Blockchain Startup Got $4B Funding Without Product

A Cayman Island-based blockchain startup is on track to dwarf the world's largest initial public offerings (IPO) in 2018 with a fresh $4 billion in funding raised over the year through the sale of its digital coin, EOS. Block.one's initial coin offering (ICO) more than doubles the next largest digital token sale, and marks a huge vote of confidence from backers who have yet to see a flagship product go live. (See also: Japanese Bank to Offer Blockchain Payments in 2020.)

Investors, confident in Block.one's founders, who have successfully launched blockchain projects in the past, are pretty much in the dark regarding how Block.one seeks to use the new capital. Founders have marketed for a new software system, eos.ios, that it says will support more efficient operations for "decentralized applications" and help drive greater adoption of digital currency technology. The first live version is set to be released in June, yet the company does not plan to develop the software after releasing it. It expects others to do so and has said that it will not operate a public network based the EOS software but rather will pledge $1 billion to startups building on EOS. 

A Software Startup Without Software?

ICOs offer investors stock ownership in a company via the sale of tokens, which are ultimately expected to be useful on the digital platforms created by the companies that sell them. In Block.one's EOS cryptocurrency fundraising, investors paid in digital coin ethereum instead of U.S. dollars. The fundraising raked in 7.12 million in total ethereum as of Wednesday night, according to Token Report, which translates to nearly $4.1 billion as ETH trades a price of $574.69 on Friday morning. 

Prior to Block.one's ICO, which closes Friday at 7 p.m. Eastern, the largest was Telegram Group Inc.'s $1.7 billion in a private sale, while the company canceled its public sale this year. As the prices of cryptocurrencies like bitcoin plummet, ICOs have showed no sign of slowing down. In 2017, digital token sales generated $6.6 billion, according to Autonomous Next, and are on track to reach $9.1 billion this year. 

On Thursday, Fortune reported that cyber scammers had breached an internal system of the blockchain company, resulting in losses of millions of dollars' for Block.one's investors. Cyber criminals reportedly sent emails offering recipients to "claim" EOS's "unsold tokens" during the last 48 hours of the ICO, sending them to a phishing site where they were asked to provide their private keys to unlock digital cryptocurrency wallets. (See also: Stormy Daniels in 'Vice Industry' Crypto Effort.)

Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns cryptocurrency.