According to data collected by CoinDesk, at $6.3 billion ICO fundings raised more money in the first three months of 2018 than the whole of 2017. Many who believe blockchain technology will soon be at the heart of every financial economy justify the use of such ICOs rather than the IPOs as a revolutionary innovation that will transform the way companies crowdfund.
What’s an ICO?
An Initial Coin Offering, also commonly referred to as an ICO, is a fundraising mechanism in which new projects sell their underlying crypto tokens in exchange for Bitcoin and Ethereum.
What’s an IPO?
“An initial public offering or IPO is the stock sale by a company to the public. Before a company chooses to go for IPO, the company is considered to be privately-owned as its shareholders are the founders, venture capitalist, and angel investors”
The key difference- IPO’s are usually by well-settled companies, whereas ICO is to fund young startups.
As part of the mandatory requirement to register with the regulatory authority, a legal document called a prospectus must be created by any company looking to issue an IPO. The prospectus represents a legal declaration of its intention to issue its shares to the public and must meet certain standards of transparency. It must include key information about the company and its upcoming IPO, so as to assist potential investors in making an informed decision.
The entire ICO process is much shorter and decentralized. Usually, an ICO project issues a document in the form of a white paper which is often conceived by the developing team to outline key information of the project, such as its purpose and mechanics. However, it’s important to note that there is no standard for an ICO whitepaper; any project could construct a white paper with the ability to include or exclude any information they deem fit.
IPO – If you invest in a company from your country, it comparatively simpler. There is usually an additional legal procedure if you want to invest in a foreign company, so you will most likely need to utilize the services of a broker.
ICO -This is the best part. The only thing you need to start investing in ICO is access to the Internet and a KYC proof. You can buy any tokens of any company from any country. An exception to this is some US projects that are defined as securities. These projects are not available to US citizens, otherwise, the projects will need IPO-like reporting, which is against the entire structure of an ICO.
Utility- Investor’s profit
IPO – The stocks acquired through an IPO represents an ownership stake on the future earnings on the company. Shareholders get dividends yearly, depending on the company progress during the year. Another way to make money is to invest on early stage and sell the stock when its value rises.
ICO – The main thing to remember is that coins do not grant ownership of the project. There are many ways that investors of the coins may reap future benefits, and that depends on how the coin is structured. It is mostly governed by the success of the project once launched and the demand and supply matrix. Also, it is strongly advisable to read the project white paper before investing.
So, if you have some money to invest, you can go with a known, well-settled company by buying into their IPO or support one of the young startups with an ICO.In both cases, it is highly recommended to learn thoroughly all available sources to make sure a project worth your money.
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