Initial coin offerings – or ICOs – have become enormously popular with investors.
They have raised more than $2.3 billion so far in 2017 and one recent ICO raised $35 million in under 30 seconds!
But they are proving unpopular with governments around the world.
This is all part and parcel of the rise in cryptocurrencies in recent years.
Bitcoin is the most famous, as the original and still dominant iteration. It was created as a form of digital cash, with a unique property: it is not backed by any bank or government. And it was specifically designed not to be centralised
Bitcoin is the most famous, as the original and still dominant iteration. It was created as a form of digital cash, with a unique property: it is not backed by any bank or government. And it was specifically designed not to be centralised
For this reason it has always had a certain lawless aspect to it and has become the currency of online digital crime. But it is also having a real moment – one bitcoin is currently worth more than $8,000(as at 21 Nov 2017).
Within the cryptocurrency space ICOs have become the favoured way to raise funds in a manner akin to venture capital funding – but without any of the oversight normally found in that process.
Within the cryptocurrency space ICOs have become the favoured way to raise funds in a manner akin to venture capital funding – but without any of the oversight normally found in that process.
ICOs are typically built on the technology of another cryptocurrency called Ethereum.
Ethereum was designed as a “world computer” rather than simply a form of money.
Like Bitcoin, Ethereum is a decentralised payment network with its own cryptocurrency (technically called Ether) that allows anonymous transactions to be sent across the internet without the need for a bank or other middleman. Instead, transactions are stored on the blockchain, a decentralised ledger.
Ethereum was designed as a “world computer” rather than simply a form of money.
Like Bitcoin, Ethereum is a decentralised payment network with its own cryptocurrency (technically called Ether) that allows anonymous transactions to be sent across the internet without the need for a bank or other middleman. Instead, transactions are stored on the blockchain, a decentralised ledger.
Where it differs from Bitcoin is that, as well as allowing currency to run on its network, Ethereum can run all sorts of things including “smart contracts”, which are a form of digital contract that executes automatically once a certain set of conditions is met.
ICOs are built on these contracts. An ICO involves creating a marketable token (or coin) that can be purchased with existing cryptocurrencies (such as Bitcoin or Ether).
ICOs are built on these contracts. An ICO involves creating a marketable token (or coin) that can be purchased with existing cryptocurrencies (such as Bitcoin or Ether).
The investor effectively purchases digital tokens that can be used within a specified ecosystem. Investors could also decide to hold onto their coins, speculating that the business will be successful, which will increase the demand for the coins and their market value.
What often attracts investors is the speculative value of tokens on cryptocurrency exchanges, rather than the originally intended use.
What often attracts investors is the speculative value of tokens on cryptocurrency exchanges, rather than the originally intended use.
Since ICOs are completely unregulated, investors have no recourse should the project not deliver or simply disappear. Some ICOs do not allow citizens from certain countries, specifically the United States, to participate, in order to avoid coming under the radar of law enforcement agencies.
They are also subject to the volatility that blights cryptocurrencies in general. All cryptocurrencies and tokens are tethered to the price of Bitcoin, the coin that acts as the crypto-economy’s reserve currency.
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