Many people still don’t know the real meaning behind ICO ( Initial Coin Offering ) and its distinctive difference between IPO ( Initial Public Offering ).
If you watch the stock market or pay attention to Wall Street then the chances that you are familiar with IPO’s are good.
In regard to blockchain technology, the ICO’s has become what IPO’s are to the stock market. We will give you a thorough explanation as to what and how ICO’s function and how they essentially differ from IPO’s.
The meaning behind ICO
In essence what an ICO is, is a way for Companies to raise capital to better develop projects on their blockchain platform. So the early investors (capital contributors) are given digital assets or too many as its called “tokens”. The tokens were originally bought with “bitcoin” by the contributors.
Since the rise of Ethereum, this payment method has changed and many people are preferring to make payments in Ether, although some other currencies including bitcoin are still being used.
A very crude distinction between cryptocurrencies and the tokens that are issued out should be made clear. Cryptocurrencies like Ether, Litecoin, and Bitcoin are essentially currencies but the tokens that are issued out at the ICO are stocks and they represent a small stake of ownership of the different technologies that are from the company itself. The tokens are more like buy and sell stocks where on the other hand the Cryptocurrencies mentioned above are traded in the conventional sense like currency pairs, for example, USD/EUR.
Major differences between ICO and IPO
In the case of traditional IPO’s, you will require significant documentation, regulations, and approval beforehand. This all needs to be done before a certain company can offer its equity shares to potential investors. Once this is accomplished these shares are swooped up by investors and large institutions that have done extensive research and their due diligence regarding the company they invest in.
In ICO’s they also do their extensive research and get to know exactly what the company and research (technology) is all about. But unlike IPO’s the company usually is still in its infancy phase whereas IPO’s will have proven track records. ICO’s usually get investors that are enthusiastic about the technologies and see the potential that the company can accomplish in future. At the moment ICO’s are not registered with any government institution. This is why investing early in these organization’s are so appealing to the early investors.
It is still unclear if they can maintain this unique structure in the long run. At the moment the ICO’s are merely promoting their offerings as “contributions” or “crowd sales” instead of the traditional equity purchase. At the moment it seems to be working but to protect their structure for the future, changes are inevitable.
The inevitable future of the ICO
The momentum is certainly on the side of Initial Coin Offerings and this trend is not going to slow down anytime soon. It is the appealing nature that they offer and young investors are forever increasing when it comes to supporting the many different projects. Most of the projects have potential and get funds within hours and the others get it by “FOMO” (fear of missing out). Only time will tell if this blockchain based bubble will have a major effect on companies and the way we do business.
If you look at it from a traditional sense most businesses are destined to fail. So be advised that the odds are that many of these technologies offering Initial Coin Offerings will also fail, so choose wisely, the next Facebook or Google might just beat the odds.