What Is an Initial Coin Offering (ICO)
ICO stands for “Initial Coin Offering,” and refers to the capital raising activity in cryptocurrency and blockchain environment. ICO is an alternative for initial public offering (IPO) in the cryptocurrency industry.
Interested investors can purchase a new cryptocurrency token created by the company in exchange for their investment. This token may help use the company’s product or service. Also, it may simply represent a stake in the company or project.
How an Initial Coin Offering (ICO) Works
When a company wants to raise funds via ICO, it will display a ‘white paper’ for investors to review before making a decision. The white paper includes displays of data given by the company regarding what the funds will be used for, such as how much is required, and any other pertinent information.
If the required amount of cash is not raised, the company will refund all investors’ money. Cryptocurrency is expected to be used by investors to purchase shares, so some prior knowledge of cryptocurrencies and wallets is strongly recommended.
ICO vs IPO
| Initial Public Offering (IPO) | Initial Coin Offering (ICO) |
| An initial public offering (IPO) is the sale of stock to the general public through investment banks known as underwriters. | Initial coin offering (ICO) is the production of digital tokens on a blockchain and their distribution via a public ledger. |
| IPOs are subject to plenty of regulatory requirements and controls. So much so that before going public, most companies will hire securities attorneys. | On the other hand, ICO’s are relatively new, and there are few regulatory boxes. The white paper does not have a defined format. |
| The IPO process involves lawyers, banks, and a lot of patience. | An ICO takes less time than an IPO. |
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