I would like to make an appeal to the YC community: please reach out and help guide those involved in this rapidly advancing phenomenon.
There is a huge amount of instantly-deployable capital in Ethereum and Bitcoin, held by individuals now seeking ways to put it to work. Many technologists will naturally make use of this energy, but so will BS artists and people under the influence of hubris.
I am making this appeal because it is irresponsible to stand by and watch so much financial energy be directed at projects without appropriate constraint. Many firms funded by ICOs (or soon to be) have qualified leaders and developers and are developing great ideas, but IMO many are also raising too much money for their own good.
What may be needed to guide these rockets to their full potential are maturity, mentorship, and the careful application of jurisprudence and principles of accounting.
>Many firms funded by ICOs (or soon to be) have qualified leaders and developers and are developing great ideas, but IMO many are also raising too much money for their own good.
No, there aren't. Real money has never been cheaper than it is now. Never in human history. USD, Euros, JPY, etc. Super cheaper. Low single digits to borrow. Anyone doing an 'ICO' is trying to cash out at your expense, big time.
> Real money has never been cheaper than it is now.
As strange as it sounds, this is indeed the case.
The cost of money is measured in $ per $ (or actually currency per currency) which is a percentage also known as interest rate.
There are no known records of any time in history where interest rates were negative. Sure, only banks can "get" these but they will do and hand them to the next by investing in his asset.
The sentiment on HN is that ICO promoters/startups are all scammer. My company, Pipeline Network is going to launch our ICO soon. We would be more than happy to get some guide/mentorship from the YC community.
I hope that instead of slinging mud at ICOs, the YC community reaches out to firms like yours.
Calling them all scams will not stop the next ICO from getting bigger. Note to blockchain-denialists: there are 10s of billions of capital, a deep enough pool for thousands of ICOs.
Slinging mud will also not help make ICOs any safer, nor protect financial systems outside of blockchains from collateral damage should firms fail.
But yeah, the whole concept is stupid and the only reason it is getting any traction is because the traditional financial system is just as bad, and there is way to much free cash in the hands of "investors" who can't even tie their own shoe laces.
Cui bono? In a world with ICO crowd funding, the roles of a VC firm like YC is greatly diminished. It's not surprising the buggy whip manufacturer is casting doubt on the dangers of the automobile.
In which way is this different that "regular" crowd funding, which doesn't have as bad a reputation as ICO ?
Personally, i'd rather raise "real money", than cyrptocurrencies. The reason why it's easier for those companies to raise millions through cryptocurrencies than regular money raising tools, is probably because there's a bubble.
Actually, I would imagine that the YC model would benefit greatly in a world of legitimate ICO crowdfunding. YC doesn't really make their money from deploying huge amounts of capital. In an ICO crowd funding world YC companies could focus more on product and sale and less on fundraising.
I seriously doubt the ICO market is going to be ready for prime time until a few years from now.
We are attempting to use it to enable P2P trade of electricity, without fiat money exchanged at the energy trade level although fiat money should can be exchanged at the coin level.
So this is like buying food vouchers that I can redeem at a store that hasn't yet been built, if indeed it has been given planning permission and even if it does eventually get built, I have no idea how the service and product will taste. And I can't then report any irregularities.
It's worse than that. In some cases, the coins literally serve no purpose. To use your metaphor, it's like buying StoreBucks for a store that hasn't been built yet, with no promise that you'll be able to redeem your StoreBucks for anything at all.
For example, a project called Status (http://status.im/) recently held an ICO in which people were tripping over themselves to buy Status's coins. It actually backed up the Ethereum network for several hours with pending transactions and they raised over $100 million USD worth of Ethereum (at the time). See if you can find on their website a description of what the coins are actually used for. I can't!
Yes I mean that is just insane. There is no reason for Status.im to have their own token. It's just a money grab. Basically a 50 million funding round without having to give up any equity in your startup! Way better than VC.
If it's a matter where the definition is a matter of regulatory authority then a redefinition cannot apply retroactively for purpose of criminal action. Ex post facto does apply.
OTOH, if it's just an existing statutory definition that the SEC looks at and says that this new thing fits into it, then there is no change in definition. Prosecutions might proceed based on the exosting definition based on acts before the SEC applied that definition to the acts in question, though it would be a question for the court whether the existing definition was being applied correctly.
I am not going to express an opinion, at this time, on whether any securities laws apply to ICOs in either way (either clear inclusion one existing statutory definitions or areas that are, under statute, open to regulatory action.)
I have a fetish for watching complicated court cases play through. What you realize is a judge in a courtroom has a lot of power. They can take your money, freedom or even kids. However, if I had few hundred thousand in Ethereum encrypted placed into a few random anonymous git hub repros, well, the government can't take it. It is truly yours. No one can take it. That must be horrifying proposition for (some) governments - the inability to control people.
People forget that, for that money to have any value, you eventually have to interact with the rest of human society. As another commenter said, we've been dealing with this for centuries--black markets, cartels, smugglers, etc. Everything old is new again.
That could work, but cryptocurrencies are more convenient. You could transfer your coins anywhere in the world much easier. For example, you could donate your coins Wikileaks undetected, but it's much harder to do that with cash buried in the desert. It's also possible that the government may declare some bills invalid (what happened in India with larger bills). Also, government could inflate away your wealth by printing more currency.
It's also possible that the government may declare some bills invalid (what happened in India with larger bills). Also, government could inflate away your wealth by printing more currency.
At end of the day governments control both the network via (ISPs & Networking equipment) and processors (Try producing an 8080 in your backyard.).
You make mistake of assuming that countries won't put up a global firewall that makes bitcoin/ether network impossible to operate. If China can filter traffic at internet scale, crippling Bitcoin network even if say EU/US/China are on board is trivial.
Currencies are backed by the only thing that matters, its will/trust of the people. And no amount of crypto changes that. Unless of course you have some magical way of baking silicon on your own into processors and other chips used in computers and networking equipment in your backyard.
Governments are not a conscious entity that is separate from society. They are institutions run by a collection parties with numerous competing and aligning interests, and with extensive stakes in society at large. They're not going to do something as massively destructive to society at large as ban encryption and prohibit all microprocessors lacking a back door.
HN/BitcoinTalk/etc, suffer from extreme (pro-crypto) filter bubble. The average man/woman on the street ("society") could care less about Bitcoin/Ether. Just look at the whole Net Neutrality debate.
