New York/Porland: The man known as Bitcoin Baba is, as you might have guessed, a true believer in the power of cryptocurrencies to change the world.

Two years ago, the 30-something Kiwi ditched his job in construction and went all in on bitcoin. Now he says he’s living the dream, travelling the world and evangelising to would-be crypto-enthusiasts wherever he goes. (He got his nickname, a term of endearment that means “wise man” in Hindi, after putting up signs outside coffee shops and banks in India offering free bitcoin advice.)

But when it comes to the recent frenzy in initial coin offerings, even Bitcoin Baba struggles to see much more than a place to make a quick buck.

“You can listen to all the technologists explain why these projects work or don’t work and then you go onto the trading channels and people are just talking about the price action and sometimes there’s just no correlation,” he said one morning during a recent jaunt to Australia. Like so many in the world of cryptos, he’s deeply fearful of having his virtual assets stolen by hackers and declined to give his real name. “There’s a massive bubble here that’s going to pop in an ugly way. That’s why I’m not an investor in alt-coins and ICOs, and only trade them depending on what the market’s doing.”

The data support this view. Of the 30 biggest digital tokens sold in ICOs this year, the ones without a working product backing their projects did the best in their first month of trading, data compiled by Bloomberg show. And the ICOs with actual products that could be tested? Almost two-thirds of those declined.

The disparity has come to reflect the wildly speculative, topsy-turvy world of ICOs, which in recent weeks has increasingly drawn parallels to the go-go days of the dot-com bubble. This unregulated, crowdfunding model — where backers finance cryptocurrency start-ups — has taken off and pushed the nascent market toward $4 billion in value.

Dot-com parallels

And the boom is showing few signs of slowing even as US regulators start to crack down on fraudulent fund-raising schemes. This year alone, hundreds of ICO-backed blockchain projects have been created, as the popularity of just about anything crypto-related pushes bitcoin to one high after another. This week, bitcoin futures debuted on Wall Street, the clearest sign yet cryptos are moving into the mainstream.

Yet for every promising ICO, a host of others seem to offer little more than a solution looking for a problem. (One promises to revolutionise office sharing on the blockchain, while another ICO exists solely to allow users to buy other tokens. And exactly how many blockchain-based providers of cloud storage does the world really need?)

That’s not counting the duds or the marketing ploys where celebrity endorsements from Paris Hilton and outrageous names like Wu Tang Coin grab headlines. And it’s no small irony that in a market which appeals to people who lack faith in governments and banks, the president of Venezuela — a country facing an economic collapse and hyperinflation — just pitched a cryptocurrency backed by its oil, gas, gold and diamond reserves.

Crypto spectrum

Wide-eyed enthusiasts and greedy opportunists alike are jumping in, lured by the promise of groundbreaking technology or just skyrocketing prices, and making it harder than ever to tell whether this is a revolution, a bubble, or both. But what’s clear is that regardless of where you are on the crypto spectrum, the hype has rarely been more divorced from reality.

It can be frustrating because “we are really big believers in, ‘Hey, you should at least have done as much work as you could have done on the project before trying to raise money,” ‘ said Alex Xu, director of operations at 0x, which builds software that allows users to trade tokens on the Ethereum blockchain.

Only one in 10 digital tokens issued in ICOs is in use following their sales, according to Token Report. The rest, at least for now, are purely speculative instruments, only to be traded. CoinSchedule estimates at least two-thirds of ICO projects lack a working product or a prototype.

In some ways, that might be for the best. Take Bancor, which in June raised $153 million (Dh561.5 million) over a matter of hours in one of the most ballyhooed ICOs in the short history of digital coins. Since then, the start-up has plunged 38 per cent as developers scrutinised its product and poked holes in its usefulness.

Its project, which aims to become something that combines a central bank, an exchange and market making for digital currencies all in one application, lost much of its buzz after a student showed that loopholes made it vulnerable to front-running. Cornell University’s Emin Gun Sirer also said the technology doesn’t work as well as simply making markets manually. Bancor co-founder Eyal Hertzog, who says his team is still building the code, is undaunted.

Game changing

“It’s not a valuation of a company, it’s a valuation of an economy that this ICO is creating,” Hertzog said from Tel Aviv.

Perhaps the most famous example of an ICO made good is Ethereum, second only to bitcoin in market value and name recognition. Launched as little more than a grand idea in a white paper, the project raised $17 million in 2014, issuing ether as its currency. Now, the Ethereum blockchain, with its smart contracts, serves as the backbone for many other crypto-based projects. The value of ether has soared from mere pennies to about $475 today.

“We’re talking about core infrastructure of the entire internet” with some of these ICOs, said Olaf Carlson-Wee, who runs Polychain Capital, one of the first and biggest cryptocurrency-dedicated hedge funds. “It’s massive upside if it reaches true scale and true adoption.”

It’s the kind of game-changing potential that has made a believer out of Ozkan Isik, who says he’s sunk about half his savings into ICOs. The 25-year-old German college student spends his free time poring over white papers, checking GitHub, a site where coders share their work, and talking to founders before investing. He recently invested in Polkadot, a venture led by Ethereum co-founder Gavin Wood that raised over $140 million in its ICO in October.

The project aims to build a network that connects different blockchains and lets users securely move information from one to another. Investors won’t get their tokens for roughly two years, which is how long developers say it will take to build and roll out the network. That doesn’t worry Isik.

“Even though they raised a lot,” he said, Wood “is not someone who’ll want to run away with the money. It could become very huge too.”