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
- Tezos Foundation settles lawsuit with investors for $25Mon March 22, 2020 at 7:47 pm
The Tezos Foundation, the group behind the troubled $233 million initial coin offering of Tezos tokens in 2017, has agreed to settle a lawsuit filed by investors for $25 million. The lawsuit alleged ...
- SEC Seeks Early Judgement in Lawsuit Over Kik’s $100M ICOon March 21, 2020 at 9:27 am
The United States Securities and Exchange Commission (SEC) has requested an early summary judgment in its lawsuit against Kik over the messaging company’s $100 million KIN initial coin offering (ICO) ...
- Plaintiffs in Tezos ICO Class Action Reach Ground-Breaking $25M Settlement Dealon March 20, 2020 at 8:43 pm
In what appears to be a first-of-its-kind settlement, the Tezos Foundation has agreed to pay $25 million to settle claims brought on behalf of investors who claimed that the blockbuster initial coin ...
- SEC Seeks Quick Win In Kik $100M Unregistered ICO Suiton March 20, 2020 at 6:34 pm
Law360 (March 20, 2020, 9:29 PM EDT) -- The U.S. Securities and Exchange Commission urged a New York federal court on Friday to grant it a quick win in a case accusing Kik Interactive Inc. of ...
- SEC Sues Former Wash. Legislator Over Crypto Fraudon March 20, 2020 at 6:10 pm
The SEC claims Meta 1 told investors that an initial coin offering was in the works, and coins that sold for $22.22 or $44.44 would generate nearly $50,000 in profits each. The funds themselves were ...
- Former Washington Senator Schmidt Caught up in ICO Scamon March 20, 2020 at 3:02 pm
The Meta 1 Coin case comes nearly three weeks after action film star Steven Seagal was fined for unlawfully touting cryptocurrencies and acting as the brand ambassador for a controversial initial coin ...
- How crypto companies respond to market correctionson March 17, 2020 at 9:02 am
The cryptocurrency bull market in 2017 demonstrated how much comapnies, who raised millions in Initial Coin Offerings (ICOs), could suffer as their capital depleted alongside a market correction Last ...
- InTheKnow: Zombie crypto coinson March 15, 2020 at 11:42 pm
Some of these are held by venture capitalists and hedge funds, many of which invested at the height of the initial coin offering boom of 2017 and 2018 — and may be actively propping up prices. “There ...
- Google will ban all cryptocurrency-related advertisingon March 13, 2020 at 5:00 pm
The company will no longer allow ads about cryptocurrency-related content, including initial coin offerings (ICOs), wallets, and trading advice across any of its ad platforms. The move follows a ...
- France: AMF Publishes Legal Analysis on Security Tokens, Proposes a Path for European Utilizationon March 12, 2020 at 8:43 am
France is already known for its initial coin offering (ICO) friendly ecosystem where utility tokens (not securities) may be issued and traded in a compliant environment. The AMF said it examined ...
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