Bitcoin/Ether barely register in terms of the total economic activity (75 Billion $). With significant fraction unusable. They will either be tamed or destroyed.
In fact another way of looking at cryptocurrencies is as a revolt against the Visa/MasterCard duo-poly & regulations that has made digital transactions too difficult. The moment digital transactions become cheaper/more-efficient, the allure of crypto-currencies will disappear.
It's not Bitcoin/Ether that the average person on the street cares about. It's the collateral damage that will be done if broad categories of technology are banned or have their security completely compromised. That's the only way to stop a purely informational technology.
As for the allure of cryptocurrency, only time will tell. I predict they will continue to grow in prominence.
> The moment digital transactions become cheaper/more-efficient, the allure of crypto-currencies will disappear.
Except for drugs, contraband, money laundering, and evading capital controls. Which, from day one, has been the entire actual value of these things and remains so.
That's a reasonably big business to be sure, but it will always remain a niche element and always be under fire, for obvious reasons.
While cryptocurrencies have been great (so far) for speculation, give how quickly their worth changes they make a pretty poor store of wealth. I'd prefer my cash to be worth in 1 year roughly the same as it's worth today.
And if all you ever do is hold on to them your high score looks great, the problem is that if rent comes due in USD in the middle of a down swing. What was 1M usd is now 100K usd and rent is now 1-2% of your bitcoin instead of .1-2%, if you get unlucky a few times that can start eating your holdings real quick. Medium to long term growth only matters in assets you won't need to spend in the short term.
You can trade for goods or services with your coins. You cannot trade for anything with cash dug in the desert. Cash is confiscated daily by authorities.
If I buy a house or a car with cryptocurrency that can be confiscated. If I live a lavish lifestyle while under a judgement I'm not paying, then the court can imprison me indefinitely under contempt of court.
Courts have centuries of case law for how to deal with people that hide assets from judgements. They're not going to care whether your assets are in a shell company or a cryptocurrency.
You are correct, when it comes to protecting your assets from (minimally competent) authorities, cryptocurrencies aren't much better than a hole in the ground full of cash.
Where they are much better than a hole in the ground is when it comes to moving your assets to a different jurisdiction. As long as you can physically get yourself from Somecountry to Othercountry, all your e-cash will be accessible in Othercountry regardless of what Somecountry may have to say about it. And even if Somecountry imprisons you, you can still hand over your e-cash to someone else with a single message.
I can't think of any asset that offers that particular advantage.
Sure, but extradition treaties make the list of viable country hops limited.
You also can only pull this trick once: after you are a known flight risk the next country to come after you will be careful to make sure your detainment comes as a surprise.
Finally, as much fun as it can be to game out, for how many people in the world is this use case actually applicable?
You're thinking of a known criminal holding ill-gotten funds, whom his new country would like to prosecute as much as the old one.
Think instead of an ordinary person fleeing a disintegrating economy and/or an oppressive regime, who had stashed away some e-cash for such an eventuality.
The offshore banking industry has been helping people hide, launder and transfer funds for centuries. It's not infallible, but neither is the process of converting your cryto assets into something readily accepted in Othercountry.
Well, if a court makes you liable for some payment and you have eth assets, they will force you to liquidate and pay. They can't confiscate it but if you refuse you go to jail.
It's not a monopoly that's important here, just willingness and ability. Jimmy-the-Stereotype is but one entrant in the free market of violence but he can still force you to liquidate your assets unless you have a grudge against your own kneecaps.
You can hire Johnny-the-Mobster to protect you from Jimmy-the-Stereotype, but not against Uncle Sam or Grandpa Vladimir. State actors still have a disproportionate power.
It is a currency. You can trade it for goods or services. The idea of moving it into a national currency is what we do now because we are in the early stages. I see a future where you just pay in coin.
It's a currency that can't buy much of anything, so it's close to useless as far as paying for the needs of a typical person. You can speculate about the future of crpyotcurrencies all you like, but the future you imagine is not inevitable and certainly not the reality of today or the foreseeable future.
Beyond that, if we're speculating, a world where all transactions live on a blockchain is an ideal one for a government bent on tyrannical control of the economy. It is likely that governments of the future will have advanced methods of associating wallet activity with real-life activity, especially for citizens who intend to interact with the larger law-abiding economy (if you ask me, blockchain money is the ideal currency for a tyrant). Of course, you can just continue to speculate about future crpytocurrencies that will solve all these issues and that is the reason why this type of speculation gets us nowhere.
And when faced with competition from legitimized currencies, that somewhere is black market goods and services.
Eventually, someone asks the question, "Why can I buy weed with Bitcoin, but not pizza and chips?" And delivery of munchies is a legit business that can be advertised. Once recognized as a viable model, it can then be poached by major corporate players as part of a local pilot program, which can then be rolled out to larger jurisdictions.
The problem, as usual, isn't that you can't buy anything with it--it's that you can't buy everything with it. As long as you can't pay your electric bill with cryptocoins, the business that accepts one as payment can't also pay its employees with that same cryptocoin.
Honestly, would you even apply to a job posting if it said salary to be paid exclusively in Floopcoins?
Keep in mind that usage of "legitimized" currencies is being actively constrained, there are limits on cash transactions, they are/can be easily seized.. every time this happens crypto looks better in comaprison.
And in Europe one already can pay electric bill and pizza with crypto. While only few utilities already accept them directly, many more enterprises want to establish themselves on this emerging market by mediating these transactions.
So the only option is to arrange an in-person meetup with a random stranger from the internet so that they can gouge me with a gigantic markup or just rob me. This sounds terrible even if I have no beef with the government, but totally absurd if I am actually trying to hide money from authorities; for all I know, the person I meet up with is a federal agent or works with them.
I think you are trying to hard to make it seem infeasible or not worth it. The not-worth-it part may be true for most people but it is definitely feasible, especially with decentralized exchanges and websites that let you get gift cards with crypto or even dash which has a debit card. As long as you aren't in jail of course ;)
It's possible to create a self-executing contract on Ethereum that will automatically send a pre-agreed amount of ether when you make a pre-agreed online bank transfer. In other words, it's possible to have exchange between fiat currencies and cryptocurrency without any need for trust, except in relation to whatever risk there is for each counter-party to report the other for participating in that particular transaction.
