Thoughts on Tokens
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these token sales are successful because people who buy into them are selling off their profits from buying Ethereum (from $0.88 in Jan '16 to $193 today >2000% return). Its a diversification play of course. Look how much the DAO raised a year ago.
Its ridiculous that the adults in the room like A16Z, USV, Balaji are falling into hypnosis.
ICO's coming out have no product, no users, just a white paper and a nice website, with an ERC20 contract address for deposits.
If you talk to anyone buying these tokens, they all say the same thing, that they're buying to flip the tokens on Poloniex for a quick buck.
A recent example is Gnosis, which raised $12.5M by selling 4.17% of their tokens at $30 each during the 1st auction round. They started trading at $60-100 a week after the sale and now are trading above $200.
Look at the charts of coins delisted by Poloniex. immediate 50%+ drop. The value of these tokens is their liquidity. Take that away and you won't see these valuations.
For traditional VC's, if companies let their shares float on exchanges, the SEC mandates financials. These tokens are designed around hopes and dreams. Most certainly a bubble but more so a game of musical chairs, make some money while the music is still playing.
Bitcoin at the end of the day grew in price from speculation BUT it had a real use, albeit in the black market. It has grown from that since 2013 but not by much.
P.S. Token sales don't even give up equity. These people are paying millions for API keys they can't yet use? I don't think so.
Comparing API keys to tokens is quite weird. I don't think they have almost anything to do with each other.
In general the blog text is pretty bad. It doesn't differentiate very well between tokesn and cryptocurrencies. Tokens are usually not mined but are more like shares in a company. Also many of these ICO's are very scammy, investors should be cautious.
I read it as these tokens being transferable "right" to access some service. However, what I don't understand is why there would any reason for such tokens to appreciate in value unless there was some restriction on supply (which would damage the long term viability of the service) or some other benefit from buying in early.
Or you could treat them like bearer shares - whoever ever has the token has the equity. But that could presumably have a lot of legal issues - not least around transparency of ownership and control.
I say this as an early Bitcoin investor and current holder. Bitcoin was not a scam, but many of these ICOs are blatant cash grabs specifically designed to circumvent SEC rules about selling unregistered securities to non-accredited investors.
I'll also say that I think current SEC rules are too restrictive and to the extent ICOs represent Uber-like defiance of bad regulation, they could be a good thing. But a totally unconstrained ICO market bubble may be far too much of that good thing.
I do think that there are some projects that have tremendous promise (more specifically in the Ethereum ICO space, since Bitcoin smart contracts are basically dead in the water at this time).
For example, Swarm City markets itself as a sharing economy platform (after the rebranding from Arcade City due to one of the founder's shady dealings), and intends to compete with the class of organizations with business models like Uber and Airbnb. While they have a ways to go in terms of developing the intended product to a level that could be acceptably called production-quality, this is exactly what decentralized applications could be used to build. The fact that Swarm City is trying to work through its earlier issues and still has active development/plans to release a real project is very promising, and shows that small-scale decentralized development can work in the real world. Whether a real product can be released remains to be seen, but I'm cautiously optimistic and advising my peers to just be really, really careful - especially as new highs are tested every single day.
Aeternity is another interesting project that builds on top of Ethereum but is focused on scaling and the issue of oracles right off the bat, which is something that is kind of brushed off as a trivial and minor detail, but that will really make or break these decentralized application platforms on the whole. The technical lead, Zack Hess, has experience working on cryptocurrency projects (@zack-bitcoin on GitHub) and I think its amazing that all this cryptoasset technology is enabling people to raise money easier than before.
While abuses need to be dealt with as swiftly and dramatically as the scale of the crimes deserves, it does seem a little hostile to characterize the class of these projects as completely fraudulent. But the valuations for some of these projects is just insane. People don't need two prediction markets valued at >$300m and a variety of distributed supercomputing platforms with no real-world use-cases this badly...
Attitudes like yours are not consistent with the principles of liberal democracy, which rest on the idea that we should be free to do with our body and property whatever we wish, as long as it violates no one's right to the same.
