ICO (Initial Coin Offering) vs IPO (Initial Public Offering)

ICO vs IPO: An introduction

The modern securities market as the legacy financial market has been around for many decades. Securities regulation became a prime concern during the stock market crash of late 1920s. The word “securities” itself is a multi-coloured word, meaning shares, bonds, stocks, futures, debentures, or other financial instruments. In this article we explore some differences between ICO and IPO.

IPO and Markets

This market has been traditionally associated with Initial Public Offering (IPO). Initial Public Offering (IPO) is the first-time company securities offering and sale on a stock exchange, to members of the public who, by virtue of subscription, become investors. This is the mode through which companies raise equities in the public market. Alternative capital formation means, or other funding sources have been investment companies such as mutual funds, hedge funds and the likes, through which companies overtime, have been able to finance growth, without going public.

ICO and Fund Raising

In recent memory, these business funding means have significantly waned, and it has become long overdue, that the old gives way to the new. Enters the Initial Coin Offering (ICO) innovation in 2013, first with the launch of Mastercoin (now Omni), then Karmacoin, and the Ethereum ICOs leading the way. New securities and digital asset classes like coins and tokens, bitcoin futures contracts started to emerge. The global financial services industry will never be the same again.

In their short lifespan, ICOs have taken the global financial market by storm. In the fourth quarter of 2017 alone, ICOs generate 2.3billion dollar worth through virtual token and coin sales. Virtual organisations (mostly unregistered with regulators), startups, and even old companies launch digital coin sales based on the blockchain, a type of Distributed Ledger Technology (DLT). Among these, the Ethereum network ICO token ERC20, has taken the lead in the charge. Many ICO companies prefer the Ethereum ERC20 token.

ICO and Regulations

The major concern has been the regulation of this new Internet economy space. Since the advent of ICOs, value transfer over the Internet in a matter of seconds and minutes has become a virtual reality. In this both new and secure value transfer system over the Internet, the emerging financial derivatives being produced by cryptocurrencies like bitcoin, and other altcoins, are new digital asset classes which are too important to be ignored.

There are laws and robust regulations from various jurisdictions, to which legacy company securities are subject. But unlike the Initial Public Offering (IPO) before it, the Initial Coin Offering (ICO) has mostly posed a huge regulatory challenge. This has been due more to the fact that virtual organisations which mostly use this system are, by nature of the Internet, international organisations–both borderless and universal.

In some cases, old and ageing companies like Kodak, have launched an ICO and seen their stocks rise. Strategies like these, which undoubtedly have a good effect, need to be regulated.

Emerging Laws for ICO

For investor safety and protection, various countries continue to gear up effort, to ensure that the ICO space becomes sanitised with bespoke regulations, and the potential breathing space available to the nefarious actors in the space drastically reduced, or obliterated altogether. This, in and of itself, is an essential mainstreaming effort, which can only instil confidence in both institutional investors and individual participants having investment funds to finance the growth of the ICO space, and thus await credible investment returns.

In so short awhile, the ICO method has achieved a lot, and it is becoming clearer by the day, that IPO as the legacy system, might as well be on an exit course, exactly the way typewriters did when computers took the world by storm.