It becomes tricky when a coin or token get the characteristics of a security, the so called security token. These type of tokens resemble an investment contract. The main use-case, and the reason for the contributors to buy the tokens, is the anticipation of future profits, such as dividends, revenue share or price differences.
Back in 1946 in the US there was already the so called Howey-test: what is the difference between a functional and a security token?
Is it an investment? YES/NO
In a common enterprise? YES/NO
With an expectation of profit? YES/NO
Is there a person upon whom investors rely? YES/NO
Current developments show that this test is incomplete and regulators, such as the SEC, are still looking for better models.
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