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In the late 1990s, when investors realized the promise of the internet, the stock of any company with dot.com after its name soared to dizzying heights. Now there are warnings of another technology investment bubble, this time related to the fascination with cryptocurrencies like Bitcoin. In this week’s Tech Tent podcast, we examine the phenomenon of ICOs (Initial Coin Offerings), which have raised over a billion dollars so far this year from investors getting little more than a token and a vague promise of participation in a new business.
The term ICO, designed to reflect the IPO that sees a company issue shares and float on a stock exchange, seems to have different meanings to different people. The first versions were simply ways to get a new cryptocurrency off the ground, but now many promise to use the blockchain technology that underpins Bitcoin and similar currencies to create businesses. Among the ICO projects listed by Smith + Crown, which investigates the cryptocurrency scene, is a business that raises money to create the world’s most lucrative blockchain-based lottery.
At Tech Tent, we spoke to an entrepreneur who is boldly venturing into uncharted territory with this new investing technique. Pavlo Tanasyuk is the founder of Spacebit, which aims to create what he calls “a distributed space agency with no strings of state or national sponsorship. Next month, he will invite investors to participate in this venture, which he describes as a crypto version of Elon Musk’s Space X. He will only accept payments in Bitcoin, Ethereum or other cryptocurrencies and in return, backers will get tokens and a role in deciding how the business is run.
But finance blogger Frances Coppola has likened ICOs to the 16th century tulip rush and other investment bubbles. The excitement for ICOs stems from the Bitcoin and Ethereum booms,” she says. She cautions that such schemes are not fully regulated and fears that many of those who invest in them simply will not understand what they are getting into. There will be scams in this; I would be surprised if the regulators didn’t realize this. Even Pavlo Tanasyuk acknowledges that there is great risk associated with this type of investment.
Ninety-five percent will not deliver, but we will. It is important to set an example. We are doing something real and we have a strong management team in place. When the dot-com bubble burst, it became clear that many investors hadn’t really understood what the companies they backed were doing or the nature of the technology challenges they faced. Today, the world of cryptocurrencies and blockchain seems even more impenetrable. Consider this description of a project, Neverdie, which has already raised over $ 2 million (£ 1.5 million) in an ICO
A virtual reality infrastructure platform linking virtual worlds with popular MMORPGs [massively multiplayer role-playing games online] on the Ethereum blockchain. No doubt those who have purchased the coins intended to fund this vision have read the white paper describing the project and the disclaimer at the end: “Neverdie Coins and Teleport Tokens do not represent ownership of any real world company. These tokens they are designed to activate virtual utilities.