This article will explore some of the key differences between an ICO (Initial Coin Offering) and an IPO (Initial Public Offering). The two processes are ostensibly quite similar; one sells cryptocurrency tokens attached to a particular blockchain-based venture to initial investors to raise funds, the other refers to the public sale of shares of a company, once again to raise funds for business development. Nonetheless, there are a number of key differences, which will be listed here.
Stage at which the ICO/IPO is held
Firstly, ICOs and IPOs are held at different stages of the project or company’s existence. An IPO will be held once the company has already produced a product and may already be profitable; it’s organized mainly to raise long-term capital. An ICO, on the other hand, has as its goal to raise funds to launch a completely new project. It is thus riskier than an IPO, but might also provide a bigger return on investment.
An IPO is by its very nature a highly regulated event. In order to issue an IPO, a company must submit a so-called “prospectus” to a regulatory authority, it must meet certain standards of transparency, it must become officially listed on the stock exchange, and so on. An ICO is essentially completely unregulated at this point in time; all that’s required is a potentially viable product and, presumably, a web presence to get investors interested. Often this involves an ICO whitepaper, but there are no regulations considering what such as whitepaper should include; investors must do their own research to figure out the credibility of a particular ICO and cannot count on any regulatory body to do this for them.
Stocks or shares purchased as a part of an IPO essentially represent co-ownership in a company; they bestow benefits such as voting rights, eligibility to claim dividends, and so forth. It is important to note that ICOs do not bestow partial ownership upon their investors. Instead, these investors receive a particular amount of cryptocurrency tokens associated with the venture, which they will- hopefully – be able to exchange for goods and services down the line. Additionally, if the project becomes successful, these tokens could potentially be sold on for huge profits.
Duration of offerings
Because IPOs are heavily regulated, the process of issuing them is a lengthy one, and can take up to six months. ICOs, which are relatively free from regulation, can be conducted in a much speedier manner, and the process depends on the timeline of the specific project. Usually the length of the ICO period depends either on a hard cap (i. e. a particular number of tokens to be sold during the ICO) or on a fixed sale duration, often a month.
Access to offerings
A final distinction is connected to who gets to purchase stock or tokens in the IPO or ICO. An IPO investor must be able to prove he is “sophisticated”, i. e. aware of the risks involved, and a broker will assess his suitability. In terms of an ICO, the requirements are far more limited; an investor will only need a cryptocurrency wallet (to digitally store the new tokens) and a connection to the Internet to participate. Once again, this lack of regulation is a double-edged sword; on the one hand, it makes the process more democratic, but on the other, it also means additional risk.