The Rise of 'Initial Coin Offerings'

Digital tech start-ups focusing on making and selling their own currencies, similar to bitcoin, have created a new trend of so-called initial coin offerings. As these companies sell their currencies, they make an effort to go around the regulations put in place by the government and also to bypass the intermediary process of going through banks or venture capital firms. What is behind this new trend, and where might it lead? (See also: The Top 5 Investors Investing in Bitcoin.)

In a recent profile of the initial coin offering trend by Reuters, Joe Zhou of online gaming company FirstBlood describes how his company sold enough gaming currency tokens to match its $5.5 million fundraising goal in under one minute. The tokens are used by players on the platform for a variety of gaming uses, and FirstBlood sees the token system as beneficial because it gives those gamers total control over their online finances as well as added encryption control and protection.

In the case of FirstBlood and many other similar companies with initial coin offerings, the transactions are recorded with blockchain, which first became prominent in the ledger process for bitcoin sales. A growing number of companies in a variety of sectors have incorporated blockchain technology into their business practices.

Detractors of the process of initial coin offerings suggest that these events cause huge degrees of volatility in currency prices. Preston Byrne, the COO of Monax Industries, which has created a platform for similar transactions, suggests that these are "internet tokens that have no value, no legal meaning and represent no asset." Others say the sale of these tokens could be considered a securities sale and would thus be governed by restrictions set by the SEC.

Sellers of digital currencies are afforded many benefits. In selling currencies or tokens of their own creation, these digital tech firms are able to raise cash for their own continued growth and development, and they are not bound by the traditional requirements of paperwork and documentation that would be necessary for a sale of public securities. The companies have a great deal more freedom and flexibility, and many see that as a draw, at least on the selling side.

On the other hand, though, market experts and some financial tech lawyers are concerned about the lack of regulation that is in place in these transactions. There are detractors that even suspect that selling digital currencies and tokens in such a way may be illegal.