I've never touched a digital token, and I wouldn't touch one unless the landscape drastically changed, but I would never dream of wishing prison, or worse [3], for those who buy or sell tokens. Their money, their lives. What should the government create statutes to dictate how people spend their own money?
PS: bubble != scam
Calling something a scam is a very serious allegation should not be done lightly.
[1] https://www.brookings.edu/research/make-elites-compete-why-t...
[2] https://www.quora.com/How-much-does-it-cost-to-IPO
[3] https://www.theatlantic.com/politics/archive/2016/06/enforci...
If so, then I'd say it's clear those principles (as presented by you) are wrong. They don't take into account the fact that human beings are not independent, perfectly rational actors. Decisions people make are directly influenced both by their situation/environment and by actions of other people. If you can predictably fool an average person into doing something against their interest and what they'll later regret, then there's no talking about "free will" here.
Fortunately, laws do recognize that fact. A lot of them exist to shield people from being predictably exploited. The question is not whether it's right or wrong to regulate some business models; the question is whether the model is harmful and whether it's worth to regulate it.
That's the practical reality of fallible humans with finite computational capacity.
and
>That's the practical reality of fallible humans with finite computational capacity.
and
>Fortunately, laws do recognize that fact. A lot of them exist to shield people from being predictably exploited.
And who votes in these people who enact these laws? Other people. They are not always rational, especially when dealing with issues of enormous complexity, that obfuscates the effects of policy.
These laws will inevitably be used to stifle competition to vested interests, in the name of consumer protection. See [1] above. Governing a complex society composed of hundreds of millions of people through cookie cutter rules on what non-coercive interactions are exploitive is not practical.
The spontaneous order of a decentralized, non-coerced society works surprisingly well. For example, after the Mt Gox insolvency, people in the cryptocurrency space wisened up, and stopped using Bitcoin exchanges that didn't use the highest security standards, like cold wallet storage.
Yet the Wild West days of Bitcoin exchanges were a necessary phase at a time when the Bitcoin market cap was less than $20 million and no VC company in the world would have funded a Bitcoin exchange, so exchanges run by amateurs were the best we could hope for.
In other words, had there been regulations requiring millions in capital to start a Bitcoin exchange, we never would have had a nascent exchange industry in the first place, and Bitcoin would never have gotten off the ground.
As the market grew, and venture capital began flowing into exchanges, those exchanges became more professionally run and more secure. This was a natural evolution that didn't need to be guided by top-down decree. Also, the emergence of security standards that effectively protected against major hacks was a result of trial and error, and the culture within the cryptocurrency market of retail traders and investors evolving to become more vigilant. This is a more robust situation than a market of sheep consumers corralled by regulators who become the target of rent-seeking parties looking to use regulatory barriers to stifle competition.
A couple of Bitcoin exchanges in the US were actually shut down in the early days, due to regulatory enforcement action, which contributed to MtGox dominating the market. Absent those regulatory restrictions, venture capital would have began investing in US based exchanges much sooner, and thus we would have had professionally run exchanges sooner than we did.
In conclusion, regulations destroy innovation and the development of industries, and the lost benefits of that outweigh the short-term harm caused by an industry's growing pains.
There is good reason societies that adopt liberal democratic principles have historically prospered relative to those subscribing to paternalistic ideologies. Thankfully with cryptocurrencies, industries operate more on liberal democratic principles, whether the political institutions want them to or not.
Let's go back to using leaded gasoline then, shall we?
And we should remove all nutritional labels from food packaging.
Safety ratings for automobiles are clearly a waste of time and are holding back innovation.
Restaurant health inspections, also useless.
And I'm sure building codes have nothing to do with the fact the we don't really have earthquake deaths in the U.S. anymore.
And so on...
Of course, not all regulation is effective, and some probably ends up doing more harm than good. But we shouldn't throw out the baby with the bathwater.
We should abolish mandates requiring nutritional labeling, safety ratings for cars (carmakers far exceed government safety requirements anyway, because it's good for business), restaurant health inspections, and building codes.
