By: Sameer Zubairi | 4 min read | 28/01/2019

ICO’s (Initial Coin Offerings)

ICO’s: A BRIEF INTRODUCTION

If you’re familiar with the stock market, you may have heard of the term IPO being used for initial public offerings of a company’s stock. Well, ICO’s, or initial coin offerings, play a similar role for a blockchain based company looking to raise some investment capital.

When a company is interested in pursuing a blockchain project, they offer interested investors the ability to purchase a token tied to the company’s initiative. This token can represent an equity stake in the company, or future access to their services, and can help raise millions for the project. Often times, these tokens are taken public, which is when they may be traded on an exchange.

However, investors new to the crypto game are recommended to steer clear of ICO’s before learning more about their inner workings because they ultimately entail a large amount of risk. This is largely due to a lack of regulation, which means these new investment opportunities can be riddled with fraud and false information.

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ICO’s VS. IPO’s

The similarities between an ICO (Initial Coin Offering) and the more traditional IPO (Initial Public Offering) are easy to recognize. An IPO is launched to raise capital for a centralized company similar to an ICO raising capital for a blockchain project.

Not to mention, an ICO may also reward interested investors with equity in the underlying company, similar to an IPO. However, it’s also important to recognize some major differences between the two:

IPO

  • The investor usually looking for returns from the profitability of the company
  • Sale of Equity or Debt
  • Usually limited to certain participants
  • Centralized Authority distributed and controls the structure of an ICO
  • Highly Regulated
  • Returns are less risky and less steep
ICO

  • The investor is more interested in the success of the actual project than simply profitability
  • Similar to a donation or crowdfunding than an actual Sale
  • Usually, anyone can participate
  • Decentralized issuance of tokens with flexibility of structure
  • Unregulated
  • Returns can be steep but highly risky

THE STRUCTURE OF AN ICO

Since ICO’s are lack any regulatory authority, they can be launched with varying structures.

This means that the number of tokens being distributed and the variance of price can differ from token to token. Here are the three most common structures for Initial Coin Offerings:

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