There are few dinner tables in the world that haven’t yet been abuzz with conversation of cryptocurrency. Beyond the buzz, this new world of blockchain is empowering entrepreneurs with ground-breaking new means of raising capital.
By now, most of us have heard of an Initial Coin Offering (ICO) and its appeal to SMEs all over the world. Although ICOs are still a relatively new mechanism, and we are yet to discover all the associated benefits and dangers, one cannot deny that the phenomenon both grabs and demands attention.
An ICO is an abundant tool that can be custom crafted by almost anyone who is ready to commit the time and effort to create their own; and therein lies its power. People can choose either to exploit it or to develop it into something incredibly beneficial.
At this early stage, China and South Korea have decided to ban ICOs, seemingly confirming the perception that ICOs are a threat to our current payment system. An ICO is powerful because it can get out of control.
On a positive note, however, it gives us freedom of creative expression and freedom to raise funds without the requirement of offering company shares to the public, as in the case of the Initial Public Offering (IPO) mechanism. ICOs have become the reality of our progressive 21st century, and a valuable alternative for hundreds of startups worldwide.
It is worth mentioning at this point that in 2017 over USD $600m in startup capital was raised through ICOs; a clear indication that there are plenty of people willing to invest in new projects through alternative financing methods.
Some investors, however, still do prefer to invest in IPOs, despite the fact that setting up an IPO is somewhat time-consuming. This, of course, is fine; because everyone is free to choose whatever works best for their business needs.
As mentioned, one of the key ICO benefits when compared to an IPO offering is the fact that companies raising capital through an ICO do not have to share any equity with the public. As a result, they remain private.
Whether you are deciding between ICO or IPO, it is worth mentioning that both an IPO and an ICO (given that they are legitimate) are equally risky from an investment point of view. Yet, if we as a human species were not willing to risk the unusual, we would have probably been extinct by now. Humans are naturally a curious species, and their desire to explore the unknown is deep-rooted.
The distinction between ICO and IPO is essential for our subject knowledge, but so is the understanding of blockchain. ICOs wouldn’t exist were it not for blockchain technology. The blockchain is a game-changer for many businesses and industries, including my business. By utilising the established Ethereum blockchain and smart contract infrastructure, we were able to create our Ethereum sub-token. Blockchain allows companies to create tokens which can be converted into custom crafted cryptocurrencies, which in turn can be made available and tradable through specialised crypto exchanges. This offers a means for earning a profit to both the seller and the buyer.