What are ICOs? How are they related to IPOs?

Initial Coin Offerings (ICOs) have gained a lot of momentum in the last couple of years and have succeeded in helping many projects in their development. So what exactly are ICOs?

ICOs are similar to Initial Public Offerings (IPOs) in which a company sells some of its shares in order to collect funds for expanding the business. However, there are certain differences between an IPO and an ICO the most basic of them being that ICOs are funded through cryptocurrencies and the crypto token is sold early in order to raise funds for project development.

Moreover, IPOs need to have legal clearance as well as fulfill requirements made by the authorities and a prospectus. The IPO must also have a certain level of transparency and must include all information that concerns investors in its prospectus. ICOs do not have such restrictions but have a document called a white paper. The white paper is prepared by the developers to outline key information about the project and its applications as well as how it works.

IPOs need to fulfill a list of pre-requisites that requires them to give lots of data regarding the company and about the project. ICOs are not restricted to any such regulations, though this also means that their security/reliability is also questionable, therefore.

IPOs are usually dominated by institutional investors, and only a limited number of shares are sold to individual investors. On the other hand, anyone can participate in ICO I fact all they need to do is use their Bitcoin of Ether to convert into the ICO token.

This points to the fact that although investing in an ICO is very easy compared to an IPO, the security it provides is questionable and the trust people put in these ICOs have been breached multiple times. There have been many ICO scams in 2018 alone so before investing we need to do a backup check on these ICOs.