Could BAT's tiny strings of code be the next Bitcoin? Will their value increase by 1000 per cent? Or will the founder of BAT take the money and scarper?

Risk-hungry players

Outlining big dreams for their blockchain technologies, hundreds of start-ups are crowdsourcing digital money from risk-hungry players, who are happy to pour Bitcoin and Ether (another electronic currency) into speculative, futuristic projects.

Tech developer Storj also released a swag of tokens via ICO in May; investors went ballistic and the company raked in $US30 million. The week before that, Gnosis tokens pulled in $US12.5 million.

"Whether or not the innovation around these proposed projects is actually any good remains to be seen," says one cryptocurrency trader, preferring to stay anonymous lest hackers target her Bitcoin stash.

"But everybody seems to be making stupid money at the moment, pumping and dumping these coins. All of this froth and the crazy activity of the last few months is just fuelled by FOMO [fear of missing out] and greed."

The controversial decentralised currency, Bitcoin, is back in the headlines this week after the price soared to a record high of $US2420 (about $3800 at the time) on May 24.


More than $US500 million has poured into ICOs and as a result the market capitalisation for the cryptocurrency ecosystem has ballooned out to $US80 billion.

Potential risks

While the idea of a high-risk, high-return investment makes sense for those hungry for the next big thing, the lack of structure, the relative novelty of the industry and the opaqueness of many ICOs are all contributing to an environment that has some unease over the potential risks.

"An ICO issues cryptotokens rather than stocks and bonds, but that's irrelevant to the substance of the activity, which is raising capital from the general public," Ajit Tripathi, a director in fintech at PwC said during the week.

"Capital raising activities need to be regulated to protect investors . . . The question is how sophisticated are these investors?"

Perhaps not very. One ICO called Matchpool gave investors a fright when the chief executive suddenly withdrew the 37,500 Ether ($8.9 million) raised without any explanation. And one crafty group is trading on the Rothschild name with "Rothschild Family LCF coins" purporting to streamline payments for Internet of Things devices.

"So many of these ICOs could be scams and so many founders can just sit on these tokens, do nothing and gain value," says another Bitcoin enthusiast, who has refrained from the speculation but is keeping an eye on interesting blockchain ideas.


"But the memory that Bitcoin was once worth 5¢ is powering people to want exposure to anything and everything."

Despite the "public ledger", Bitcoin is still the currency of choice for illegal activities the world over. The recent WannaCry ransomware that swept the world demanded payment in Bitcoin, while elaborate human trafficking, drug smuggling and child abuse rackets are known to transact only in the cryptocurrency.

Where are we heading?

The principles of cryptocurrency essentially lie in the concept of trust. At the moment, citizens have little choice but to trust the sovereign's money; the notion of a promissory note is still very much alive.

The invention of Bitcoin and the gaining popularity of decentralised, eternally public ledgers indicate a movement away from this centralised charge. The "proof of work" concept, where every participant uses software to verify the existence and history of any given asset, removes the need to rely on a government's promise.

Crypto currencies encompass two contradictory principles, for them to work they require, transparency, history, ledgers and electronic fingerprints. But they appeal to people who seek anonymity and work below the horizon of regulators and investment analysts.

Last year, programmers created the DAO, a Decentralised Autonomous Organisation, a corporation of sorts that would run on self-executing contracts. It raised $184 million and was programmed on the Ethereum network. The notion of a self-executing company with voting rights distributed to "employees" spread like wildfire, but the project was hacked and the creators forced to reprogram and ultimately split their network.


But that demand for the DAO is not too dissimilar to that for these ICOs – where hundreds of teams are trying to think up different ways this decentralised technology could empower and streamline existing needs: it shows a growing distrust of centralised institutions and instead a reliance on computing power and the masses.

Question of trust

But some argue, all of these programmed networks, designed to cut out the middleman, undermines the human need to trust each other.

"The value of market capitalism is not just that it allocates resources efficiently; it also creates a society in which we all rely on each other for our well-being," says Matt Levine, former investment banker at Goldman Sachs and now a columnist at Bloomberg View.

Using the example of food security, Mr Levine describes the trust between those that grow food, the invisible web of exchanges, debits and credits tracked by the bank, and the money used to pay for it.

"Over time, technology has improved all of these processes, but there has always been some residual need for trust that was not entirely susceptible to technological solution, some need for co-operation and belief in the system for that system to function."

But as the recent rally in the Bitcoin price shows, more and more people are intrigued by the notion of a decentralised system and could be signalling the future economy would be one where more people have access to wealth and credit, ushering in an era of entrepreneurship. But there is certainly more than just a small amount of risk.