That is not to say we shouldn't have nutritional labeling, safety standards, and restaurant inspections. But it should be voluntary, in response to consumer demand for certified safety and quality.
Apple didn't become the largest company in the world by producing shoddy products. The market rewards a reputation for quality. In other words, society evolves toward safer and better quality products over time, whether it's through government mandates or simply changing consumer preferences and increasing consumer awareness.
I would argue that the agricultural and food safety regulations have contributed to the modern industrial agro-business model, because they are naturally geared toward more centralized operations. Small farms that slaughter and butcher animals on the premises for example face significant hurdles due to agriculture regulations. Cookie cutter solutions mandated by the government kill diversity and encourage consolidation and centralisation.
The government can play an active and positive role, by creating voluntary opt-in certification programs, that act as market signals for quality. For example, it can create a voluntary food safety certification that participating companies that meet its requirements can advertise with a seal on their products.
The government can fund public information resources to better inform consumers of the options available on the market and how they compare in quality and risks.
I am not arguing against a government role in the economy. I'm only arguing against mandating a cookie cutter solution that abridges the right of an individual to decide for themselves what risks to incur.
The idea of government actively facilitating a diversity of optional or also private regulatory paradigms is interesting. I imagine there are definite benefits that could result from pursuing ideas like that.
I do worry about the ability or desire of most individuals to analyze and differentiate between such options, especially in cases with high complexity.
For many individuals, even with determined efforts to increase awareness and to educate, it is simply too difficult or time consuming to meaningfully learn if such and such product is actually safe. As technology advances, this dynamic will likely become more magnified. It is fantasy to expect an average individual to be able to determine if an arbitrary safety rating of a self-driving vehicle is trustworthy, for example.
I wouldn't argue that many of our current approaches to regulation are optimal in the slightest. However, I would argue that complexity is increasing faster than our ability to manage it. To me, this implies that we have to make tough trade-offs at times, perhaps accepting some slowdown in growth, in order to not shoot ourselves in the foot.
Perhaps one improvement we could strive towards even now is some sort of entrenched mechanism that would force serious re-evaluation of each regulatory paradigm every so often (perhaps once a decade or so), in order to prevent stagnation and ensure new learnings are incorporated.
I'm not sure how such a thing could be implemented, but anything that moves us closer to internalizing an awareness of current imperfections and the never-ceasing opportunity to make incremental as well fundamental improvements, I think we would reap great benefits over the long term.
With respect to complexity: the world is filled with complex services where a purchase is a bet on outcomes that will unfold over many years. This myth that people cannot organise themselves to procure complicated products/services without mandates, price controls, central economic planning, etc to best serve their own needs is outdated and needs to be put to rest.
People in a complex economy delegate analysis and assessment of complexity to others, and this happens whether the delegation is mandated by a government regulation, or a result of voluntary decisions. To go back to my Apple example, the reason the typical consumer came to believe Apple products are long-lasting and well-made, and that Apple provides high quality support, is not because they personally interviewed everyone who's ever owned an Apple product. It's because public knowledge, like Wikipedia, or the reputations attached to particular products or companies, is a product of millions of minds, finding and filtering out information to produce an accurate picture of the world that can easily be digested by a typical person. It's a spontaneous bottom-up process that trumps anything that could you created by centralized committee.
I think the most regulatory restriction that can be justified is labeling restrictions that codify common law. For example, if a court finds that a particular kind of advertisement claim is misleading, it would be useful to make a law stating any claim that follows this pattern is illegal, and for government officials to police commercial communications and punish parties making such claims.
Beyond that though, I don't believe the complexity of our modern world can be addressed by mandatory solutions imposed by central committees. I think there's a very high cost attached to the centralized regulatory approach. For example, consider how much less health care spending may have increased if decentralized bottom-up processes predominated, instead of top-down organization:
http://healthblog.ncpa.org/why-cant-the-market-for-medical-c...
