What are ICOs?
Widely referred to as “token” sales, ICOs involve companies issuing digital coins in exchange for cryptocurrencies such as Bitcoin or Ether. In a similar (but crucially not identical) vein to the way in which a company will publish a prospectus prior to a float, token issuers will produce an online “whitepaper” business plan2 to promote the ICO. The tokens that are issued may represent a share in the firm, or an intangible right to a good or a service.
Until very recently, most token issuers were young companies hoping to fund a future project with the proceeds. However, other forms of ICO do exist. For example, social messaging company Kik (founded in 2009 and valued at more than US$1 billion) has offered investors the chance to purchase “Kin tokens”, which can be used to power future applications on its platform3.
ICOs are becoming increasingly popular, with over US$1.8 billion in cryptocurrency being raised in the first half of 2017, far outstripping the total figure for the entirety of 20164.