Summary of An Explanation of Initial Coin Offerings

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An Explanation of Initial Coin Offerings summary
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A growing number of tech start-ups are attracting capital through initial coin offerings (ICOs), a crowdfunding arrangement in which companies issue their own digital money to fund projects under development. In this incisive and highly accessible article, financial journalist Nathaniel Popper explains the ICO process and identifies the risks people take in making these idiosyncratic investments. While never giving investment advice, getAbstract nonetheless recommends this worthwhile read to entrepreneurs, investors and anyone interested in how ICOs work.

In this summary, you will learn

  • What initial coin offerings (ICOs) are, and how they work,
  • Why some companies may prefer ICOs to traditional financing methods, and
  • What potential risks this new funding resource creates.
 

About the Author

Nathaniel Popper writes about finance and technology for The New York Times.

 

Summary

Initial coin offerings (ICOs) allow fledgling tech companies to raise capital without selling stock or relying on venture capitalists. This form of crowdfunding raised more than $3.2 billion in the first 10 months of 2017. The start-ups create and sell unique currencies, which purchasers can only use to access future products or services. For example, one firm raised $257 million in 2017 to build a “global cloud storage network.” Another company is issuing coins that will serve as chips in a planned online casino. Following the initial offering, the currencies trade on third-party exchanges, just as IPO shares do in stock markets. Many investors purchase the coins speculating that their prices will rise. One such currency shot up 42,000% in little more than one year.  


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