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When companies needed support to start their business they commonly would launch stocks, that were called IPOs, becoming publicly-traded companies that could earn the capital needed to start operating through Société Anonyme (S.A.) with the investors.
However, with the technological revolution and the dynamicity of the world, new business models started to appear and, consequently, the way of seeking capital for the companies has also changed. The new digital economy, that embraces startups and new decentralized monetary systems like Bitcoin, also brought a new way of capitalizing businesses: the ICOs.
But what are the differences between them?
What are IPOs?
Called Initial Public Offerings, the IPOs are stocks that companies sell in a stock market to become a publicly-traded company. The IPOs turn the investors into partners of the company, who are submitted to the statutory regulations determined by governmental monetary authorities.
In the context of IPOs are also the investment banks, who work as financial intermediaries for companies launching their IPOs. The investment banks are responsible for releasing a prospectus which is a document that describes the investment politics, the rights and responsibilities of the investors, the financial situation of the company, all the risks involved and etc.
What are ICOs
Differently from the IPOs, the ICOs (Initial Coin Offering) are tokens commercialized for startups and project developers in order to obtain the capital needed to start their business. They usually are acquired through payments in Bitcoin or Ethereum. It’s worth emphasizing that these tokens are not a new cryptocurrency, being used, in the first place, for trades inside the system of the company they belong to. Because they are a symbol of a contract signed with the company, their value doesn’t depend on the dynamic criteria of the crypto market’s exchange, such as the mining taxes and the speculation. Besides, they don’t have their own blockchain network, therefore they work over an already existent blockchain.
Another relevant point about the ICOs is the fact that they don’t have bureaucracy, unlike the IPOs. With the ICOs there are no regulatory authorities, no limits of assets that can be offered and the information shared about the business is from the responsibility of those involved in the trade.
The ICOs and IPOs are a portrait of the great contrast existent between the traditional economy, in which we lived for a long time and the new digital economy that comes breaking boundaries and turning the earning of capital for new business something less bureaucratic and more advantageous for the investors. Even though they present more risks than investing in IPOs, investments in ICOs are processes that don’t involve third parties and work in a way to offer more freedom to the participants of the negotiations.
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