Comment by isubkhankulov | Hacker News Reader

Comment by isubkhankulov | Hacker News Reader

However, when considered as an alternative to classic equity financing, token sales yield a >100X increase in the available base of buyers and a >1000X improvement in the time to liquidity over traditional methods for startup finance. The three reasons why: a 30X increase in US buyers, a 20–25X increase in international buyers, and a 1000X improvement in time-to-liquidity.

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.

Stopping investment scams like the current ICO bubble is exactly the reason the SEC exists. It is an absolute certainty that this party is going to end in regulation and it's also likely that a bunch of people will end up in jail. The only real question is how long it will take the regulators to figure out which one of them has jurisdiction here.

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.

Completely agree with everything you're saying. I hope the SEC prosecutes any criminal activity that is found to be intended to take advantage of unsophisticated investors, but I don't think its appropriate to characterize ICOs as a cash grab as some have in this thread. I participated in the Ethereum pre-sale in 2013 and think ICOs in conjunction with the relatively new SEC regulation surrounding crowdsales (https://www.sec.gov/news/pressrelease/2015-249.html) could potentially facilitate new, organically-grown companies that reward individuals for their independent analysis of a project that they believe has value, irrespective of how much capital they have - people should be able to measure the risks they are willing to take, and exercise the judgment call accordingly. Currently regulatory limitations force potential investors with less capital to limit their participation in projects that they may want to have a stake in - I don't think that's fair.

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...

Claiming that adults making their own decision to buy the equivalent of a digital collectible, is a scam, and should be prohibited with long stretches of time in prison for those who take part, is why income disparity continues increasing [1], why the financial sector is dominated by a handful of corporate giants, and why it costs $6 million to do an IPO [2].

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...

> 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.

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.

>They don't take into account the fact that human beings are not independent, perfectly rational actors.

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.

> In conclusion, regulations destroy innovation and the development of industries

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.

Leaded gasoline damages the health of others without their consent. Restricting pollution is obviously not the kind of "regulation" I'm talking about.

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.

Thank you for elaborating/clarifying your position.

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.

You're welcome. Thanks for considering my viewpoint.

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...

Divest before it's too late...

How is it a scam if there is instant liquidity right after the sale in most cases?

> These people are paying millions for API keys they can't yet use?

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.

Have you guys thought about adding ETH trading? or Monero/Dash?

"I don't think they have almost anything to do with each other."

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.

This. I'm still shocked that reputable VC firms like a16z are completely throwing their weight behind cryptocurrencies without even a slight bit of skepticism.

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.

So let's try this. Basically you are not "wrong" it's just about Belief and fiction.

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?

Sorry I was traveling and missed this. I haven't read Sapiens yet though I have a rough idea of the concepts you're talking about.

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 has grown "not that much" from 2013 you say

In actual usage, no not really. In bubble based investment, yes. I know people who run bitcoin ATMs, and who trade bitcoin for cash, they have seen only a marginal increase in activity over the last few years.

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.

my exact language was "grown from that" meaning grown from the black market.

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