Initial Coin Offerings (ICOs) are the primary way in which blockchain-based startups raise funds for their company. The impressive growth of cryptocurrencies and their underlying technology, blockchain, over the last few years has made ICOs a more common occurrence. The Summer of 2017 saw an absolute feeding frenzy over ICOs and the press about these crazy events raising millions of dollars in just seconds were extreme, both on the positive and negative ends of the spectrum.

Initial Public Offerings (IPOs), on the other hand, are the incumbent form of offering shares out to the masses, and have been a core part of the business world in the United States since 1783. They offer shares of a company to institutional investors who then pass it on to individual investors.

So what’s the difference?

Despite sharing letters, ICOs and IPOs are very different for several reasons.

Firstly, the primary thing that separates ICOs and IPOs is when they are carried out. ICOs are, generally speaking carried out at the beginning of a company’s life cycle, while IPOs are carried out once the company is very stable and successful. In the same vein, ICOs are primarily a means of funding the venture, raising as much money as they can before launching the product or service they are creating. IPOs, rather, are employed for a few reasons. They can offer an easy way to raise new capital, they can offer liquidity for company founders or private equity investors, or they can enable trading of the company’s existing holdings or future capital raising by being publicly traded.

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As easy way of thinking of this distinction is that ICOs are essentially crowdfunding for blockchain enterprises, while IPOs are how private companies make their stakes more liquid and cash in on their investment.

How are they similar?

From a consumer perspective, ICOs and IPOs actually aren’t that different. Both are offering you stake in the company (although it gets a little more complex with ICOs) in exchange for an appropriate portion of whatever value they are putting on the company. From there, you are free to trade the cryptocurrency or stock for others or cash out on your investment.

When looking at both as an investment opportunity, ICOs are inherently higher risk, as the company you are buying stake in is not a successful company yet. In this way, ICO investing is similar to venture funding. It’s more of a bet on the idea and the team behind it than it is a bet on the company’s continued success, which is how investing in IPOs would be described.

Which is better?

For companies undertaking one of these processes, one is clearly better than the other based on the state of their company. However for you, the investor, it’s not necessarily clear which one is better.

The advantages of investing in ICOs are numerous. First and foremost, just like venture capital in non-blockchain enterprises, ICOs offer you access to the ground floor of companies that have the potential to revolutionize entire industries, if not the entire world. That directly equates to higher return on investment when things go right. Additionally, because of the volatility and frequent uniformity of the cryptocurrency market, if cryptocurrency and blockchain as a whole are on the rise, people will be on the lookout for all sorts of cryptocurrencies, which will cause tokens purchased in ICO events to spike solely due to natural blockchain-related hype.

“Had you asked me five years ago, I would just say it was impossible. Bitcoin and cryptocurrencies solved this problem > of coming to a consensus globally where you don’t trust anybody else”

– Richard Brown, Executive Architect, IBM

On the other hand, companies undertaking ICOs are not guaranteed to be successful. Time and time again we’ve seen promising companies raise millions of dollars through ICOs and end up not turning out as the investors had hoped. With IPOs, this is guaranteed to not be the case, since you are buying into an already very successful company. Instead, IPOs promise long-term steady growth as the company continues to establish itself as an industry leader. Additionally, stocks purchased at an IPO tend to be much more liquid than cryptocurrency purchased at an ICO, since other investors will be much more willing to trade for a known entity than a fledgling company tied to a technology that has only partially become mainstream.

As a final and very important note, if you are looking for the highest returns on your investment and don’t want to miss out on the next Bitcoin, ICOs are the way to go, but only if you have external tools that analyze trends and offer insights that lead you to the decision that will make you the most money. These tools take the guesswork and lottery-like feeling out of investing in cryptocurrencies, and instead offer you the same incredible returns with significantly minimized risk.

RoninAi is one such tool that uses artificial intelligence, machine learning, and an experienced team with years of experience in crypto to offer the go-to crypto trading tool for everyone from the most experienced investor to the beginner looking to get in this exciting space for the first time.

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