Startups are increasingly turning to cryptocurrencies to raise funds for expansion, with young technology companies raising a record $1.27 billion through Initial Coin Offerings in 2017.
Fintech start-ups have utilised the initial public offerings of the digital world to raise finance more than ever this year, a new report from Autonomous has found. Seen as the blockchain community’s version of crowdfunding, startups use cryptocoins like bitcoin and ether in return for cash.
ICOs mean that all investors are also supporters supporters of the project, making the investment more similar crowdfunding than a traditional stock market Initial Public Offering.
“The crypto economy is growing outside of traditional venues – this has happened before with video game gold farming and virtual economies, but not on such a global scale,” Autonomous said in the report.
“The culture of the early internet is directly connected to ICOs and investor personalities in the ecosystem.”
The research firm said that real-world adoption of ICOs, which it called “token launches”, was comparable to virtual currencies in video games, “where in-game gold has value only for internal use by players.”
In the report, Autonomous explained the process:
“Imagine there are plans to open a new casino, and for funding, the casino sells its own plastic chips before opening, in anticipation of customers using these chips and creating economic value.
“Further, the buyers start trading these chips based on the expected value of the casino, how well attended it will be, and whether other chip holders are trading,” it added.
The price of Bitcoin tanked over the weekend, with the total value of all publicly traded cryptocurrencies, including Bitcoin, Ethereum and Ripple, dropped by more than $10 billion since Friday.