ICO’s, Crypto’s and my Concerns.
My Background in Crypto
Firstly let me say I am a massive believer in blockchain technology and the possible uses that could advance humanity. Having spent quite a bit of time in the crypto/ICO world over the past 6 months, in Berlin, Zug ( Crypto Valley ), Singapore, Hong Kong and on The Coinsbank Cruise in Asia I feel I have more of an understanding of the space than many ( but I am far from an expert ). In these and other locations I have talked to many, many people about anything and everything around the subject, including the impacts on society, the valuations of coins, potential uses, the list is endless. But I have some major concerns that this method of funding is being abused by many.
ICO’s are a new funding mechanisms being used by many in this space to raise finance. It can be a much easier funding mechanisms than traditional Venture Capital methods, but with much less protection for investors. ICO’s are raising $10,000,000 plus many with little product. For these reasons the moral character and execution abilities of the founding teams behind any ICO are of huge huge importance. This issue was recently addressed by Vitalik Buterin, the founder of Etherum. ( Reference )
ICO’s are currently unregulated and many governments are concerned, including the US who have recently begin clamping down on some ICO’s. In December this happened to Tezos (Reference):
- the Company raises money via a private ICO without the coins being listed on any trading exchange. ( sometimes these are old failing companies who have run out of funding who are just repackaged).
- the private ICO is executed with syndicates of private investors buying the coins ( unregulated collective investment schemes – which are illegal in many countries ). Many people running these syndicates have been involved in the “scene” for a few years and are very well connected.
- sometimes these syndicate deals are done with the agreement of the founders and sometimes the founders are completely unaware of what is happening.
- thus coins are now held between founding teams, advisors and the new investors.
- exchanges are “persuaded” to list the new coin ( I have no idea what criteria each exchange use to decide if a coin should be listed or not ).
- prior to the listing on a exchange a marketing exercise is created to create hype round the “new coin”.
- once listed on the exchange the “new coins” become tradable and the mass market begins buying the “new coin” generally at a premium on the price ( the coin “pops” is the term people use ).
Some of the recent ICO’s have created systems to prevent coins being traded by investors and founders for years and have also decided to not list on exchanges for several years. Thus locking investors and founders into help deliver a product and thus remove speculators, but the amount of ICO’s where this happens is still small. Once more Vitalik of Etherum, has shown his concern, and has proposed a potential solution to the speculation issue:
So before investing in any ICO please check:
- make sure the ICO is not a security and there is a real need for a coin.
- make sure the ICO is not just an old failing company repackaged to look pretty for an ICO.
- ask the founder “what is so different about what you’re doing that requires an ICO rather than usual methods of fundraising?”
- ask all the early investors, coin holders, founders and board members to state in public (twitter/facebook/linkedin etc) that they believe the team is morally good. ( hence creating a public record incase any regulatory bodies want to investigate if something goes wrong )
- you believe the team are extremely moral.
- you believe the team can deliver the project they have described.
- the white paper explaining the business forces the founders to have very long lock ins and only to become rich if they deliver something of real value.
- the early investors have no method to quickly “flip” their coins and make a quick profit.
- the ICO operates in a jurisdiction that has some resemblance of legality ( Singapore and Switzerland are common countries for these to be based in ).
- Do you have experience building a community?
- What is your strategy in building, growing and sustaining your community?
- What is the role of your token?
- Could not you have just used Bitcoin?
- Who is your customer base?
I am going to start asking founders who are doing ICO’s to answer these questions and publish them. First one will be in a couple of days. Any questions I should ask?
This is a work in progress document, so please help me and post extra information for me on twitter:
Thanks for your time please share this far and wide