Digital coin sales have a dodgy reputation. One company thinks it can change that

  • Indiegogo launched an initial coin offering (ICO) service with partner MicroVentures
  • The service will vet start-ups before they can start fundraising
  • The service aims to help entrepreneurs and investor stay on the right side of the law

Initial coin offerings (ICOs) may have been called a bubble and attracted regulatory scrutiny, but a crowdfunding site is hoping to improve things for legitimate start-ups.

ICOs have become a popular way for cryptocurrency start-ups to raise money by issuing their own digital tokens in exchange for a virtual currency like ether or bitcoin.

Investors don't get a stake in the company, but the tokens they receive can be traded or used on a service provided by the platform.

But recently there have been signs of cooling of new ICOs amid a regulatory push back as well as concerns over the quality of some of the offerings.

Slava Rubin, the founder and chief business officer of crowdfunding site Indiegogo told CNBC that despite the setbacks, blockchain and cryptocurrencies have become a key source of fundraising. The key was to improve transparency, he said.

"There's a lot of people trying to figure out how to cut the edges, how to deal with ambiguity. We want to make sure we are bringing a platform that is very white hat," said Rubin.

Last week, Indiegogo and its Financial Industry Regulatory Authority registered broker-dealer partner MicroVentures launched an ICO service that will help entrepreneurs stay on the right side of the U.S. Securities and Exchange Commission, said Rubin.

The service will ensure that "if you are an entrepreneur you are definitely not going to jail, and you are definitely doing it right and if you are an investor you know that these companies have been vetted and this is an offering that is completely legitimate," he added.

Indiegogo's first ICO is a fan-controlled football league that has already raised $3 million out of the $5 million it is seeking since the pre-sale was launched seven days ago, said Rubin.

He added Indiegogo has already received hundreds of applications for future ICOs.

Cryptocurrencies have exploded in popularity in recent years, thanks to innovation in blockchain, the distributed ledger technology underpinning those virtual tokens such as bitcoin.

That has led to a red-hot fundraising trend where start-ups are pulling in millions of dollars in capital by issuing virtual coins to investors in exchange for money.

As digital currencies are pseudonymous, decentralized and encrypted, it is harder to track each of the transactions made, and the individuals behind them. That, many worry, leaves plenty of room for people to launder money or finance terrorism activities and engage in other fraudulent behaviors.

CNBC's Saheli Roy Choudhury contributed to this story.