ICO (Initial Coin Offering, translated as “initial placement of coins”) got its name after the IPO (Initial Public Offering – “initial public offering of shares”). ICO and IPO are similar. For investors, both models are promising for today. Where is better to invest in terms of profitability and security? There is no unequivocal answer, but the investor himself can make the decision, having understood the features and differences of ICO and IPO.
ICO involves raising funds through internal cryptocurrencies – tokens. The organizer ICO sells tokens to investors, and spends the money on the implementation of their ideas and development of the project.
IPOs are carried out by companies that need money, for example, to improve the product, to expand the network, and so on. In the process of IPO, the company puts shares on the market. Investors who see the prospects for its further development are buying shares, and their money is being spent on the above mentioned goals.
Shares bring investors profit firstly, in the form of dividends, and secondly, due to an increase in their price, if the yield and other indicators of the company increase.
The profitability of successful ICOs is impressive. Spectrecoin tokens for 14 months increased by 325717%. For more than two years, the price of NEO tokens has risen by 397510%. Ethereum showed an increase of 320560% since the ICO campaign.
These are not the only examples of ICO that have shown super-profitability of hundreds of thousands of percent. Even less well-known cryptocurrencies now and then bring Ark’s super-profit a little more than a year up by almost 55,000%, and the Neblio and Populous currencies for 7-10 months brought investors more than 14,000% profit.
Shares of traditional companies have not dreamed of such indicators. Successful for investors are IPOs, which bring 20-40% per year. Very successful can bring 60% and even 70%, but not 100000% or even 1000%.
Such astronomical numbers can not have no reverse side, and it is safe. IPO by this criterion is much more reliable than its cryptocurrency counterpart due to several features
In the case of ICO, the investor does not know what he is investing in. He sees only promising words, promises or product procurement. An IPO company usually has not just a finished product, but a product that is valued and in many cases recognizable. For example, IPOs were conducted by companies such as Ferrari or Dropbox.
This affects the stability of tokens and stocks on the market. When the product already exists, and the company is going to improve it or expand the network, its value either does not change or changes in proportion to the improvements.
The share price varies depending on how innovations are accepted by the market, but is generally based on the value of the product and the company and is relatively stable.
When a product is absent, fluctuations in the price of a token are affected by anything insignificant news, the developer’s careless word, his disappearance even for a week due to illness. The price of a token can fall unpredictably.
If a crypto market does not recognize tokens and their price drops immediately after an ICO, the maximum that an investor can do is sell them before the price drops to zero. The chances of selling the falling tokens are about the same as the chances of selling the shares, the rate of which collapsed and clearly foretells the collapse of the company, are extremely low. Return investor investment with 99 percent probability can not. Firstly, because the law does not have the relevant items. Secondly, because it is much more difficult to find an ICO organizer than the owners of an officially registered company.
If the company, which is a public joint-stock company, goes bankrupt, shareholders will be entitled to its assets and will be able to try to sue them. True, not always successful, but the law provides for this opportunity.
There are restrictions on investment spending in the case of an IPO. They should be aimed at developing the company. The purchase by the owner of the company for this money of a private mansion will be considered a waste – a criminal offense. In the case of ICO there are no such restrictions.
This is about the same official registration, which in the case of an ICO is at least desirable and makes the project more attractive, but not necessary. An IPO company must, of course, have a registration, license, and so on.
The organizer of the ICO may be a non-existent person from a legal point of view (passport scans are easier to fake than a valid passport, and often there are no document scans at all).
The owners of companies conducting IPO, of course, can also impersonate another, but, firstly, they have fewer opportunities, and secondly, this is punishable – unlike reporting inaccurate data during an ICO.
The money transfer in the IRO process is carried out with the participation of legitimate financial structures that can provide law enforcement agencies with access to accounts, freeze them, and so on.
A common investor ICO is more suitable because investing in it is easier. To invest in shares you need to have serious intentions and solid capital.
The most curious thing is that these 10 and 100 dollars can bring more profit than IPO. Moreover, it can happen faster than the IRO investor in general will receive any tangible profit.
The catch is that, before there is a token with a thousand percent profit, you can burn more than once, not two, or even ten. The crypto market is only developing, there is almost no independent analytics, and therefore the investor will have to independently evaluate the project ICO.
If an investor does not understand cryptocurrencies, can not find out about the organizers, then he may never invest successfully. On the other hand, mindless investments in stocks lead to the same results. A good analyst, even an amateur who is able to choose a good IPO, will surely be able to choose good ICOs.
However, not the fact that in the near future the situation will not change. Already, there are rating agencies rating ICO (for example, ICO Rating). So far, the principle of their assessment is superficial, although much he borrowed from the work of analytical agencies evaluating the IPO, and seems promising.
The demand for ICO with a high probability will lead to the fact that agencies will expand and deepen methods, assessments will be more accurate and at a minimum will allow weed out fraudulent projects, and will really orient a potential investor.
There is a practice of using wallets based on the principle of Multi Sig to protect the ICO funds of investors. They have not one private key, as usual, but three.
In the case of ICO, one key is kept by the investor, the second by the ICO organizer, and the third by the trustee, ideally a lawyer. Two keys are required to open a wallet. When developers need money for a project, a lawyer provides an opportunity to take the necessary amount from the wallet.
If the organizer of the ICO did not provide a report on expenses, the lawyer does not give him access to the wallet, and in the event of a project failure or obvious fraud, the money is returned to the investor again with the help of a lawyer. It is likely that this practice will spread everywhere.
Since cryptocurrencies are gradually recognized it is obvious that over time, bills will be drafted to regulate the ICO. They certainly will include a mandatory license, and official registration, and much more that will protect investors’ investments.
So far, investors, if they wish to invest in ICO, have to rely on their common sense. For those whom reliability is more important than high profits, invest in the old fashioned way – in IPO.