You would use trusted hardware like Intel SGX to provide proof of untampered processing of a set of data. Town Crier already has a proof of concept on the Ethereum blockchain. This allows one to prove to a smart contract that a webpage served by a particular PKI certificate holder contains some set of data.
I am amazed that in 2017, there is still people qualifying Bitcoin or Ethereum of ponzi schemes. Crypto currencies have a lot of problems (technical, economical, philosophical, ICO are insanes) but saying they are ponzi schemes is plain wrong. And it just takes 5 minutes of reading on Ponzi Schemes signs and basic knowledges of how those currencies work to understand why.
In many cases crying "ponzi" is likely an exclamation of "something wrong here" which your comment gives several examples. But cash, check and other instruments all have something wrong.
I'll suggest that the difference isn't that people know the details of how for example checks clear, few non-experts learn all the details, BUT virtually everyone knows where to go if there is a problem (bank branch). Most non-experts at this point in crypto currency would have no idea where to even go to investigate a problem.
It may be true today but the banking system has matured to that point over hundreds of years. There have been many instances of runs on the bank, run away inflation, worthless paper currencies like the Continental in the history of cash.
Gold isn't a "Ponzi scheme". Even if you believe that investing in gold makes no sense, and it's a useless metal with no practical purposes, and it's a bubble waiting to burst and so on, that still doesn't make it a Ponzi scheme.
Even if all of those beliefs above were true, it still wouldn't be a Ponzi scheme. As someone else posted in here, Ponzi Scheme has a fairly specific definition which "Gold" doesn't meet.
[Cryptocurrency] isn't a "Ponzi scheme". Even if you believe that investing in [Cryptocurrency] makes no sense, and it's a useless [tech] with no practical purposes, and it's a bubble waiting to burst and so on, that still doesn't make it a Ponzi scheme.
Even if all of those beliefs above were true, it still wouldn't be a Ponzi scheme. As someone else posted in here, Ponzi Scheme has a fairly specific definition which "[Cryptocurrency]" doesn't meet.
Except that oil is scarce to due to the laws of nature and that gives it it's price, whereas ether is artificially scarce. You could make a new piece of software called Blether that provided the exact same service and you could instantly 'double' the supply. Whereas with oil, you can't 'magic' your way into more of the resource by deploying some code.
Ether is not like oil at all. You only somewhat need ETH. Nothing stops you from using ETC. Or starting your own fork (either private or public). Your contracts will work there just fine.
On the other hand, it is not likely you can deploy some magic oil machine in your closet with almost 0 investments and start producing $5c / barrel oil.
Yes but ETH and gas are not the same thing. You use ETH to buy your gas. The gas is burned up in use. ETH is paid to the miners, who can use it to pay their expenses.
AFAIK the definition of a Ponzi scheme is a fake investment where no actual investment in productive activities takes place and all profits are paid out from increasing intakes.
Bitcoin matches this definition exactly since pumping up the currency is not connected to any real world productive activity.
Ethereum has some theoretical practical uses but most of the ICO nonsense is pure Ponzi.
Defining a Ponzi can be difficult because in order for something to truly be a Ponzi scheme it must be engaged in with fraudulent intent.
Really stupid people who "invest" in really stupid things and waste their money on useless stupid activity don't count as a Ponzi because they don't have fraudulent intent. They are just really stupid.
Whatever participants in digital currencies are not in the first category are in the second category so it isn't much to be excited about.
Well you have a poor understanding of the definition of a Ponzi scheme. ICOs do not make any promise of a return on investment or paid dividends, the way a Ponzi operator would. Coin makers do not use the income from new investors to pay dividends to older investors, the way a Ponzi operator would.
You are buying the currency, once you receive it the contract with the coin's creators is fulfilled, you are not an investor, you do not own any shares of any company. It is a one-way transaction.
Perhaps you meant pyramid scheme, of which ICOs are also not an example.
>AFAIK the definition of a Ponzi scheme is a fake investment where no actual investment in productive activities takes place and all profits are paid out from increasing intakes.
The way to tell your understanding is wrong is that it would describe every currency, and every possible asset (land, valuables, etc).
To be fair, Ethereum looks like a scheme of some kind (not Ponzi necessarily). The vast majority of the ether is controlled by a single company, which is literally just selling it for money.
... I get the other advantages to Ethereum, but it's not Bitcoin where there is actually a distributed number of people managing it.
Some people get that impression because the majority of ETH was premined. What they miss is that most of that was sold to the general public in the presale. Only 12% of it was not; half of that went to team members (some now sold) and the other half to the nonprofit foundation which is continuing development of the protocol.
they resemble ponzi schemes in that you get in early and benefit as more people adopt it. further, like all fiat currency, there is no "underlying" value, so your success depends entirely on how many other people adopt it. so, to me, it does resemble a ponzi scheme. my guess is that you take issue with the connotation of that word, implying its a scam. i dont think it is, but i do think it resembles a ponzi scheme.
One of the reasons Fiat currency has value is because its the only currency that the U.S. Government accepts debt and tax payments in. That is tremendous power and authority behind the currency.
It is quite rare in history that a fiat currency was put in place, that didn't have a corresponding broad based tax in order to enforce its use and give the issuer, usually a sovereign or government, an advantage in being the source of the fiat.
Fiat currencies have underlying value. If you want to operate a steel mill in the US without getting arrested, you need to procure a certain quantity of US Dollars and remit it to the IRS. No, you can't pay your taxes with bitcoins. It has to be dollars. That's why the US Dollar has inherent value - you can redeem them for the right to operate a business in the US.
You can redeem them for the privilege of operating a legally distinct incorporated business entity in the US.
At a strictly technical level, I believe it may still be possible to live your life entirely lawfully, without being taxed, but the amount of legal analysis necessary to work out exactly how that may be accomplished is beyond me. It's far easier to just earn enough dollars, and then pay up.
(Note that relying on Supreme Court opinions will not get you to anywhere you might want to be if the IRS decides you need to pay them.)
What? Of course exercises of legal rights can be taxed. Taxing natural rights is problematic, of course, but the legal rights granted to you - like operating a steel mill, or enforcing the ownership rights to your home for you, or operating a motor vehicle - are completely taxable.
You have a right to vote, so levying a tax upon the act of voting is not permissible. Obviously, if it is a right, it means that even someone with zero money should be able to do it, and you can't pay a tax if you have zero money. The tax prevents poor people from fully exercising their rights.
