By Venkat Nallapati, CEO, KryptoPal
ICO stands for Initial Coin Offering, and it’s a fundraising mechanism to help establish newer blockchain and cryptocurrency companies. These are also sometimes referred to as Token Generating Events (TGE) and Initial Token Offerings (ITO) with some very minor differences. ICOs help these companies launch their projects by providing investors with units of the new currency or utility token in exchange for the equivalent amount in another currency, usually Bitcoin or Ether. It works similarly to an initial public offering (IPO), but with a few key differences.
The main difference between an ICO and an IPO is that ICOs are accessible to any company in the blockchain space, whereas IPOs are only accessible to privately-owned companies that have been conducting operations for a significant period of time. This means that promising startups with excellent visions can’t always access IPOs due to high regulations.
On the contrary, ICOs can be executed by any company in the blockchain space, and the new coins or tokens can typically be traded as soon as they’re developed. This form of fundraising alo known as a form of crowdfunding has been around since 2013 and has since led to groundbreaking revolutions within the blockchain community. Genetic Immunity Inc. for example, is raising funds through its ICO called DermaVir to advance its immunotherapy technology solution. Its solution has been shown to be both quick and cost-effective in helping to control life-threatening diseases like cancer and HIV, but because of its newer establishment, it would not be eligible for an IPO.
Another noteworthy difference between ICOs and IPOs is that IPOs work best when a corporation or another central entity assumes full control over it, whereas an ICO is meant to be open-sourced and decentralized. Tokens are an emerging way to conduct business in a more democratic fashion, as they can be purchased by anyone with no interference from business or government. Additionally, there’s a high level of transparency for ICO investors—escrows can be implemented to document how money is spent following the investment.
ICOs also possess several advantages over IPOs. Some of those advantages include the same degree of anonymity that’s commonly associated with cryptocurrency, the ability to be consolidated and early access to tokens that have the potential to generate ROI hundreds of times greater than the original investment. Investing in ICOs also enables the diversification of investment portfolios that are typically based in FIAT currency while investing in the future of the world in terms of the intrinsic value offered by the projects being funded.
Another advantage to ICOs is the ability to obtain them immediately, unlike an IPO. The regulatory bodies that govern IPOs are usually so inefficient that simply getting an IPO takes an average of four to six months. ICOs, on the other hand, are so efficient that once the company’s white paper and smart contract are finalized, they can begin selling the ICO. The length of the sale is dependent on the individual ICO, but ICO sales typically last for about a month.
It’s also critical to understand that investing in an ICO will not provide ownership stake in the company the way that an IPO would. When investing in an ICO, look at the company’s white paper. The white paper will describe exactly how a company’s specific ICO works by informing the investor of why it’s worthwhile. Although not all ICOs are valuable, both dedication and sound research of the ICO market can provide investors with tremendous returns and the added value of supporting life changing ideas and advancements.