Many cryptocurrency speculators are banking on the theory that someone dumber than them will buy their tokens for more than they paid. That’s a pretty good betuntil it isn’t.

Ever since my friends and I set up a Digicash server to sell music and artwork with a digital currency called eCash representing real gold, back in the 90s, I’ve been waiting for the day when cryptocurrencies—digital currencies that operate independently of central banks by using encryption to generate units and verify transfers of funds—would transform the world. Cryptocurrencies are finally here, but not exactly in the way that I envisioned.

And so since last year, I’ve found myself issuing warnings instead of accolades about the latest trend in the frothy world of cryptocurrencies: ICOs, or initial coin offerings. The initial idea was a pretty good one—blockchain technology could be used to issue new cryptographically secure “tokens” or “coins” that are easy to transmit peer-to-peer.

The coins could be sold to fund open-source software projects and other services that people find useful but are hard to finance with traditional structures. They could even function as shares and thus allow startups to finance themselves far more efficiently, from a broader range of people, and without the intermediaries that take fees and require a drawn-out process.

Or the “coins” could represent some unit of utility, such as a gigabyte of storage or access to a network. Joi Ito (@joi) is an Ideas contributor for WIRED. Read more from…

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