As such, taxes that appear to be on the exercise of a right are usually worded such that they are actually excises on a legal privilege that is suspiciously similar, or upon an accessory privilege, without which the exercise of the right is largely pointless.
You can build as many steel mills as you want on your own property. But doing so is pointless if you cannot transport the steel over public roads or sell it to customers in the public marketplace, unless you have a great need for vast quantities of steel on your own property. There are quite a lot of foil-hat-wearers out there that try to tease out the line of separation between taxable privileges and untaxable rights, but the reality is that none of their opinions hold any sway unless they have millions of dollars to spend on lawyers and lobbyists, or millions of supporters to march on the capital. As such, a lot of "Sovereign Citizen" propaganda revolves around the insane idea that a state with near unlimited power may be compelled to obey its own laws, even when doing so would be contrary to its own interests.
This is the same phenomenon that results in your tabletop RPG's resident rules lawyer getting their characters killed off. For any obscure rule they can argue to their own advantage, the GM can always just roll behind a screen and say, "Oh dear, the goblin scored a critical hit. What an unlucky occurrence. Your character dies. Again."
For instance, the Supreme Court has also ruled that it is permissible to prevent someone from growing a crop on their own property, never to be exported off of that property, because that satisfies some demand that would otherwise impact prices in interstate commerce. Essentially, the state said it can prevent you from growing corn in your garden, because that means you won't buy as much corn--which could be imported from another state--at the grocery store. In order for that ruling to be consistent with the poll tax opinion, the US cannot recognize that engaging in commerce and providing for your own livelihood is a natural right. Because that would mean it couldn't be taxed, and the government needs those taxes more than you need to buy your own food and shelter.
Anyway, the point I'm trying to make is that many of the things you may call "legal right" are probably just legal privileges, and that if something is taxed, the government does not recognize that you have a right to have it or do it. This is disturbing to some people, because it provides a practical test to unequivocally show that they have far fewer rights recognized by law than they believe themselves to have.
I've asked this for quite some time and still no one was able to answer.
If the power has shifted to an elite who controls the great majority of the currency, and has the power to withdraw/dump coins (basicaly influencing the supply side of the market, and control the value) - I'm pretty sure there are people/organizations who invested into such positions - and have the power to simulate value and draw people into this gold rush...
Where is the line drawn between this and a scam/fraud?
Is it when the control party withdraws all the value from it and dumps it?
For as long as everything is being valued in a positive way, everything is fine?
ICO are the best thing that ever happened. This is no different then kickstarter.com started. People where saying the same things. People put up lot of BS project and they got funded, in time these kind of project will fail on there own. This is just the start, no government or bank would have supported such system. For once, the small guy can participate in this market. I would have loved to invest in amazon, facebook, etc when they where private. You had to have the connection and access .. here the little guy in columbia or Africa has the same access to such a deal
> I would have loved to invest in amazon, facebook, etc when they where private.
I'm sure if you wen't to them then and said here is money plz give share they would have considered it. Everybody want's to have gotten into the big giants when they were small - but there are many small cap/penny stock companies you can invest in now ... yet people don't. There are even non listed share trading options. And the reason is because hindsight is 20/20 ... it takes experienced and diligent investors to make good investments that beat the market - it's exceptionally rare.
ICOs are not like getting into Amazon/Facebook/etc early. It's like penny stocks or worse. Could it pay out big ? Sure ... why not. So can the lottery. But there is no enforcement on any of these things in the real world, no shareholder rights and no protections.
> People put up lot of BS project and they got funded, in time these kind of project will fail on there own.
People keep funding these BS projects and loosing their money though. Let's not pretend nobody is loosing, and I'm actually pretty sure with kick-starter garbage most of the time nobody is winning.
> For once, the small guy can participate in this market.
I'm not sure what market you think you were excluded from, but I doubt this was the case.
> You had to have the connection and access .. here the little guy in columbia or Africa has the same access to such a deal
There are options for investing in Reg D companies - and I would like you to give some actual examples of where you would have done this for Reg D companies if you could - and how you tried to invest in Reg D companies and how you were turned down.
The main reason why your line of thinking is flawed is - most cases if you know the people to a point where you trust them to invest in them - you will be covered under Reg D affilated investor - and in other cases you probbably would not invest anyway.
Further, so far I have yet to see a practical example where crypto actually acts as shares - with the same protections (but via smart contracts or whatever). So while maybe one day, so far it has not delivered on this promise.
Your basically happy that at the moment crypto allows you to do exceptionally stupid things with your "money".
Participating in ICOs are not the same as investing in the company and receiving equity in return. The vast majority of tokens are not backed by equity in the company that created them.
The concept behind the tokens is that they take the value place of equity in a company. A person buying tokens is saying that they believe that the core product the company is providing is good enough that the tokens will increase in value in the future.
Replace the word "token" with the word "equity" in the previous sentence and it would still be true.
They can't be equity by definition otherwise they are unregulated securities and then the SEC will step in and shut everything down or make you subscribed to the new equity crowdfunding rules.
You want them interpreted at best as as in game currency or at worst as gift cards.
I didn't say they were equity, only that they follow the same conceptual structure in investment practice. That said, the days of unregulated ICOs are definitely numbered and you can count on regulatory legislation coming to a city near you soon.
The only problem with the idea of tokens as "gift cards" or "in game currency" is that it restricts the conceptual range of possibilities of what a token can really do. It's an assumption to think they NEED to function that way, because they definitely don't have to. Better to think of the blockchain tech from first principles.
But when you own equity, you own a tangible piece of a company. I could say I believe in Amazon's core products and create an Amazon coin, but why should the value of my Amazon coin be correlated to the market cap of Amazon when it has no link to Amazon shares?
I just mean that tokens indicate buy-in value for a product in the same way that equity does, not that they're perfectly analogous or the same by definition.
If Amazon were to decide to set up some kind of coin product it wouldn't really work unless it were backed by something internal. So it's perfectly feasible that some kind of blockchain product the guys at Amazon come up with necessitates a token and this coin would certainly be correlated to the future of that one product's success, but as a company because they've already had an IPO and trade publicly what's the incentive to adopt a coin for the whole pie?
It's definitely not a case of blockchain-all-the-things (although that can be almost impossible to see just by glancing into the ICO space).