I recently listened to an a16z podcast where they had on a founder of a blockchain hedgefund. It was enlightening to listen to them talk about all the various coins and all the use cases. Chris, in the interview, uses an analogy of this being similar to the beginning of the internet and how you could have invested in either companies or domain names, implying domains are much more of a sure bet. In their mind, buying coins is equivalent to buying domain names. I think this pretty much illustrates their whole view - either force make some bets and be seen as part of the pioneers or miss out and be seen as the late adopting skeptics.
But there are so many fundamental differences that I would argue it's not even in the same realm of similarity. For starters, there is rampant oversupply. Everyone is trying to get into blockchain and trying to initiate an ICO or trying to create their own blockchain. Then there's the actual lack of use cases for the majority of them. Even in the beginning of the internet one thing was clear - it was a breakthrough in how quickly information could be transmitted. It's not very clear what the obvious use case for blockchains are, though proponents will provide a long list of possible use cases.
Take Golem for example. On paper, it looks interesting - it's a token for computing power that's not based on a central controlling entity. So for this to even work there has to be some sort of SDK that "packages" computing work so that computers on the Golem network can ingest it. It's a given that SDK itself is a huge attack surface vector, making every computer on the network vulnerable to a bug that will eventually be found. On top of that, there will be the huge variations in computing power and capacity at any given time ensuring that any critical infrastructure cannot run on it. Let's say you run into a problem, and maybe your output was unexpected. How do you debug? Whom do you contact if things go wrong? I'm willing to bet most people will pay a little more for the benefit of having a central point of contact (like AWS).
There's also the argument for coins being used as "shares" of a company. This is probably the most dangerous use case. There's a reason why regulators exist. They were started to protect the interest of the common man (though now it can be argued they've lost their way but that doesn't mean the answer is to completely abolish them). What's stopping sophisticated scammers conducting fly by offerings and disappearing? It doesn't take much to create a top notch video and create "buzz" around something. This is like Kickstarter on steroids (in the worst possible way).
I'm interested in hearing why I'm wrong, so if you have arguments against any of my points, please reply. I really want to believe in all of this, because that seems like the right thing to do, but something in my brain isn't clicking.
Have you read the "sapiens" book? There is a good narrative in that book in that: religion, money and legal institutions are just fictions.
So I guess the question with tokens is : can we make up new fictions?
I think we can.
If you insist on "there is a reason why Regulator exist" , well I think it's not that reason you think it is.
The point is yes there is scam , see posts above. But yes there is also opportunity to find people who share similar ideas and values and express their common goals using tokens.
Does that make sense?
I definitely agree with you in that there is some good that will come from all this but right now it's being painted as only flowers and roses by most when it isn't.
Bitcoin is a useful store of value, it provides ways to transmit value, the electronic equivalent of cash. But the use cases have not much improved, and so it's usage (outside of financial sectors) has not really grown (except the marginal increase of late-adapters in sectors where it is useful).
Financial sectors of economies are supposed to help manage the allocation of resources. What financial sectors make are the tools for economies. The bitcoin financial sector forgets this way too much. They don't actually make anything of real value. Which is why these bubbles happen, people are speculating bitcoin will be a great economic tool someday.
Except that bitcoin is loosing to other coins in features. As well as the trust of the people using it to produce actual value.
Investment differs from speculation in that it offers a yield on capital, not just a capital gain. When a company pays dividends to shareholders, all holders gain. When a company's stock increases in price, the profits of those who gain are taken from those who've lost. Speculation is zero-sum, investment is not.
A yield on capital is fundamentally different from a capital gain, because a yield is a flow of profit paid out right now, as opposed to an alleged gain that will only be realized in the future (at which point the whole thing collapses, because the system depends on continual appreciation). Importantly, a yield on USD is paid in USD, a yield on bitcoins is paid in bitcoins, etc. Paying a yield in a scarce currency is a challenge, while bidding up the price, as measured by some other currency, is relatively simple.
But I would say bitcoins are more similar to fiat currencies than commodities. Commodities have an intrinsic value due to their rarity. You cannot manufacture gold (technically you can but in very small quantities). Which means that if you find a gold coin which ancient romans were buying goods with, you can still buy a suit with it today. You can call that a convention but it is a convention dictated by the laws of physics, not by some white paper.
