New Digital Economy: From IPOs to ICOs

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When companies needed support to start their business, it was common for them to launch shares on the stock exchange, the so-called IPOs, becoming publicly traded companies that obtained the necessary amount to carry out their operations through joint stock companies with investors.

However, with the technological revolution and the dynamics of the world, new business models began to emerge and, consequently, the way of seeking capital for their businesses also changed.

The new digital economy, which startups and new decentralized monetary systems such as Bitcoin are part of, also brought a new way to capitalize on businesses: ICOs. But what are the differences between the two anyway?

What are IPOs?

Called Initial Public Offerings, IPOs are the shares that a company launches on the stock exchange to become publicly traded. IPOs make the investor a partner of the company, subject to the imposed regulations, which are the responsibility of a federal authority that oversees the capital market.

In the context of IPOs, investment banks are also inserted, which are responsible for showing the prospectus, a standardized document required by the federal authority that brings relevant information to help the potential investor to make his decision.

The prospectus contains the fund’s investment policies, investor rights and responsibilities, the company’s financial situation and possible risks involved.

What are ICOs?

Unlike IPOs, ICOs (Initial Coin Offering) are tokens sold so that startups and project developers can have the necessary capital to start their business. They are usually purchased through Bitcoin or Ethereum payments.

It is worth mentioning that these tokens are not yet a new cryptocurrency, being used, at first, for exchanges within the system of the company to which they belong.

As they are the symbol of a contract entered into with the company, their value does not depend on dynamic market exchange rate fluctuation criteria such as mining rate and speculation. Furthermore, they do not have their own blockchain network, so they work on top of an existing blockchain.

Another relevant point about ICOs is the fact that there is no bureaucracy, as with IPOs. There are no regulatory bodies, there are no limits on the assets that can be offered and the information exchanged about the company is the sole responsibility of those involved in the negotiation.

ICOs and IPOs are a portrait of the great contrast between the traditional economy in which people lived for a long time and the new digital economy, which arrives by breaking barriers and making raising capital for new companies something less bureaucratic and more advantageous for those who invest.

Although they may present more risks than investing in an IPO, investments in ICOs are processes that do not involve third parties and work in a way that grants more freedom to the participants in the negotiations.

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