The problem is they will pop, and then come back. They are like a resilient strain of disease. Each time people lose faith in them they develop new ideas and arguments for why they are the future. They aren't the future, they are deeply flawed ponzi-schemes, this is obvious. But we better find out what the future is before they start converting the gullible masses to a currency that is less secure in many ways that is swept under the rug. People are getting hurt by being swept up in cryptocurrency mania; and its not going to end anytime soon. There is talk of China developing new digital currencies(or adopting bitcoin) for stronger population control. There are innovative things happening here, its not all bad, but some of it is clearly evil.
>They aren't the future, they are deeply flawed ponzi-schemes, this is obvious.
By definition, they are not ponzi schemes. None of your claims are obvious, and implying otherwise is disingenuous.
>But we better find out what the future is before they start converting the gullible masses to a currency that is less secure in many ways that is swept under the rug.
Ah yes the "gullible masses", and the wise men and women who know better.
How about we respect other people as adults who have a right to buy whatever they want with their own money and stop trying to treat them like sheep that need to be protected from their own gullibility. Your presumptions of knowing what's best for them, to the point where you'd like them to be denied the option of buying them, are extremely condescending.
No, it's just that the folks railing against it sound like sour grapes. If you want to pick a convincing analogy, do so. Calling it a Ponzi scheme doesn't fit and makes it sound like you're more interested in being contrarian than making a substantive point.
> Each time people lose faith in them they develop new ideas and arguments for why they are the future.
You mean just like after the 1929 stock market crash we just improved stock trading? Or after dotcom crash we became more serious about evaluating usefulness of services? Or after various mortgage issues we introduced controls for known issues?
I feel like it's similar to any other huge system. There are issues with it. We prevent some behaviours and provide incentives for others. We don't lose faith in stock market and burn it to the ground.
Look into the fees charged by VC and private equity, and how private equity, in particular, has lobbied themselves into a position where they can be opaque and hold a very dominant position relative to their limiteds before you paint ICOs as sketchy, bubbly, and dangerous. There are downsides to the way many investment vehicles work in theory and practice. ICOs could be a salutary form of competition.
Bubbles are inevitable. If you want to see a great historical example, read up on the South Sea Company of the 18th century. The charlatans are the same throughout time, just varying their methods slightly
Last month, a small team of computer engineers in Lithuania raised $14 million in 45 minutes by selling a coin, known as Mysterium, that is intended to give access to an encrypted online data service that is still being built.
There has to be more background to this? Why would they ever bother building the service if they have the 14M in cash?
Ethereum is exchangable for USD (or EUR, which is the currency in Lithuania). Calling it imaginary money isn't helpful here. I'm sure they have cashed out at least some of that.
As for why they would take investors' money (not really investors according to the SEC) and actually build their product? Maybe they value keeping their promises, or their dream is to build this product and the $14mm is just a means to that end.
"Imaginary" in the sense that it's unrealized in the currency in which it's described, exchangeable only if there are enough people willing to pay the market rate at the moment. "Unrealized" may be better than "imaginary", that's a fair criticism. So it wasn't $14m USD, it was ETH whose market value at the time of calculating was potentially $14m.
To pay employees or themselves I'd also bet they cashed out a slice. I'd love to see a tracker for % of ETH raised at ICO and subsequently sold off. I wouldn't be surprised if the recent flash crash[1] was an ICO selloff.
200 years ago in the U.S. regional banks printed their own currency. The constitution does not create a common US currency, although we have been operating as if it does.
Will a non-nation state be able to generate enough credibility to run their own currency that lasts a lifetime?
I don't know be I think it's interesting to watch.
And if they do, it may force central banks into a corner by limiting their ability to print money (i.e., lowering the value of your currency by printing money will cause people to move their money to the alternative currency, leaving you with inflation).
On a local level there have been a good few, particularly local time-based currencies. I can't point to one that ever had national level adoption, however.
The British East India Company was able to do this; they issued their own currency at various times. I'm not sure we'll ever see a company with that kind of temporal power again, though.
So these ICOs are currently legal? In that case, is it legal to have an ICO for shares in an existing private company?
I am imagining the following scenario:
Someone has some vested shares in a startup. They send proof of their shares to some administrators of this
hypothetical service. The shares are then listed on the website. Someone browses the website and decides that they like the company, and they want to invest $10k. They make a request on the site, and then transfer $10k worth of Bitcoins to a specific address. The Bitcoins are then transferred to the person with the shares.
When the company has an acquisition or an IPO, the person then buys $X worth of bitcoins, and sends them to an address, where they are distributed among the investors.
This would be highly illegal, no? Something that would have to operate on the darknet? So then why are people getting away with ICOs?
P.S. As you might be able to tell from my username, I've been trying to figure out a way to sell some of my shares in a private company. (They're a unicorn in Silicon Valley.) You could call it an options contract. Or you could call it a loan, that would be repaid if/when the company has an exit. I've tried using a secondary market service, but the company blocked the sale.
P.P.S. This is completely unrelated to any of the above, but feel free to send me $20k worth of Bitcoins or Ethereum. I could even send you a link to my LinkedIn profile. But of course, this would just be $20k with no strings attached. But who knows, you might receive some bitcoins in the future.
According to some experts in US securities law, if the token being sold gets its value due to its usefulness in an application (e.g. it acts as a currency), it is, in their opinion, legal. If it gets its value from a promise of it providing the holder with a contractual claim on a share of the assets or profits of an enterprise, then it's potentially a security and thus potentially illegal. See the Coinbase securities law framework for more details.
I don't see how your scheme falls into either category. I advise checking with a lawyer before doing anything.
It is important to clarify that buying one of these tokens does not result in you owning a 'share' or a percentage of the company that issued them. Some lawyers are using this lack of ownership as a critical part of their argument that tokens are not a security and therefore ICO's are legal.
It's complicated and a very gray area right now. In response to this gray-ness, ICO's are now requiring investors to declare that they are not from the USA and some are geoblocking USA residents.
Obviously this means nothing, if a US citizen wants to buy they still will, but it is an interesting case of Cover Your Ass From the SEC taken by the ICO companies.
A not unreasonable one though: a large part of why minority shareholdings have actual potential value is because of a dense network of regulation that ensures company executives act in shareholders' interests, respect their property rights and make accurate representations about how the company is performing. So shareholders have an interest in the state enforcing securities law, including how shares may or may not be marketed.
On the other hand, provided wishing wells and ICOs don't claim to be a genuine investment and aren't considered to be equivalent to securities by anyone with any common sense, it's arguably state overreach to stop people chucking their money into them.
