Will Initial Coin Offerings Fund the Future? | Hacker News Reader

Will Initial Coin Offerings Fund the Future?

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35 pointsbwertz43 comments

The term ICO is horribly misleading. It sounds like IPO, which generally is a liquidity event that happens after a company has become established. An ICO happens before there is a company or business, in any meaningful sense. But there is one similarity -- like an IPO, the sellers in an ICO are immediately liquid. What could go wrong?

Well, it's a new term, and the meaning constantly evolves. From what I've seen, the expectations raise every month - originally ICOs were just posts on forums, now you need to spend considerable amount of time preparing the business outline, building a team, and your own credibility. If I'm not mistaken, some ICOs launch with some serious coding before.

The current requirements for a good ICO are quite similar to what you'd expect from a seed round, if not higher.

The aren't necessarily liquid for the full amount. It's possible to make a smart contract that doles out the funds over time, or even lets contributors vote on releasing funds.

Plus it's fairly standard to award the creators some of the new tokens, with a vesting period of at least a year. The general idea is to used the raised funds for development/marketing/etc, and the tokens as the reward; if the project fails, the token will be worthless, so there's a strong incentive to work at least until they can sell off the tokens.

OK, yes -- there are many cool technical possibilities. And per the other commenter above, it's not as if this is any less rigorous than an average seed round. OK, but when you have people investing multiple millions at a 100mm+ valuation, on an unproven team (and this is a charitable description in many cases), pre-product, there is a risk that the opportunity is being mispriced. There is a conflict -- on one hand, an ICO is "fairer" to developers in that they receive immediate compensation, and a larger share of the opportunity for the work they are doing. On the other hand, this mechanic is highly prone to fraud and abuse.

I agree that some of the valuations are crazy. But that's not unique to crypto. The same thing happened in the dotcom era.

Of course there might be good, honest and non-greedy actors among the crowd, but I think the bad apples will spoil the market.

From the article: "Note that most of these ICO-funded projects have not publicly launched yet." They probably took the money and ran.

The "DAO" crowd never delivered their Internet-enabled door lock, after two years of hype. (If you want an Internet-enabled door lock, most of the big lock manufacturers offer one.)

Er, TheDAO failed, but because of the hack that caused Ethereum hard fork and the return of money to the original investors. The founders of Slock.IT never received a dime.

While I was never a fan of the lock, TheDAO was an investment fund - there was a forum with a few other prospective proposals, and they had some amazing ideas regarding the funds' governance. There are some other, similar, funds in the works now.

Fraud fraud fraud. These are 99% pump and dump schemes.

This is true [1] but does this matter if even only 1% is incredibly innovative and world changing? I think a limited number of these will almost certainly be successful operations.

That said, I do not plan to invest in anything beyond ETH (ethereum currency) because I have low confidence in most of these ICOs and it's hard to pick out the right ones.

[1] It's true most of these are hare-brained schemes by people hopelessly over their heads, including a fair number that are scammy. However, given how little most of these promise (beyond saying something along the lines of "we're building X and if people use it there will be an automatic payout to coin holders") I think it's unfair and close-minded to just label them all "frauds" a priori- Something can't be a fraud if no one is lying- Terms like "pump and dump" and "scam" for some of these I think is fair though.

Yes, it does matter, nobody is going to trust the one honest guy when the 99 others are looking to rip you off for as much as they can carry.

Distrust and inability to ascertain quality before purchase drives out all the honest players from the market.

https://en.wikipedia.org/wiki/Market_for_lemons

While I agree that 95% of ICOs are not so good, so are 95% of e-mails in my Inbox.

With ICOs, there are quite a few ways to ascertain the quality - regular due diligence applies, even more so when there are so many eyes watching every proposal.

I don't know if the "market for lemons" argument applies when a market is purely fraudulent. In that case, normal dynamics do not apply and the key question is whether you can always find new suckers. I argued in another comment a few days ago that the answer is yes: https://news.ycombinator.com/item?id=14220491

I own ETH as well but let's be honest it's mostly about speculation at this point (see: the GNOSIS launch today). I'll be a lot more confident when I see a draft of a sustainable proof of stake system and a few major commercial partners.

Crypto market cap in these proof of work systems fascinates me. ETH now has a $7b market cap but it would take less than $100 million in hardware to control 51% of hashing power and effectively destroy the currency. (And to the extent you can lease cloud resources, probably much less.)

Well, what would happen with that type of attack is that ethereum would be "frozen" for 6 months or so until a "Proof of Stake" version of ethereum is ready, which would have more protections against this type of attack (because of "Auditable Byzantine Fault Tolerance")

I agree the attack would still be devastating at the moment, if someone has a spare $100 million lying around that they want to throw away.

> but does this matter if even only 1% is incredibly innovative and world changing?