Fiat currencies instead only have value by convention or law, anyone can manufacture a new fiat currency, like everyone can create a new blockchain. A government can by law change the algorithm behind any of these blockchains. But a government cannot create gold. If someone finds a bitcoin key in 2000 years, long after the western civilisation is gone, it will be an interesting piece of history that can but placed in a museum, but you won't be able to buy a suit with it. With gold you will.
I think I'd view it that either things will have changed so much that the idea of exchanging physical objects for a bit of shiny metal seems ludicrously crude or that we've had a widespread total collapse and nobody is interested in shiny soft metal either (gold seems to have been used from 5th millenium BC which is a long time but definitely not "forever" in terms of human pre-history).
I tend to agree with this reasoning, but isn't it also the case that people try to give the illusion that commodities are rare? E.g. diamonds
By my definition, that's not an investment. Nor would buying a rare painting be an investment, but speculation. By buying gold, or a rare painting, and keeping it locked away in your house, you're not making capital available for productive use. You're just speculating that its price, as measured in dollars, will increase. A transfer of value from the next buyer to yourself happens when you sell it, but no value has been produced.
Regardless of the terminology we choose, can't we agree there's a fundamental difference between buying something with money and holding on to that, versus making that money available for productive use (e.g. a producer buying more efficient machinery)? When you buy a bond you're investing, because the issuer can use your capital to increase its productivity, while paying out a part of the resulting profits as a yield. When you buy a lump of gold and gold on to it, all you're hoping for is that the dollar will be devalued sufficiently to make it appear that you can sell it for a profit (in dollars). No increase in productivity needs to take place for the latter to occur, whereas in the former case bond issuers can't afford to pay interest without creating profits.
The market has fundamentally changed. Graham was right, as proved by Buffett, but even Berkshire can't make Berkshire returns anymore. To make money in investing you have to be right when other people are wrong, otherwise the value is priced in. So speculation does have economic benefit, in that it serves to help find new value and fund boundary-pushing projects. It is VC with more liquidity and lower barriers to entry.
Sure, a lot of speculators will lose their shirt, but who cares? As long as they aren't over levered, the rest of society benefits from the fruits of their risk.
I don't agree with this. Would you classify Google stock a pyramid scheme? You get zero dividend, zero voting rights, etc. etc. The only utility of owning a Google share is to sell it later when it's worth more. An important difference is that Google generates value to back its increasing stock price, whereas pyramid schemes do not.
With investment we can have win/win/win situations. For example: an investor purchases a bond with a yield (thus making a profit), the issuer -- a producer of some good -- uses the capital to buy more efficient machinery, thus enabling him to lower costs and sell more product (thus making a profit), and the end result for the consumer of this good/product is a decrease in price (a net profit also).
While speculation does have economic value, the profits made by speculators is zero-sum: those who bet correctly take money away from those who bet wrongly. As such, it's categorically different from investment, as outlined above.
On further thought, though, perhaps this classification of speculation only applies to commodities, and doesn't make sense for stock. After all, instead of paying out dividends, companies can just use this money to buy back stock, thus transferring profits to investors in this manner instead.
I buy a token for some random open source project (say a unit testing library because they link to one as an example). And then what?
Or I buy a token in a new social network that eventually becomes very popular. What does that get me?
They don't connect the dots on these ideas at all & I really wish they did. As it is it sounds like they're trying to gloss over something that doesn't really make sense when you try to think it all the way through.
Kinda sounds like they're saying that if you change your open source project to a proprietary software project you can get people to pay for it. Now that may be true (for some projects at least) but that's fundamentally changing the nature of what it is you're building.
Basically, to avoid the problems that come with the "advertiser pays" model, which include:
- Getting content you don't want (ads) because it pays the bills,
- Not getting content you do want from feeds you are following because limited free reach is used as mechanism to secure sales of ads and paid reach.
Of course, some hustlers may try to use app coins in a cynical, Adobe-like business model where you have to pay rent to run software on your own computer and they may be justifiably rebuked.
