Sick of hearing about bitcoin? Well it’s unlikely to be any different next year, and ICOs, the latest cryptocurrency fad, will be impossible to escape too.
This year, Jamie Foxx, Paris Hilton and Floyd Mayweather all promoted “initial coin offerings”. Named to mimic initial public offerings, where firms raise money in exchange for shares, ICOs allow companies to swap tokens for cash. These tokens are forms of cryptocurrency secured using a blockchain, the technology behind bitcoin.
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What does a token get you? It varies. For Filecoin, a company that raised more than $250 million from an ICO earlier this year, the tokens let you trade hard drive space. If you have a few spare gigabytes on your home PC, you could lend them out to other people as cloud storage in exchange for Filecoin tokens.
People who buy tokens during an ICO are banking on their value increasing. Once the platform is up and running, demand for tokens will rise, so early investors can sell them at a profit – or so the theory goes. But if the company goes bust or never becomes popular, the tokens could rapidly lose their value. In this way, ICOs are the cryptocurrency world’s answer to crowdfunding. You could end up backing a killer product or a dud.
Regulators have no idea what to do about ICOs. China has banned them, but those elsewhere have largely been ignored. In the UK, for example, the Financial Conduct Authority has said ICOs are “very high-risk, speculative investments” and that people should be prepared to lose their money.
And there is a lot to lose: 2017 saw more than $3 billion raised by ICOs. It is clear there is an ICO bubble, but nobody knows when it will burst.
This article appeared in print under the headline “Bitcoin’s bubble set to burst”