Basically, its illegal to market exotic investment opportunities to unaccredited investors (for good reason IMO). Same reason only accredited investors can invest in things like CDOs and weather derivatives.
Could you do an ICO or BTC share sale to only accredited investors with an online form asking for details a statement to that effect?
I recall from angel funding that the criteria is that you must ask, and that you must have "no reasonable reason to doubt" that a person is an accredited investor. The language is nice and vague, as per SEC regulatory standards.
Yes, exactly that. Compare it to designer drugs, where some reasonably well-understood chemical compound is made illegal, with the effect of creating a market for a similar chemical that is worse understood and may be more dangerous (i.e. less beneficial) to the consumer.
There are investors who will lend you money secured by your currently illiquid assets, such as share options. What you propose would be nearly identical in effect.
With regards to cryptocurrencies, which the standard HN anti-crypto groupthink is bashing in full swing, let me just point out that most bashings I've seen on here are US-consumer-centric and don't consider the needs of countries with oppressive governments that aim to control the wealth and labor of their citizens. In these countries, cyrptocurrencies allow the movement of wealth to your family overseas, allow the store of wealth in the face of 30% inflation (Venezuela, Zimbabwe, etc.), and allow privacy and economic freedom. If your central bank wants to lower interest rates so that yields are even more negative, you can take yourself out of that system in which you have no vote or control. If you oppressive ruler wants to track every transaction and stop funding to political opponents, you can take yourself out of that system and do so if you wish.
Yes, it's not easy and not for everyone, but people in these countries go through enormous risk and effort to accomplish economic freedom.
Wait until amazon offers its own coin...that is when the mainstream will happen and if these much less know are able to pull this valuation the legitimacy and hype will many x when amazon does it.
They have already tested the waters with https://www.amazon.com/gp/feature.html?docId=1001166401
> made it easier than ever for entrepreneurs to raise large sums of money without dealing with the hassles of regulators, investor protections or accountants.
Umm no easier than raising funds for any other venture, in fact probably more difficult and I would think a lot of that money is coming from people who were already made rich by other coin like bitcoin. Easy come, easy go, but enjoy the gravy train while you are riding it.
>in fact probably more difficult and I would think a lot of that money is coming from people who were already made rich by other coin like bitcoin.
That's why it is easier. You have a bunch of gamblers who have gotten lucky on one bet thinking they are now master investors. They have seen a few ICOs pop so they are willing to take a punt on any that come through pretty much even if it makes no sense.
I claim it can be +EV even when it's a punt. Suppose you make 3x on your first bet, as I did - and it's a long story why i settled for such a poor return ;) - you can then "invest" 2/3 of your winnings, and even if it all goes to nothing then you've still broken even.
But in the current climate a 0% return seems, at least for now, unlikely....
(In the interests of even-handedness: Preston J Byrne, quoted in the article, is worth listening to, especially if you are by nature inclined to be a true believer when it comes to this kind of thing. Relevant thread: https://news.ycombinator.com/item?id=14573875)
There are programs that generate the tokens for you, templates for promotional websites, companies that specialize in shilling, pump groups that help for a cut. You don't have to do much but invent a name and write a nonsense "white paper" (pet supplies on the blockchain). Best of all, you can remain anonymous.
Well, actually US is not the only country in the world. There are places with zero chance to get any VC funding. I have even seen a funny acceleration program that offers $300 (three hundred bucks) for 10% of a startup (and there was a huge list of requirements the company and founders should meet). That's ridiculous. ICOs open a window of opportunities in such places. That's a pity though it is discredited by been used for scams.
these things are strike me as greater-fool schemes. everyone hops on thinking they are probably ahead of the curve, and most of them are suckers. what a funny game- the skill is knowing how many other people will go for it.
I think there are at least some people (e.g., money launderers) who will use a cryptocurrency even in the face of losing money, therefore it's not entirely a pyramid scheme.
Wow. So people should treat it not as a pyramid scheme, but as a legitimate asset, because it can be used for money laundering! That is truly hilarious!
Money laundering, in my opinion, is not only legitimate, but neccessary, given that e.g. European banking transactions end up via SWIFT or implants at the NSA headwuarters.
In addition many governments try to move citizens to "electronic payment" (ranging from online banking to NFC credit cards). The reason is once again tracking, and as could be seen during the financial crisis it's easy to just confiscate money when it's just numbers in a mainframe vs actual piles of cash in my home safe.
Blockchain currency definitely isn't the solution if the problem is tracking or avoiding confiscation. 1) the blockchain is a permanent immutable log. Once you do tie and identity to an address every transaction ever is immediately available. 2) the key that is the currency resides as just numbers in a computer. Maybe you have yours on a hardware wallet in a fireproof safe. Most don't. Especially those launderers who are shuffling coin around.
There is a GNU project [1] that's basically an electronic cash. It has no restrictions on what you use as currency (fiat, gold, bitcoin). But the government cannot track what you buy. At the same time merchants can be taxed, so there should be no issues from the legislation standpoint.
do you think all attempts to stop money laundering are bad? isn't it reasonable to try to prevent people from profiting off stuff that we all agree is bad? trying to figure out if you are saying there are downsides, or that its all bad.
On the flip side, your piles of cash are only valuable at the moment. Print enough new money, and your cash is worthless, at which point its value has been taken from you without any interaction with you.
ah- yes i think thats true. reminds me of the political futures market intrade, which was ultimately shut down because people were laundering money through some of the markets, most likely at a loss.
You can easily do it in an hour or two by copying and pasting some code off the ethereum site.
They encourage it. I like to think of ethereum as a ponzi scheme which spawns ponzi schemes (some of which themselves are intending to be a new platform for generating currencies...)
Not every questionable, bad or even fraudulent financial construct is a Ponzi scheme. Unless a coin has a clear promise of payout that the people organizing it would have to satisfy, it can't be a Ponzi scheme.
The main method is to create a cryptocurrency using Ethereum's ERC20 standard. That way it can use the Ethereum blockchain and is compatible with a lot of wallets and applications.
It's funny you should mention Webvan. In 1999 grocery delivery was a hot market, then in 2002 it was completely and obviously stupid, now in 2017 it's hot again. Cryptocurrency is a bubble now, but will the world change such that it actually makes sense in 20 years?
It was never that. Yes Webvan failed, but Peapod didn't. Grocery chains also started their own delivery services which are still around today, and the industry slowly grew from there.
