Mark Cuban made headlines this week after the billionaire Dallas Mavericks owner said he was planning to participate in an “initial coin offering” put on by one of his portfolio companies, Seattle-based eSports betting site Unikrn.
So what is an “initial coin offering,” and what does it mean about the future of commerce?
GeekWire caught up with Unikrn CEO Rahul Sood, who explained more about why Unikrn is using an ICO to raise money.
With the ICO, Unikrn will sell virtual “tokens” that can be used on its platform to bet on eSports matches. Those tokens, called UnikoinGold, are a form of cryptocurrency that can be exchanged for other major cryptocurrencies, such as ethereum and bitcoin, which can then be exchanged for U.S. dollars.
Unikrn will use the proceeds from the ICO to help fund the growth of its business. The company previously raised $10 million in venture funding from Cuban himself, along with others like Ashton Kutcher, Binary Capital, Indicator Ventures, and more.
Sood said there is a difference between investing in a company and participating in an ICO.
“Venture funding is when you sell a piece of equity to a venture fund,” Sood explained. “Token sales are when you sell a token that works on your platform. It’s not an investment because it’s completely liquid. It’s almost like you are buying a specific currency that you can trade with and use on our platform.”
UnikoinGold is based on the ethereum blockchain, which is similar to Bitcoin yet different. Cuban’s announcement this week made news partially because he recently said bitcoin was in a “bubble.”
Asked about his strategy to participate in Unikrn’s ICO, Cuban told CoinDesk, “high risk, high reward.”
There are more companies using the ICO financing model; earlier this month, the Bancor Foundation raised $153 million in an ICO. The process involves fewer regulations than the traditional venture fundraising model.
Sood, who was previously general manager of Microsoft Ventures, said companies can’t just create their own token and host an ICO. There needs to be some value associated with the token, he noted, much like Unikrn has built up for the past two years.
“You have to be able to put value back in the token,” he said. “You have to have usage and your users must love it. If they don’t, you’re selling a useless piece of code that no one can get value out of.”
Sood said that two years ago, Cuban asked Unikrn to explore blockchain technology, which provides a decentralized public ledger of transactions that is the core of cryptocurrencies like Bitcoin and has potential application beyond financial markets, like medical records or supply chains, for example.
Sood said blockchain technology will “completely change the way we do commerce.”
“The beauty of these transactions is that they are fairly seamless across borders,” he said. “The banks need to embrace it. The idea that TCP/IP was to the telephone is what blockchain is to commerce.”
The CEO said that the days of going into bank branches and dealing with extensive regulation will soon be over.
“The first bank that truly embraces cryptocurrency and does it in a way that’s safe, secure, and insured will be the best bank in the world,” Sood said.
Though the major cryptocurrency currency exchanges have official money transmitter licenses, Sood admitted that the industry is still in its wild west phase. For example, ethereum crashed from $319 to 10 cents last week, though Sood called that a “flash crash” as the price quickly bounced back.
Sood said it’s only a matter of time before consumer adoption begins, likening it to the days before the gold rush.
“It will become the future of how we do commerce in general,” Sood said.
Founded in 2014, Unikrn employs 30 people. It was named a Seattle 10 startup in 2015.
