Crowdfunding Currency without Borders

Crowdfunding is evolving with the use of blockchain. Initial Coin Offerings (ICOs) or token sales are growing in popularity. Almost $250m has been invested in ICOs. This year, Gnosis, one such ICO, got more than $12m, valuing it at about $300m.

ICO 'coins' are like digital coupons/tokens issued on an indelible distributed ledger/blockchain of Bitcoin fame. Therefore, they can easily be traded, although they don't confer ownership rights. Instead, they serve as the currency for the project they finance; to pay users for a correct prediction; or for the content users contribute. Investors hope that successful projects will cause ICO value to rise.

Today most issuers simply write a “smart contract” on Ethereum, a rival blockchain. This piece of code then automatically creates tokens when it receives “ether”, the coin of the Ethereum blockchain. 'Back to Earth' launched an ICO in April and wants to raise 750 bitcoin (almost $1m) by selling StarCredits. Investors who buy coins worth 0.75 bitcoin or more get a special “Golden Ticket”, entitling them to special content and, later on, free StarCredits.

In ICOs, why aren't funds raised in more conventional ways. As most ICOs have no link to any particular jurisdiction, they are very risky for investors. But the ICO market may be maturing. This month, Adel, an incubator for blockchain projects, will launch an ICO that supposedly complies with anti-money-laundering and KYC norms. ICOs are treated like currency without borders. Should they be classified as securities with the requisite regulations? Central Banks are still trying to get to grips with crypto-currencies and ICOs.


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