Judging an entire market by looking at the failure of one failed startup is not smart.
Its still obviously stupid. The difference this time is there is a new niche that places like Whole Foods serve. They're not in the 'food' business so much as the 'whole food / wellness' business.
These people will pay a premium that warrants delivery.
I've been having groceries delivered from the internet pretty much continuously for the past 15 years or so across 3 countries and a half dozen services. What is stupid about grocery delivery?
It's been a running joke for a while that the easiest way to be a blockchain consultant is to charge $50k to say "you don't need blockchain for that". Not it seems the 2017 version is to charge 1M to say "you don't need a special token for that".
ICOs are not the micro-investing many would like to see and the use of a special tokens distinct from ETH is rather contrived.
That said, if people are willing to throw money at it, so be it. But the amounts are quite frankly insane.
If you go to https://coinmarketcap.com/ you will see they have info on over 600 individual crypto currencies. 99% of them are going to be worthless long term. Best case scenario a handful of them survive. I'd be extremely skeptical of any coin that distributes coins via an ICO or "pre-sale" instead of via competitive mining like Bitcoin.
Mining is a waste of energy. An ICO makes sense if they 1) have a product that benefits from a blockchain, 2) have a great team and a demo of their product.
Mining doesn't waste energy, it's the cost the network pays for security, and it usefully indexes the value of the token rewarded to miners for securing the network to their cost of electricity, grounding the token value in some hard-to-manipulate real-world value.
As a layman which also thinks of mining as a waste of engery (although it seems necessary as the other commenter pointed out) I hope gridcoin [0] or something similiar takes off.
The next recession will not be caused by a loss of faith in cryptocurrencies, so probably. But the exchange rates will slip just as much as everything else in said recession because recessions are highlighted by a near uniform withdraw of capital from investment.
On the flipside, btc usually goes up when gold goes up, and gold goes up in recessions. They might bounce back as an alternative store of value not dependent on the general economies functioning.
> On the flipside, btc usually goes up when gold goes up, and gold goes up in recessions.
That's why I think a recession will be the defining time for bitcoin and other cryptocurrencies. Do they become more valuable in rocky economic times, like gold? Or do they plummet like any other speculative asset or high flying stock? The answer might depend on the severity of the recession and any associated turmoil.
I'm not sure actual economic events will have anything to do with a cryptocurrency crash. The price of bitcoin, ether really has nothing to do with overall economic prosperity.
Also, I believe of lot of crypto currency is purchased in China as protection for them, and a truthfully a get rich scheme.
Would it make sense for companies like Amazon or Alibaba to print their own currencies when they are in the business of selling everything under the sun?
Would they be saving on transaction costs?
I believe most of the money that is ending up in Bitcoin exchanges is laundered in the first place. Also, there is a whole lot more that is getting laundered everyday than Bitcoin being mined. That would mean Bitcoin will keep going up in value. Gold should correspondingly fall.
Agreed; I'm yet to see any serious discussion of how fragmentation to various coins isn't going to cause headaches.
It's like if we were to print different banknotes for different services; suddenly we have blue Advertising Dollars, red Server Time dollars, yellow Financial Transaction dollars, and none can be used for anything else.
To me this looks like an arbitrary level of complication, the only true winner from which is whoever runs the exchanges.
I'm sorry but this is so absurd. They are doing the equivalent of printing their own monopoly money in the garage and then selling it for real currency... dollars.
The economy would be destroyed if people didn't usually engage in economic activity that caused the level of wealth across the economy to increase. It's reasonable to assume absurd actions generally cause a net loss to the economy.
>> They are doing the equivalent of printing their own monopoly money in the garage and then selling it for real currency...
> Pretty much what the central banks are doing around the world.
Exactly. So why choose the currency of a couple of dudes over the central bank's one? Show me an ethical cryptocurrency with equal opportunities for everyone and no taxes in a form of pre-mining, decreasing block rewards & other stuff like that and I'll be the first one to use it.
Central banks: fine, they are the state. It's a problem when private banks are doing this (they are) and when central banks are doing it and using it to purchase assets to bail out in the main the rich.
Metaphors are not as useful as historical analogies or actual descriptions of what is going on.
Basically, a new form of fast finance has emerged, connected with a blockchain technology which enables the financing mechanism as well as potential applications that are financed. It is not monopoly money as much as it is speculative vendor financing.
We have "speculative vendor financing" - normally in the form of OTC stocks, i.e. pink sheets. This seems like an even less regulated way of trading pink sheets, except funded by a bunch of software people with a lot of disposable income instead of some mob guys in a boiler room in New Jersey.
Sure... and 3 guys in China control 50%+ of the Bitcoin network, and ETH mining will eventually centralize as well. What's your point? I'd rather have Janet Yellen controlling my currency than Jihan Wu/Barry Silbert/Brian Armstrong.
Three guys run pools, which have relatively limited power. The control is in the hands of those who own the hardware that points to those pools. And the beautiful thing is that there's no barrier to entry to participating in hashing, or in the case of Ethereum's soon-to-be-implemented staking.
It's massively parallel, with smaller hash-producers/stakers having nearly the same profitability as large ones, and nearly no minimum investment required to enter.
This is diametrically opposed to any central banking scheme, which is extremely hierarchical, with the representatives of regional banks sitting alongside high-ranking political appointees to create monetary policy and make decisions as significant as buying a trillion dollars worth of privately owned assets from large privately owned financial institutions.
The current centralized monetary scheme is the reason 42% of corporate profits since 1972 have been earned by the financial sector.
Blockchain is perhaps the most economically important invention of the last 500 years. Right now the whole space is worth less than $100B, and it's going to be worth tens or hundreds of trillions of dollars.
Obviously valuations have far outpaced the present usefulness of these technologies, but because the pie is so enormous it would be irrational not to overpay. Right now prices are too out-of-whack with reality so it's inevitable that there will be a correction, but it's entirely understandable why this is happening.
It's sad though that most people on HN have now apparently become the older generation representing the entrenched interests, rather than being the disruptors.
> Blockchain is perhaps the most economically important invention of the last 500 years
Holy cow are you serious? The most economically important in the last 500 years?
