You hold some cash, but you’re not sure whether you should invest it or leave it in the bank. a typical predicament Well, the wise have always advised against leaving money in a bank unattended. Give your money a job to do. Bitcoin and other cryptocurrencies are gradually dominating the world. Numerous intriguing investment opportunities have emerged. The Initial Coin Offering (ICO), a method of investing utilizing cryptocurrencies, is one of these investment options. This article comes after those on the fundamentals of ICOs and how ICO tokens function. We will go over the main distinctions between ICO vs IPO in this essay. Let’s get going.
What are an ICO and an IPO?
Initial Coin Offering (ICO) & Initial Public Offering (IPO) platforms both raise capital for your company. Where do they differ, then? While new, youthful entrepreneurs employ ICOs, established businesses raise money through IPOs. To put it in concrete words, a 20-year-old pharmaceutical company might file for an IPO.
In contrast, a young person of 18 with a creative concept who wants to launch a business from his home may bring an ICO. The pharmaceutical company is well-known, has a solid bank account, and has an established track record of success. The new firm lacks both of the aforementioned characteristics; it may turn out to be nothing or the next APPLE. Nobody is aware.
Investment decisions are based on the core premise that the company’s operations will expand and eventually generate profits in the near future, whether they are made in an established, well-known firm (IPO) or even a risky new startup (ICO).
How ICOs and IPOs Work
An ICO works by selling a blockchain token and/or some other valuable utility to the public in exchange for their investment. It usually starts when a cryptocurrency startup creates a whitepaper outlining its project in technical detail. The expectation is that, with the money raised, the startup will create a lucrative project that will grow in value and create profits and other benefits for these investors. However, the project can also fail or the ICO funding is stolen in the process.
On the other hand, IPOs are straightforward in how they work. You found a company, perhaps grow it to unicorn status ($1 billion+ valuation), and now want to either exit or grow it beyond its private limitations.
Now that we understand what ICO and IPO represent, let’s look at how they differ from one another.
Read more: ICO vs. STO: What’s the Difference?
Most of ICOs have no track record and merely a white paper to support their project because ICOs are exempt from all legal and regulatory requirements. The entire ICO procedure takes substantially less time. An ICO startup typically releases a white paper as well, but unlike an IPO, there is no set framework for it. Please be aware that not all countries consider a document like this to be legal. Thus, the Internet and programmers are required for ICO, and that’s pretty much all of it.
A company must meet a number of methodologies, such as having a minimum revenue threshold and a solid track record, before offering its shares to an IPO. Due to the need for legal and compliance processes, traditional IPO issuing can be a drawn-out process. A prospectus is an additional prerequisite. In order to help potential investors make an informed choice, the prospectus must contain important details about the company and its planned IPO. The prospectus serves as a legal declaration of the firm’s intent to issue its shares to the general public. Thus, patience, banks, and attorneys are required for an IPO.
Having access to the internet is all you need to begin investing in ICOs. Any company’s tokens are available for purchase from any nation. Certain US projects that are classified as securities are an exception to this rule. Because they would otherwise require IPO-like reporting, these projects really aren’t accessible to US individuals, which goes against the core appeal of an ICO.
It is really simple if you invest in a business that is located in your nation. You will probably need to use a broker’s services if you wish to invest in a foreign company because there is typically an additional legal process involved.
Profit of Investors
Let’s assume that both categories of investors were fairly fortunate and that the investment was successful. Now, what do you get?
The most important thing to keep in mind is that coins do not give access to the project. Depending on how the currency is organized, there are numerous ways that investors in the coin could profit in the future. You may be given a set price at which you can purchase or sell, a sum of money that you will receive if the business makes more money than expected, or the freedom to visit their offices whenever you choose & eat in their dining room. Whatever it is, it is documented on the white paper for the project.
An ownership stake in the company’s future earnings is represented by the stocks purchased through an IPO. Dividend payments to shareholders are made annually and are based on the performance of the company. Investing at an early stage and selling the stock whenever its value increases is another strategy to gain money.
Does it mean that IPO is more secure than ICO?
Although it may seem to be, it is not. Even with all the paperwork, checks, and legal obligations, the business could still go out of business, wiping out your investment. On the other hand, if you pick a promising ICO project, it may be a very lucrative investment with a lot less red tape. In both situations, it is strongly advised to properly research all relevant sources to ensure that a project is worthwhile before investing any money.
We’ve already talked about how it’s impossible to forecast with full certainty whether a business or initiative will succeed or fail. Before making an investment decision, you should thoroughly consider the advantages and disadvantages of your options.