Like a one-in-a-million totally legit and revolutionary pyramid scheme?

I treat them like penny stocks. 99% of the "shitcoins" whose ICOs I bought into were complete scams/failures. The other two were Ethereum and Dash :)

Bad actors don't invalidate the technology or the opportunities it brings about.

ICOs open access to funding to companies outside the usual VC-preferred areas and sectors. They also allow pretty much everyone to invest (though the ones that follow regulation tend to disallow participants from US that are not registered with the SEC).

The complete idiom is "a few bad apples spoil the bunch", which is the opposite of the point you're trying to make here.

Point taken, edited to say bad actors.

The sec will put a stop to these at some point. Probably sooner then later.

This is a global phenomenon, not just happening in the US.

How would they enforce it?

Much the same way they enforce that every crypto exchange that wants to touch US dollars has to follow US KYC/AML rules.

(And even then, banks can be touchy enough that you still can't get any ActualMoney out of Bitfinex.)

> This is a global phenomenon, not just happening in the US.

So are many other kinds of financial transactions, there hasn't been a real problem enforcing that. That's basically the IRS's job.

There hasn't been any problem enforcing it PRECISELY because cryptocurrency technology didn't previously exist.

I don't think cryptocurrency helps. When we're talking about regulation, we're talking about tax and tax evasion, right? They don't need to be able to trace the source and destination of all financial transactions. They just need to notice the guy who's reporting to the IRS he's working at minimum wage is driving around in a brand new sports car. Which is the sort of thing that will show up during a random audit. So the problem with using cryptocurrency for unregulated or illicit things is the same for cash: you need to launder your money. So you make a small business that sells stuff using a cryptocurrency, and inflate the profits with your dirty cryptocurrency. But then during an audit you have to show your reported income is legitimate, with proper sales receipts and such. And then we've entered the exciting, fast-paced world of forensic accounting! It's all pretty much the same story as a cash-based business.

> we're talking about tax and tax evasion, right?

I was talking about unregulated securities offerings, where I'd say cryptocurrency DOES help. However, I see OP invoked the IRS for some reason- I agree cryptocurrency doesn't help much for tax evasion.

I'd say it can help.

You can have 10 million USD in crypto and live a normal life: pay rent, drive a usual car, etc. Nobody will notice you, not even the IRS.

If you want to move your funds in another country, you simply have to move yourself and spend them there. You can't do that with fiat.

$10M in unreported income, that you're actually spending? That's tax evasion. It's literally the IRS's job to catch that behavior. And at the end of the day if you're spending more than what you've reported as income to the IRS you will be caught.

Right, you could live a middle class life for 20 years and then retire in Nicaragua or something with 10 million USD...

...or you could just pay 20% (or whatever) cap gains taxes and immediately use your 8 million USD in the US- That seems like the preferable option.

Who has jurisdiction over a functioning DAO (Decentralized Autonomous Corporation/Organization)?

My understanding is that, absent an explicit supporting legal structure, it would default to being treated as a general partnership. Which means that partners in the DAO would be liable for its activities, and could be held responsible in whatever jurisdiction they happen to reside. Thus, instead of having no jurisdiction, it could be answerable to up to as many jurisdictions as it has members.

I would ask: who wrote the DAO code? Someone (or several people) tested, developed and then deployed the code.

So did the authors of Linux, and nobody is chasing them when a hack appears.

Probably only in the U.S, and even so probably hard to regulate anyways due to nature of cryptos

What about crypto currency makes it hard to regulate? The US Gov regulates all financial transactions, including face-to-face exchanges of cash, which is just as untraceable as crypto currency unless you have the budget to follow everyone around in spy vans (which the IRS does not).

1. You cannot shut it down

2. Unless you coordinate internationally, the nations with less regulation will launch successful businesses on it and dominate the market - imagine US having some crazy internet regulations in 1996, and other nations not having them. We'd be having this discussion now not on Hacker News, but on Новости хакера, or on 해커 뉴스. And US economy would be a few (dosen?) trillion dollars poorer.

Hard to regulate it because it has properties of a scarce commodity, currency, speech, token used to access service, plus more.

I think the founders of e-gold and LibertyReserve can tell you all about how hard it is for the US to regulate financial services conducted over the Internet using databases and tokens but over the planet by actual people and corporations.

Apples and oranges. You can't sieze the server or domain name and turn off cryptocurrency. That guarantees that the back end keeps running. Then your only way is to regulate the usage of it, but when that can be obfuscated with things like tor, VPN, public WiFi, etc it's going to be incredibly difficult to do any sort of meaningful enforcement. Add decentralized 'smart contracts' such as what ethereum has and it can be run beginning to end in a fully decentralized way.

Will scam coins fund the future?

https://en.wikipedia.org/wiki/Betteridge%27s_law_of_headline...

Whether or not it's entirely true, this is a good link to click.

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