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The advent of virtual currencies has changed how startups not only raise funds but also their revenue models. Mainstream brands such as Kik and Telegram have for instance embraced an alternative model which was not in existence at the time of their launch. To do this firms issue crypto tokens allowing them to be utilized on platforms. Once users find value they will buy the tokens that are required in order to interact with that particular platform.

With crypto tokens being limited in number, demand and supply forces determine the token’s value either pushing it upwards or downwards. The tokens that are held by the firm in reserve also rise and fall as well. This has resulted in sales revenue being replaced by asset appreciation. Proceeds from the initial coin offering are for instance use to cover the payroll in the early years. The practice has however not been limited to new firms.

Better products

According to the co-founder and chief executive officer of TokenSoft Inc, a token sale management firm, Mason Borda, the trend is not going away any time soon. Additionally the model will push firms into developing better applications and products.

“The more ethically pure way to look at this is the company will be rewarded because their metrics will go up because they will have been able to drive user engagement,” said Borda.

Theft by hackers

This comes in the wake of a report by Ernst Young, a professional services firm, which indicated that while startups across the globe have managed to raise up to $4 billion via initial coin offerings, cyber criminals have siphoned off over 10% of that amount. Ernst Young conducted an analysis of some 371 ICOs and discovered that hackers intercepted and stole more than $400 million of the amounts raised. Data leaks were also discovered and this involved investor information getting in the hands of hackers.

In order to participate in an initial coin offering investors are required to provide identifying information such as ETH wallet address, name, email address and password. Last month messaging application Experty was hacked and investor data stolen. The thefts have been attributed to lax security practices of companies issuing ICO tokens.

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