So the steamship, the airplane, the automobile, the railroad, the telephone, the printing press, nuclear power, vaccinations, electricity, radio, radar, the semiconductor, television, the cell phone, penicillin, the Gregorian calendar, pasteurization, the refrigerator, the microscope, the telescope, electric lighting, the transistor, the Internet, the microprocessor, and pretty much everything that makes modern life possible is somehow less important than the block chain?
Even is you limit this to just banking, you have widespread checking, credit cards, credit reporting, interbank transfers, wire transfers, mortgage lending, and more. And the blockchain is more important than all of those?
I get it. *coins are cool, but it has a LONG way to go to even be in the in the same league as the greatest inventions of the last 500 years. Let's reasses this in 50 years or so and see where we are before declaring blockchains more important than penicillin. :)
> In early 2017, the Harvard Business Review suggested that blockchain is a foundational technology and thus "has the potential to create new foundations for our economic and social systems." It further observed that while foundational innovations can have enormous impact, "It will take decades for blockchain to seep into our economic and social infrastructure."
500 years ago was 1517. This is just a bit into the Age of Discovery. We hadn't even managed to sail all the way around the world yet (that wouldn't come until 1522). The Enlightenment was still a couple centuries away. Feudalism was still a thing, plagues still routinely struck. Absolute monarchs reigned over lands. Most people still lived on subsistence agriculture and would starve is there was a bad harvest. People routinely died of things that we don't even think about because of modern medicine.
Now, compare that to the world we live in now, where satellites and cables beam information around the world in milliseconds and childhood deaths from diseases are much rarer now. I could be in China in less than a day if I wanted to. And I'm not likely to starve this winter and I never had smallpox as a child.
Blockchains MAY someday be important. But it is the height of tech arrogance, not to mention a gross lack of awareness of history, to put a yet largely unproven technology that most of the human population has not even heard of on the same level as vaccinations. A LOT has happened in 500 years, and it is WAY too early to be making those kinds of pronouncements.
(As a side note, two of the most underrated inventions of, let's say the last 100 years or so: the pallet and the ISO container. Both of these are so crucial to the modern economy that they blend into the background.)
> it is the height of tech arrogance, not to mention a gross lack of awareness of history, to put a yet largely unproven technology that most of the human population has not even heard of on the same level as vaccinations
I said 'economically important'. The couple years they add to our life expectancy is great, but vaccines weren't really associated with an enormous transfer of wealth on the same level as, say, the railroads or the age of sail. (And wouldn't have even if Salk had patented the polio vaccine.)
> Weren't really associated with an enormous transfer of wealth on the same level as, say, the railroads or the age of sail.
How do you predict wealth will transfer differently under blockchains than with usual state backed currencies. Not the literal (you don't need a bank), but societal?
If block chains were to completely replace US currency, but society used them exactly the same, then they wouldn't be a transformative tech. They'd need to change society economically to do that. How do you see it doing that?
I'll blog about this in the next few months, I'm going to wait until the hype dies down first though because I don't want to encourage other folks to make bad life decisions, and also so I can buy what I want to hold until the next cycle.
What I would say though is that blockchain has nothing to do with currency, that's just a red herring out there to trick people into not seeing its transformative potential. It's about reaching consensus and being able to make decisions at a society-wide level. I blogged about the implications of this is a little in 2006, before any of this was even invented: http://www.alexkrupp.com/fourwebs.html
> It's about reaching consensus and being able to make decisions at a society-wide level.
If this was really true, I could see how important that would be. Having better ways to govern ourselves, and putting 35% of GDP to better use than it currently is being used, would have tremendous impact. But, the Government and the majority will never in a million years allow this to happen and thus none of this "consensus" will ever matter (because it occurs outside the scope of our operating government). The real key to achieving what your alluding too is a massive political innovation which I don't see how bitcoin can bring about.
Vaccines are one of the major reasons we have so many people now (along with germ theory, hand washing, modern medication, etc). The billions of people who lived through childhood, who otherwise might have died, to buy our hardware and use our apps would probably beg to differ. :)
Fair enough. I guess my thinking was that that's not really an arbitrage opportunity in the same way that buying tea in China and selling it in the UK is.
This kind of starry eyed delusional exaggeration is why btc/eth/ico, etc. are seen with suspicion in places like HN. Blockchains is an area of active research, they are nowhere near the most important thing in any amount of time, for now they are just promising, time will tell how far they get. But even the marriage of this promise to current early implementations like bitcoin/eth is pure lunacy. People are getting mad on get-rich-quick schemes and price speculation, not on the promise of the technology. At this point we should be starting over every 3 months and dropping and experimenting all over the place, not tying billions of dollars on early adopter versions and spending years in internal wars when the inevitable need for improvement and evolution happens.
For the record I have no position on whether or not the current blockchains will be the winners of the space. When I talk about the transformative potential of blockchain I'm talking about the idea of realtime triple-entry combined with authenticated data and smart contracts, not about BTC or ETH or whatever.
Clearly this stuff needs another 5 - 10 years until it's ready for mass adoption, and requires lots of new mathematics and technologies that haven't even been invented yet.
Well then you should be as shocked at the transformation of an exciting research field from a technical pursuit to a den of scammers, con artists and desperately ignorant speculators. That's why you see the attitude you see in HN.
>Blockchain is perhaps the most economically important invention of the last 500 years. Right now the whole space is worth less than $100B, and it's going to be worth tens or hundreds of trillions of dollars.
That could eventually turn out to be true. But that's not inconsistent with all these new coins that pop-up from nowhere being problematic.
What's valuable isn't the transistor and the internal combustion engine themselves per say, but rather the new networks they enable: rail, roads, informations, etc.
Blockchain is also a new network, and the math for analyzing its value is the same as the math for analyzing the value of any other network. In this case I would say that it's going to be the most valuable new network since the rise of global shipping during the age of sail.
Actually the blockchain might be #4, behind the discovery of the concept of atoms and molecules and the resultant birth of modern chemistry in the 1600's.
There is a huge amount of instantly-deployable capital in Ethereum and Bitcoin, held by individuals now seeking ways to put it to work. Many technologists will naturally make use of this energy, but so will BS artists and people under the influence of hubris.
I am making this appeal because it is irresponsible to stand by and watch so much financial energy be directed at projects without appropriate constraint. Many firms funded by ICOs (or soon to be) have qualified leaders and developers and are developing great ideas, but IMO many are also raising too much money for their own good.
What may be needed to guide these rockets to their full potential are maturity, mentorship, and the careful application of jurisprudence and principles of accounting.