Since the onset of cryptocurrencies, ICOs have cropped up in massive numbers making the conventional IPOs just another doorknob technology. The widespread and easy movement of cryptocurrencies means literary anyone can raise money in a matter of days without donning a shiny costly suit and having to pay a visit to thousands of investors who probably don’t want to be bothered.
Despite ICOs being banned in countries like China, their success in raising money still makes them the best medium for fundraising. IPOs are very much regulated. Thus, you’ll need to put in a lot of work in terms of paper preparation to get started. Without getting ahead of ourselves, let’s first define these terms.
Difference between ICO and IPO
ICO stands for Initial coin offering. ICOs are used by groups or companies that want to raise funds. Tokens, usually cryptocurrencies, serve as the mode of payment. Currently, most ICOs including some of the best are largely unregulated, and this makes investors wonder if they are legal and if they will stand the test of time.
During this event, investors who fund the project by sending cryptocurrency to a designated project wallet are essentially buying a right of ownership to the project. This entitles them to future profits or royalties. This arrangement makes ICOs different from initial public offerings, also known as IPOs because, in an IPO, investors purchase shares in the company. In initial coin offerings, financiers buy coins of the firm which act like stocks, and the value of the tokens can increase in worth if the venture becomes successful.
IPOs are pretty expensive and complex in structure. For a company to hold its first public sale of shares, it must be functional and to some extent making profits. This means before an IPO; the venture solely belongs to the founders, which is usually a group of friends, partners or family members. People who buy into it through IPOs then become shareholders and thus have a claim to the company. Those with humongous shares usually end up calling the shots.
When an entity sells shares to the public, what they are doing is giving away part of their company. Normally, there are no restrictions on who should or shouldn’t buy into the firm. In private stage, however, the owners have the option of choosing who can get some shares.
As said above, IPOs are complex, costly and are tightly regulated not just by the government but by the shareholders as well. ICOs, on the other hand, are unregulated. In a nutshell, here are similarities and differences between ICOs and IPOS:
- An ICO may give you rights to a particular project but not the company while IPO gives proprietorship in the company depending on how many shares you own.
- Decentralized decision-making is utilized in ICO while centralized is used for IPO. Investors may have a say in the latter while certain decision makers call the shots in the former.
- Details of finances are released over Blockchain or prior agreement with investors on ICO while in IPO, they are released according to exchange regulations.
- ICO can have more than one sale with little or no intermediaries while IPO has many intermediaries to confirm and the sale is once.
- The investor in ICO pays tax on capital gain alone, but in IPO, the company has to pay taxes.
- ICO exchanges are not regulated while the exact opposite is the case for IPO and stock exchanges.
How to select some of the best ICOs
Although there are plenty of opportunities to make money from ICOs, there is a lot of FOMO (Fear of Missing Out), and a lot of people want to get rich fast. If you don’t have the time to do your research or you want to invest a big amount of money, it is better to seek for a professional advisor.
Nevertheless, when you buy an ICO, a coin or a token from a crypto exchange, remember to look at the following criteria:
- The company creating the product
Never should you invest in something you have zero information about. If the company behind the ICO is new but has links to well-known establishments, it’s worth looking into them.
- Benefits and rights attached to the ICO purchase
Every offer will have varied rights and benefits. The terms and conditions of every ICO should be available, and investors should faithfully read and understand it. The white paper of the company and its business plans have to be properly understood.
- Engineering team and support
The team behind any project must be a capable and promising one. The team should basically be a pool of mixed talents. If they are all developers, the product will be solid, but without someone who understands how to market their efforts, the project will go nowhere. Other things to consider before committing to an ICO include:
- The project is sensible as a business
- Demand for such a project is established
- The business requires the cryptocurrency system to succeed
- You can out in the money without experiencing privation
- Are security measures in place to protect against cyber security threats and other hacks?
If you are still confused on the places where you can scout for some of the best ICOs, try the following sites:
–Coin Market Cap: you can view different market caps of different ICOs and compare them
–Smith + Crown: you can also search this website for well-researched information on upcoming ICO companies
–ICO Bench: on this website, you will find in-depth analysis of different organizations planning for an ICO. They carry out objective and very thorough research and analysis that will point you in the right direction of who is doing what in the ICO world.
Apart from the above-listed sites, discussions on forums such as Reddit, Bitcointalk, and CoinFund Slack Channel can inform you about upcoming crowd sales and ICOs.
Buying an ICO is not the same as buying stock from a company. IPOs have their regulations and limitations, but when you buy them, you buy a piece of that organization. We haven’t come to the place where cryptocurrency has a legal structure, but we might get there in the future.
A lot of profit can be made from an ICO, but because of the present lack of regulation, it is very important for investors to properly understand the volatility and risks involved with backing an ICO. Due diligence should be conducted the same way a conventional investor would, and cash should only be committed if the investor is ready to lose it.