This is a way of creating an online secondary market with little infrastructure. It assumes you want to encourage it. (Unlike many artists who want to discourage scalpers.) You could imagine this sort of thing happening with any other credits, like game currency or frequent flyer miles. Something usable worldwide (unlike concert tickets) would have more value.
However, I don't know how many companies who will want to hand out credits that are exchangeable worldwide in this way, since you don't know who your customers are and there is little protection against abuse. It seems like there would be a lot of potential for money laundering as well.
But, if you're desperate to raise funds, it gets you money up front (much like Kickstarter) and speculation might result in raising money faster. On the other hand, it might reduce demand due to less "fear of missing out," since people might consider buying it later (much like they buy products on ebay).
What would open source projects could give people that they would want to buy? There are games and other product-oriented stuff, but most software isn't in that category.
It's ironic that a technology supposedly based on not having to trust anyone relies so much on trust. If the company doesn't deliver on whatever the tokens are supposed to buy, they become worthless.
very good points, with no clear answers from these Cryptocurrency companies ..
As far as I understand, this is the exact opposite of what happened.
After a flaw in a contract, on the Ethereum blockchain, was exploited, most people agreed to follow a hard fork which retroactively changed the core protocol such that the interpretation of the malformed contract no longer allowed exploitation. Ethereum Classic is the original, unforked chain, in which the flawed contract is respected, rather than altering the core protocol to circumvent a badly written contract.
The original Ethereum Homestead blockchain was designed to demand at least one hard fork. The mining difficulty was set to increase exponentially after some time, in order to force the community to make a decision regarding switching away from proof-of-work toward proof-of-stake. The ETC community hard forked the Homestead chain to remove this "difficulty bomb."
That's quite different from the "TheDAO" hard fork, but it's still a hard fork of a blockchain, so it's not true that ETC represents completely immutable law -- that community can also demonstrably agree to hard fork.
Deciding whether the organization behind that whitepaper is legit, competent, and serious enough to actually make it happen is much more difficult than ticking some bullet points. Front end development is hard to do well, cryptoeconomic mechanism design is really difficult and prone to horrible failure, marketing is hard, profit is hard, etc etc.
(As an aside, I'm curious how many people actually understand how IPFS works. Are we all clear that it's not a magic place where you can upload things to make them available everywhere forever? In most important aspects it's equivalent to BitTorrent with Magnet. You still need to seed!)
That all said, in the sense of the "Keynesian beauty contest" it doesn't really matter whether a team will actually deliver anything good. If the web presence and whitepaper hype is cool enough to generate a good buzz, that's enough to generate a speculative wave where you hopefully won't be part of the crash!
1. Tezos (not part of ethereum ecosystem) 2. Golem (part of ethereum) 3. Litecoin (they are pioneering the lightning + SegWit protocol first, before BTC, the price could rise dramatically if it's a success) 4. Dogecoin (this one is just fun and has been a cult classic since it came out, don't recommend anyone buying, just fun to add it to the list, much wow)
Disclaimer: I own no position in the above nor am I affiliated with any of them. These are just my opinions.
Markets with low liquidity are terrible at price discovery. Price in a prediction market is (if we believe in the concept) directly tied to how likely a prediction is to be true.
> The dogetipbot website emphasized that the service was always free. Yet, somehow Mohland believed his creation could support a business model. He tried to get investors, but who would want to invest in dog meme tokens with no path to monetization?"
> “Very lies, such betrayal, WOW.”
> Now, Dogecoin will likely meet the fate of other altcoins, such as Titcoin, Auroracoin, or Namecoin. The greedy holders have no reason to ever divest, so the currency will be kept alive by the weird true believers in some godforsaken corner of the internet, where forgotten botnets and graphics cards mine blocks for the benefit of no one, until all the wallet passwords are finally forgotten. Though the currency began as a spoof of crypto culture, it was the same greed and delusional idiocy that has plagued more serious ventures like Bitcoin that struck the final blow.
- SiaCoin: Free market cloud storage
- Lisk: Decentralized Javascript apps