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ICO stands for “Initial Coin Offering” and it is a means of raising capital through a crowdfunding campaign with the use of crypto-assets as investment. A digital asset, the coin or the token, is issued for a purpose and are sold to raise money for the said purpose.
After the ICO process is done, the coins are traded on crypto-exchanges and market supply and demand decides on their fair pricing.
The first generation of digital assets were crypto-coins like Bitcoin, Litecoin etc. Coins have been used as a digital medium of doing transactions in an elegant encrypted way. The next generation of digital assets is the tokens, which cover a broader purpose of use. However, it’s hard to differentiate between these terms as they are broadly used in an interchangeable manner.
The IPO refers to the “Initial Public Offering”, the very first sales of stock issued by a company to the public where a company sells at least part of their shares to the public to be traded on a stock exchange.
IPO’s are mainly used (not exclusively) to publicly offer a company’s equity in the form of shares, whereas ITO’s can be utilized to offer multi-purpose products, which are not limited to shares. These new products are represented through tokens or the digital assets in general.
For every ITO the token has to be classified and a decision pertaining to its regulatory status has to be made. Several fields of law such as financial market law, anti-money laundering regulations, civil law (with respect to the prospectus) and tax law have to be considered. Whereas some tokens merely give the investor the right to access a platform or utilize a digital ecosystem, most tokens are financial products and are thus covered by regulatory law. Depending on each jurisdiction, the sale and offer of these tokens might require a license and/or a prospectus. Furthermore, listing such a token on an exchange for the secondary market is also a regulated activity in most jurisdictions.