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Why Blockchain is a Better Alternative for Capital Generation?
Blockchain offers a better alternative to the traditional means of raising capital that can be accomplished on a highly secure platform.
FREMONT, CA: Raising capital is a crucial aspect of business where a company generates funds via debt and equity. While there are several reasons for raising capital, like funding the business or paying the shareholders, the means of fundraising can be challenging. The major challenge with the traditional means of raising capital is the need of a credit history data of the borrower. Producing a credit history can be difficult for new firms or the borrower with no credit history record in the past. However, Blockchain Technology addresses the above challenge and offers an alternative solution to the traditional means of bagging capital.
Essentially, blockchain is a distributed ledger system containing transaction records that are stored chronologically and are time-stamped. The records that are stored in real-time are immutable. Capital via blockchain can be generated via two primary methods: Security Token Offerings and Initial Coin Offerings.
ICO can be compared to the initial public offering (IPO), which is one of the traditional means of raising capital. Investors can obtain some units of a new cryptocurrency or crypto-token in exchange for the cryptocurrency such as Bitcoin or Ethereum. There is a significant difference between a crypto-token and a cryptocurrency in terms of their usage. While a cryptocurrency such as Ethereum, Bitcoin, or a Bitcoin Cash is independent of a platform, a crypto-token exclusively represents an asset or a utility that a company offers. Thus, crypto-tokens can be utilized as a virtual currency representing a utility or an asset enabling the organizations to generate funds.
On the other hand, STO can be compared to ICO, where an investor receives crypto-token that refers to investments. However, unlike ICO, a security token points to an investment contract into the investment asset such as stocks, funds, bonds, and real investment trusts (RETI). Thus, analogous to the conventional bonds, an investment via STO is supported by a real-world entity such as a company. However, investing through STO is more complicated than via ICO as there is immediate compliance work involved, which is also the case with the conventional bonds. Blockchain provides an alternative platform to businesses that are eyeing to raise capital. Moreover, the highly secure infrastructure of blockchain renders it more reliable than the real-world methods of capital generation.