ICO, otherwise known as “initial coin offering” is when a new cryptocurrency is live for trading to the general public. It has been the popular source of startup money for new businesses and nearly a new Initial Coin Offering is announced every day! ICOs is essentially ownership or rights to a project but in a digital format.
So what is the difference between IPO and ICO?
An IPO is called an “Initial Public Offering” or a “stock market launch”, and is where shares of a company can be sold to the general public. It’s a very exciting moment for companies that do reach an IPO in that the company is ready for the next stage of growth. The purpose of an IPO is for the company to raise additional capital with the option to monetize their shares and become a publicly traded business. It’s an open market, and clearly defines that capitalism stands for, with intention of growing new enterprises every day.
The origination of an IPO started before the 1600s in during the Roman Republic. With the name “publicani”, they were representatives who owned shares and were allowed to distribute amongst the public called “over the counter trading”. There was plenty of evidence that showed an increase of values in assets, and that public heavily favored this type of business. Unfortunately, the “publicani” was eliminated during the fall of Rome.
Another case of the IPO was during the early modern period when the Dutch innovated their financial principles. The first IPO that was recorded was in 1602 where the “Dutch East India Company” initiated an order to sell shares to the general public. In recorded history, The Dutch East India Company were first to successfully issue bonds and shares of stocks to the general public. Although it was Rome that first invented the IPO, it was the Dutch who turned the concept into a fully capable business principle. For the United States, they had adopted this principle in 1783.
Here are the advantages of an IPO
The single most effective principle of an IPO is that it allows virtually anyone to be an investor. Whether a successful business magnate or purely a beginner – the pool is vastly open to anyone who’s interested in investing which provides capital to the business owners and can use those funds to repay debt or have more capital for further innovations and future change. Don’t forget to mention the amount of exposure the company gets when it goes public. Every news station, media outlet, and newspaper will want to cover this hot company and will provide immense exposure, which could lead to more prestige and well recognition.
Here are the disadvantages of an IPO
There are plenty of risks when it comes to an IPO, which is why many prospective companies choose to not go public. While it’s an amazing feeling to be featured in the press and receive a ton of media, you’d be surprised how many companies don’t want this attention. Here’s why:
Going public requires a lot of legal action, which is incredibly expensive
If the company isn’t fully well functioned – the media and public will catch on to these slippages and therefore may shy away from investing in an IPO
Going public is also a huge marketing effort, which requires additional costs to agencies, advertisers, and mainstream media. Some costs can be in the millions!
When a company decides to go public – new shareholders can be involved. Some shareholders may even own MORE shares than the original owners and have the power to dictate which direction the company will go
The first ever ICO was in 2013 with the company named Mastercoin. In 2014, Etherium had their ICO, and introduced the world of Blockchain technology, and “mining for eth”. Today, you almost see an ICO happening every day to the point where many scams and “pump and dump” schemes are introduced. Pump and Dumps, Ponzi Schemes, and other fake scams are littered all over the internet, and it’s best to be very wary to seriously look deep into your next ICO before pulling the trigger. Right now, scammers have made MILLIONS from false ICOs – and well-known crypto influencers are calling it out on the internet.
Here are some well-known ICOs scams where investors lost MILLIONS:
- Pump and Dump – One of the oldest tricks in the book – scammers today will obtain 1000s of social media handles promoting an ICO that simply does not exist, yet millions are easily influenced by these folks and are thus scammed.
- Promises too good to be true: Any ICO that offers investors 1 BTC sounds way too good to be true. If 1 BTC is $3700, imagine how many BTCs the founders would have to deliver to the foolish millions
- Phishing scams – Email is still a very popular channel to sell products, and now the Nigerian Prince is looking for someone to give BTC too. Don’t fall into these emails tricks!
Though it is an exciting time to invest in cryptocurrency, remember to always practice your best judgment before forking over your hard-earned money. We hope this tutorial has better equipped you with knowledge on faulty ICOs.