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Crypto currency offerings spur speculation frenzy

Most organisations have their share of IT workers who slip under the radar. But what is that quiet tech guy really up to when he should be fixing the server?

He might be pursuing a new career, speculating in crypto currencies. In virtual terms at least, he could soon be earning 20 times his annual salary as he joins the latest online investing craze that has shades of dotcom exuberance.

Using digital money loaned on an online exchange, IT staff at mainly financial services companies are betting on “alt-coins” during working hours.

An investment of just a few thousand dollars a month ago in a newly fashionable currency called Muse is now worth close to $500,000. Last week alone the price rose 278 per cent. At the current trajectory, the IT guy will be a dollar-millionaire by Thursday.

Except these are not real-world dollars. This is virtual money, one of the many variants on bitcoin — the original crypto currency that has been around for more than eight years. But there is a speculative frenzy for a new line of investment in the crypto market through initial coin offerings (ICOs).

Aping the real-world process of floating a company on a stock market, this crypto version involves a group publishing a business plan — commonly known as a white paper — and then promoting the sale to speculators through internet forums. The ICOs raise money in existing crypto currencies, mostly bitcoin and another popular token called Ether.

Many of the more than 830 so-called alt-coins now on the market are bitcoin copies in their own right, others are simply contracts that sit embedded in other cryptocurrency protocols such as Ethereum — a platform that mimics bitcoin’s blockchain technology but adds a smart contract feature.

The bitcoin copies are mineable — which means the number of coins in circulation expands — whereas the contracts tend to be non-mineable, with a capped number of coins in circulation.

“The ICO appeals to people who have a lot less competence to evaluate what they’re investing in,” said Jorge Stolfi, a computer science professor at the State University of Campinas in Brazil, who made a prominent case to the Securities Exchange Commission about the dangers of bitcoin last year.

The first example of this was the Ethereum platform itself, which launched in 2014 with Ether tokens. It initially raised $18bn at $0.40 per token: the tokens are now valued at $92 apiece.

While close to $400m was raised through ICOs last year — and $1.2bn in total — in recent weeks there has been an explosion of new issues. These include Zrcoin, which claims to base its value on cubic zirconia, and Voise, a “decentralised music platform”.

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