The initial coin offering (ICO) of developer platform Blockstack has gained a pair of high-profile investors.
The New York-based decentralized internet and developer platform officially closed its ICO this week raising $50 million through the sale of 440 million tokens. And among its backers is Winklevoss Capital, the family office founded in 2012 by twin brothers Cameron and Tyler Winklevoss, Harvard classmates of Mark Zuckerberg who famously sued him for allegedly stealing their idea to start Facebook Inc. (FB)
Neither Blockstack nor Winklevoss Capital would specify the amount of the investment made by the brothers.
Blockstack's ICO was launched in November and the sale has attracted a number of high profile investors apart from Winklevoss Capital, including Blockchain Capital, Digital Currency Group and Techcrunch founder Michael Arrington.
The entrepreneurial twins were immortalized in the 2010 film The Social Network about the founding of Facebook. The two eventually received a settlement of $65 million, and proceeded to invest about $11 million of that in Bitcoin. With the cryptocurrency's stratospheric rise, they are now reportedly the world's first Bitcoin billionaires.
Possible Winklevoss Bitcoin ETF
The 36-year-old Winklevoss brothers have been big believers in Bitcoin for years, and have doggedly put forward an application (again) to launch a Bitcoin ETF, which has already been rejected by U.S. regulators. Approval of a Bitcoin exchange-traded fund could make it much easier to invest in the cryptocurrency and significantly increase the pool of potential investors.
According to Cointelegraph, Dalia Blass of the Ropes & Gray law firm which has been advising the Winklevoss twins, has been tapped to head the SEC's Division of Investment Management which regulates, and approves or disapproves ETFs. This is obviously a good sign for the chances of a Bitcoin ETF getting regulatory approval.
Who is behind the Blockstack ICO that the Winklevosses are backing?
Blockstack was founded by Muneeb Ali and Ryan Shea in 2013. The first public launch of its registrar service (called the Onename App) came in March 2014 and the company went through Y Combinator in summer 2014. After YC, the company raised a seed round led by Union Square Ventures. The company closed a Series A in January 2017, again led by Union Square Ventures, with investors including Lux Capital, Naval Ravikant and Shana Fisher.
In October, Ali, co-founder of Blockstack, told Bitcoin Magazine: "The Blockstack Token is introducing incentive mechanisms for developers and users to participate in an ecosystem of decentralized apps. Our token white paper describes a novel mining system where in addition to a mining mechanism that secures the blockchain, there is a mechanism for app developers and early users to get new tokens released into the system. We believe that these built-in incentive mechanisms can play a critical role in sustainable growth of the ecosystem."
According to the Blockstack team, the largest investment came from an undisclosed endowment, which secured a $6 million allocation.
Commenting on the ICO, Shea, co-founder of Blockstack told CoinDesk, a subsidiary of Digital Currency Group, which has an ownership stake in Blockstack, "We have always emphasized that the token sale is a very important thing for the ecosystem, for us to be able to contribute resources, but at the end of the day the more important aspect of what we're doing is introducing the token itself and what it does for the ecosystem."
What is an ICO?
For those unfamiliar with what an ICO is, it is a digital stock certificate. Think of it as like the crypto-currency version of an initial public offering (IPO). It's essentially a way for a crypto business to raise funds without being hampered by the cumbersome steps founds with venture capitalists and banks.
Earlier this year the SEC moved in on the "Wild West" world of ICOs and regulate the industry which has sent the blockchain world reeling. The virtual tokens like the ones sold by the DAO are securities and subject to federal securities laws.
There is also noise that the market for ICOs is at risk of becoming a bubble. Coins are being sold rapidly and at prices for which there is no fundamental financial statement support.
Trace Schmeltz, a partner in the Chicago and Washington, D.C. offices of Barnes & Thornburg LLP, has warned there are a number of risks to be aware of when considering the ICO market.
He explains: "Some of the basic risks are, 'Will this investment appreciate in value?' 'Is the enterprise a new cryptocurrency, for example, really worth anything at all?' 'Is the white paper describing the enterprise and its expected value-proposition worth the electronic paper on which it is printed?' 'Can the offeror or the exchange through which the offering is made be hacked?'"
For those interested in learning more, the Blockstack whitepaper can be found here.
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