Every day, the crypto universe gets more and more enthusiasts who race to find out all the news, invest in cryptocurrencies and make their original tokens and coins.
Given that the focus in the last few years is an entirely new way of raising funds and everyone knows it under the abbreviated term “ICO”, we decided to give you a more detailed explanation.
Although the famous name is ICO, it still confuses crypto connoisseurs and those who want to start doing the same. Let’s start with the basic definition of ICO, shall we?
Initial Coin Offering or ICO – get the basic definition.
ICO is an acronym of Initial Coin Offering, which represents the type of fundraising cryptocurrencies. Very often, it’s referred to as a form of crowdfunding. In other words, it’s a type of capital-raising activity in the Blockchain environment.
Thus, when a particular company is looking for a way to raise money for a new app, coin, or service, it can launch an initial coin offering as a proven way to raise these funds. In an Initial Coin Offering, cryptos are sold in the form of “tokens”, or “coins” to investors or speculators, usually in exchange for more stable cryptocurrencies such as Bitcoin or Ether.
Keep in mind that these tokens are seen as future functional units of currency once the funding goal of an Initial Coin Offering is met and the project is launched successfully.
Two types of Initial Coin Offerings
There are two different types of ICOs, a private one and a public one.
Private ICO
In private Initial Coin Offerings, only a certain number of people are able to participate in the process. These people are usually high-net-worth individuals or financial institutions considered accredited investors.
Public ICO
On the other hand, public ICO refers to a form of crowdfunding that’s open to the general public. It means that anyone can become an investor.
ICO vs. IPO comparison
When it comes to the ICO vs. IPO, we should point out that an initial coin offering is the cryptocurrency industry’s equivalent to an initial public offering (IPO). However, there is a crucial difference between ICO and IPO.
The primary difference between ICO and IPO is that investing in ICO doesn’t secure you an ownership stake in the crypto company or project. All participants in ICO are gambling that a currency that’s currently worthless will later increase in value above its original purchase price.
Suppose you are wondering which is better, IPO or ICO. In that case, it’s also important to note that ICO usually occurs in the early stage of a company or a project, even before it has working services or products. Thus, ICOs are considered riskier and should demand a more significant return on investment than Initial Public Offerings, or IPOs.
Is Initial Coin Offering legal?
Based on particular facts, Initial Coin Offerings could be securities offerings, and they are under the SEC’s jurisdiction of enforcing federal securities laws. However, some countries in the world have banned the use of Initial Coin Offerings, such as the Republic of China.