Initial coin offerings (ICOs) are polarising the business world at the moment, but one Australian company has made hay while the sun shines, raising 21,000 Bitcoins worth of capital.
Blockchain security startup HCash, which is developing its technology in conjunction with Melbourne’s Monash University, has revealed to Business Insider that the round closed on July 15. Based on that day’s exchange rate, the 21,000 Bitcoins were worth $53 million.
ICOs are a method of raising funds where a startup sells electronic tokens or “coins” to buyers that are betting that the business will do well in the future, thereby raising the value of the token. Unlike traditional venture capital, no equity is distributed to the token buyers, thereby getting around securities regulations.
Currently HCash’s electronic tokens in circulation are worth $33.7 million in total.
With cryptocurrencies like Bitcoin and Ethereum being born out of ICOs and booming this year, the practice has gained glamour among those looking for a quick investment into a high-growth startup. Celebrities like Paris Hilton and Floyd Mayweather have even publicly endorsed ICO issuers on social media, which has earned the wrath of the US corporate regulator.
Many finance experts have deemed the practice dangerous as there is insufficient regulation to ensure the authenticity of ICO issuers and whether the buyers can be potentially misled about the potential of the startup. Anyone, including inexperienced investors, can buy tokens in an ICO.
Jordan Belfort, the banker dubbed The Wolf of Wall Street, called the digital coin craze the “biggest scam ever”, while Forexlive agreed with the Chinese government’s shutting down of the practice this year.
“You just invent a token with no underlying assets that also conveys no ownership interest and sell it to suckers,” Forexlive’s Adam Button wrote.
“Traditionally the reason this didn’t work is that people didn’t buy that kind of thing. If you wanted to get real money, you need to go through all the hassle of listing stocks on an exchange. Now the cryptocurrency boom will let you raise millions of dollars by selling non-ownership in a yet-to-be-executed idea.”
HCash says it’s fair dinkum
HCash, which went through Blockchain Global’s accelerator program, launched its coin offering on June 28, 2017.
“As of today, the market cap is roughly $330 million, give or take,” HCash business development manager Andrew Wasylewicz told Business Insider.
This compares to Perth energy trade tech company Power Ledger’s $34 million ICO, which made headlines last month.
Although Chinese companies are prohibited from executing ICOs, the majority of HCash’s investors come from that country, which chief executive Dallas Brooks attributed to a tech-savvy, cashed-up population.
As for what it actually does, HCash is developing technology to facilitate transfer of data between different types of blockchains. The company says this capability will become essential as quantum computing gets closer to being able to unravel the security algorithms behind blockchains – a milestone estimated to reach the world within the next 10 years.
“The great thing about HCash is that it’s preparing for the inevitable,” Brooks told Business Insider.
“Cryptography and the security there needs to be addressed now… so that when we do get to the future, we’re ready for it. Conceptually there are cryptocurrencies that are operating at the moment that are going to struggle when the ability to hack is increased enormously.”
Along with Monash University, the company is developing its technology with an advisory board full of specialist academics around the world.
Monash academic and advisory board member Dr Joseph Liu said there are three ways HCash’s technology would help the existing blockchain world.
“First, it connects the traditional blockchain and the new structure called DAG — Direct Acyclic Graph — seamlessly so that it can support a large number of users while shorten the transaction time significantly. Second, it is post-quantum secure. That is, even in the existence of the future powerful quantum computer — which can easily break the current security algorithms such as RSA — HCash is still secure. Third, it is a true anonymous system. It deploys cryptographical techniques to protect the privacy of users.”
Wasylewicz declined to specify when the company was aiming to have its technology commercially ready, citing the need to have a fool-proof product over speed to market.
“There’s been a paper just published, in relation to the work that the universities we’ve partnered with. We’re still doing some tweaks to that, and once we’re satisfied that it can be launched we’ll implement on our blockchain,” he said.
“It’s really about getting the best product and the right product, not the quickest product… We’d rather get it right in six months than just have it out tomorrow for the sake of having it out.”
Brooks, who also hosts a financial show on Melbourne community television Channel 31, is so bullish on the prospects of HCash that he marks the ICO as a lifetime milestone.
“Isn’t it amazing that an Australian company has been able to bring together people from all points of the world to do something that’s going to touch the world? Other than getting married, this is the most exciting thing that I’ve ever done.”