What is Initial Coin Offering (ICO)? How it differs from Initial Public Offering (IPO)?

Initial Coin Offering (ICO)

Initial Coin Offering (ICO) is the process of allotting cryptocurrency tokens by the company to raise the predetermined project capital from investors. The concept of funding business idea has evolved radically over the past few years. The Initial Coin Offering, (also called as token crowd-sale) has become a revolutionary way to finance a new business venture.

Inital Coin Offering (ICO) has proved a cash cow for most venture capitalist as well as small and medium investors. It has provided an opportunity to earn huge financial returns through buy and sell of these digital tokens.

How does it differ from Initial Public Offering (IPO)?

Financial instrument

Initial public offering refers to the process of raising capital by issuing stocks to the public. The investors are offered with shares of stock based on their contribution. Whereas, ICO raises funds by issuing cryptocurrency tokens to its investors.

Ownership

In IPO, the shareholder is the partial owner of company proportionate to its equity holding and an active player in company decision making. However, in case of ICO, investors are merely beneficiaries of the profits. Investor holds no ownership in company or any of its assets.

Development and operational cost

The cost of issuing and IPO is huge. Some of the cost includes documentation cost, operational cost, promotional and other accessory cost. ICO is a blockchain technology based digital fund raising which is very inexpensive in nature.  The cost of developing and managing digital tokens is extremely less compared to issuing an IPO.

Geographical limitations

The process of raising IPOs are governed by different laws in different countries. However, the process of raising funds through Initial Coin offering (ICO) is uniform globally. The process is decentralized, still accepted unanimously by the digital community.

Regulations

IPO and securities market is highly regulated in each country. Every country has a clear set of rules and regulations pertaining to the issuance of IPO, listing and exchange. However, there is complete lack of such regulations in case of raising capital through ICO. Absence of rules and guidelines for ICO operations have attracted incidents of fraud, hacking making it hostile for new investors.

 Compare Initial Coin Offering (ICO) Initial Public Offering (IPO)
Financial instrument Cryptocurrency tokens Stocks/Shares
Company Ownership None Proportionate to equity holding
Operational cost Very little Very High
Reach Globally uniform and technology driven Differs as per laws of each country
Regulations and Control Absent, but evolving Clear regulations per country

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