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.