Initial coin offerings are all the rage. Many companies have raised nearly $1.5 billion through the novel fundraising mechanism just this year. Celebrities from Floyd Mayweather to Paris Hilton have jumped around the hype train. But don’t feel bad if you’re still wondering: what the hell is definitely an ICO?

The acronym probably sounds familiar, and that’s on purpose-an ICO does indeed work similarly for an initial public offering. As opposed to offering shares in the company, though, a company is instead offering digital assets called “tokens.”

A token sale is sort of a crowdfunding campaign, except it uses the technology behind Bitcoin to ensure transactions. Oh, and tokens aren’t just stand-ins for stock-they are often create so that rather than a share of the company, holders get services, like cloud storage area, by way of example. Below, we run along the increasingly popular practice of launching an ICO along with its possibility to upset business as we know it.

Let’s begin with Vtcoin, the most common token system. Bitcoin and other digital currencies are based on blockchains-cryptographic ledgers that record every transaction completed using Bitcoin tokens (see “Why Bitcoin Could Be Much More Than a Currency”). Individual computers around the world, connected online, verify each transaction using open-source software. A few of these computers, called miners, compete to solve a computationally intensive cryptographic puzzle and earn possibilities to add “blocks” of verified transactions on the chain. For his or her work, the miners get tokens-bitcoins-in return.

Blockchains need miners to work, and tokens will be the economic incentive to mine. Some tokens are constructed on the top of new versions of Bitcoin’s blockchain that were modified somehow-these include Litecoin and ZCash. Ethereum, a popular blockchain for companies launching ICOs, can be a newer, separate technology from Bitcoin, whose token is known as Ether. It’s even easy to build completely new tokens along with Ethereum’s blockchain.

But advocates of blockchain technology say the effectiveness of tokens goes past merely inventing new currencies from thin air. Bitcoin eliminates the demand for a dependable central authority to mediate the exchange of value-a charge card company or possibly a central bank, say. In principle, that could be achieved for other items, too.

Take cloud storage, by way of example. Several companies are building blockchains to facilitate the peer-to-peer buying and selling of space for storage, one that can challenge conventional providers like Dropbox and Amazon. The tokens in this instance would be the method of payment for storage. A blockchain verifies the transactions between buyers and sellers and serves as a record of their legitimacy. Exactly how this works is determined by the project. In Filecoin, which broke records recently by raising a lot more than $250 million with an ICO, miners would earn tokens through providing storage or retrieving stored data for users.

One of the primary ICOs to generate a big splash happened in May 2016 together with the Decentralized Autonomous Organization-aka, the DAO-that was essentially a decentralized venture fund built on Ethereum. Investors could use the DAO’s tokens to cast votes concerning how to disburse funds, and any profits were supposed to return to the stakeholders. Unfortunately for all involved, a hacker exploited a vulnerability in Ethereum’s design to steal tens of vast amounts of money in digital currency (see “$80 Million Hack Shows the hazards of Programmable Money”).

A lot of people think ICOs might lead to new, exotic means of building a company. If your cloud storage outfit like Filecoin would suddenly skyrocket in popularity, by way of example, it would enrich anyone that holds or mines the token, instead of a set number of the company’s executives and employees. This would be a “decentralized” enterprise, says Peter Van Valkenburgh, director of research at Coin Center, a nonprofit research and advocacy group focused on policy issues surrounding blockchain technology.

Someone has to build the blockchain, issue the tokens, and look after some software, though. In order to kickstart a brand new operation, entrepreneurs can pre-allocate tokens for their own reasons and their developers. And they can make use of ICOs to sell tokens to individuals interested in while using new service in the event it launches, or maybe in speculating about the future worth of the service. If the price of the tokens rises, everybody wins.

With all the hype around Bitcoin and other cryptocurrencies, demand continues to be extremely high for some of the tokens hitting the market lately. A compact sampling of the projects that vtco1n raised millions via ICOs recently contains a Browser geared towards eliminating intermediaries in digital advertising, a decentralized prediction market, plus a blockchain-based marketplace for insurers and insurance brokers.

Still, the way forward for the token marketplace is very uncertain, because government regulators will still be trying to puzzle out how to address it. Complicating things is the fact some tokens are more just like the basis of traditional buyer-seller relationships, like Filecoin, although some, such as the DAO tokens, seem similar to stocks. In July, the United states Securities and Exchange Commission mentioned that DAO tokens were indeed securities, and this any tokens that function like securities is going to be regulated as such. A week ago, the SEC warned investors to watch out for ICO scams. This week, China went up to now concerning ban ICOs, and other governments could follow suit.

The scene does seem ripe for swindles and vaporware. Most of the companies launching ICOs haven’t produced anything greater than a technical whitepaper describing an idea which could not pan out.

But Van Valkenburgh argues that it’s okay in the event the ICO boom can be a bubble. Despite the silliness in the dot-com era, he says, from it came “funding and excitement and human capital development that ultimately generated the large wave of Internet innovation” we enjoy today.