Initial coin offerings have come out of nowhere in 2017 to become the talk of Silicon Valley and Wall Street. Programmers raised over $2 billion in the first nine months of the year by selling their own virtual currencies to investors. That is nearly 1,000 percent more than the amount raised using coin offerings in 2016.
What is an initial coin offering?
Coin offerings are a way for start-ups or online projects to raise money without selling stock or going to venture capitalists — essentially a new form of crowdfunding.
The programmers raise money by creating and selling their own virtual currency, generally with rules similar to well-known virtual currencies like Bitcoin. The new tokens are usually designed so that they can be used only on a computing service the programmers are building.
Filecoin, which raised $257 million in the largest coin offering to date, is being designed to pay for storage on a global cloud storage network that the creators of Filecoin are promising to build. BET, another coin, is being designed to serve as the chips in an online casino its programmers are promising to build.
“Promising to build” is the operative phrase here, because in almost every case the services that will supposedly make these coins valuable have not yet been finished.
What does this have to do with existing virtual currencies?
These coins are generally inspired by older virtual currency systems like Bitcoin or Ethereum, with a cap on the number of coins that will exist — to provide a sense of goldlike scarcity — and a structure that allows them to operate entirely outside the existing financial and regulatory ecosystem.
Investors generally buy the new coins by sending the programmers Bitcoin or Ether (the virtual currency inside the Ethereum network). What’s more, many of the coins are stored, moved around and enabled by other Ethereum technology.
But the coins sold in coin offerings are meant to exist independent of Bitcoin and Ethereum, with their own free-floating value.
Is there a relation to initial public offerings of shares in a company?
The name for coin offerings was clearly inspired by the initial public offerings that companies do to sell stock to investors. But unlike stock offerings, coin offerings are generally designed so that investors don’t get an ownership stake in the start-ups. If the coin does provide an ownership stake, the Securities and Exchange Commission has said, the companies must comply with all securities law. A few coins have done this, but most have tried to avoid it.
Investors can contribute as much or as little money as they want in these offerings, which are generally more like crowdfunding campaigns that new projects do on Kickstarter or Indiegogo.
Why would anyone pay for these coins?
Learn more: An Explanation of Initial Coin Offerings
The Latest on: Initial coin offerings
- Robinhood's Legal Department Is Busy: Takeaways From Meme Broker IPO Filingon July 2, 2021 at 12:42 pm
The company's S-1, filed Thursday, offered a peek into the issues its legal department has been tackling, and the CLO's hefty compensation package.
- How Bitcoin Is Edging Toward the Financial Mainstream: QuickTakeon July 2, 2021 at 4:31 am
Bitcoin and other cryptocurrencies have become a global obsession, inspiring their own counterculture and attracting millions of converts. Once seen as the province of nerds, libertarians and drug ...
- Bitcoin had a wildly volatile first half. Here are 5 of the biggest risks aheadon July 1, 2021 at 9:38 pm
Bitcoin closed out the first half of the year down almost 47% from its all-time high. And a number of looming risks could result in further pain ahead.
- Dogecoin whale? Robinhood IPO filing reveals dogecoin as one of its biggest risk factorson July 1, 2021 at 12:23 pm
Robinhood Markets has officially filed for an initial public offering that will be one of the more hotly anticipated of the coming months, but one of ...
- How China's Crypto Crackdown Could Change Bitcoin Miningon July 1, 2021 at 5:15 am
In 2013, the government banned Bitcoins as a way to purchase goods or services. In 2017, the nation outlawed initial coin offerings, the fundraising process for new coins. China appears to believe ...
- Survey Says 1% of Portuguese Population Had Crypto Investments in 2020on June 30, 2021 at 1:42 pm
The study – conducted before the Covid-19 pandemic stalled – noted that 1% of the surveyed had investments in cryptos or initial coin offerings in 2020.
- WhaleFarm Crash Is Latest Too-Good-To-Be True DeFi Collapseon June 30, 2021 at 10:34 am
On Monday, something called WhaleFarm was trading above $200 on crypto exchanges. By Wednesday, it was worth close to zero.
- Dramatic crash of a buzzy cryptocurrency raises eyebrowson June 28, 2021 at 10:11 pm
In early trading after the market debut, the total market value of the Internet Computer token, or ICP, was worth tens of billions of dollars, making it one of the 10 most valuable cryptocurrencies at ...
- 'Something went wrong': Expert breaks down the key reasons why VC-backed cryptocurrency Internet Computer plunged 95% in its first monthon June 28, 2021 at 10:39 am
Dfinity blamed 'day traders with alternative agendas and unethical crypto projects' for undermining its project.
- The Dramatic Crash of a Buzzy Cryptocurrency Raises Eyebrowson June 28, 2021 at 7:37 am
Just last month, the ICP crypto token, tied to a project backed by prestigious venture capitalists, was worth tens of billions of dollars. Then, its value collapsed.
via Google News and Bing News