What is an Initial Coin Offering? | Hacker News Reader

What is an Initial Coin Offering?

technologyreview.com

55 pointsomarchowdhury22 comments

> tokens aren’t just stand-ins for stock—they can be set up so that instead of a share of a company, holders get services, like cloud storage space, for example.

How is that an attractive proposition? It means I get all the risk of buying stock in a new company, but none of the benefits. My money is gone if the company goes belly up, just like buying stock, but if the company does well, the best I'm ever going to get is some standard service. My token will never be worth more than whatever that service is worth.

The most cynical among us might consider that shareholders are just "yet another bunch of creditors" in the queue if something goes wrong. Which doesn't seem much better than "the first customers for this crappy coin/service."

The difference is not in the worst case scenario - everybody loses all of their money if things go really wrong. The difference is in the best case scenario, which can be very attractive as a shareholder.

You could hope to resell the service for more than you initially paid for it in the ICO.

> My token will never be worth more than whatever that service is worth.

Right, which is why ICOs seem to basically be digital commodity speculation. Still plenty of money to be made in that space. You're betting that the service will become more valuable over time rather than the company.

And there is zero financial regulation of "services" like there is financial regulation of companies.

It's the equivalent of speculating on the value of an item in World of Warcraft (Or some other mmorpg). At any point in the future the company will just change the game logic rules to make it worth less and forge a new item out of thin air worth more to raise more funds.

"Oh yes you have our A coins, but you need our B coins to do certain special transactions. Convert at this rate that's highly favorable to us. Or buy in to our B coins ICO and get in on the ground floor before we begin to phase our A coins out."

Don't purchase things where the other party can redefine what you own as it suits them.

"Buy this property from me, but at any point in the next 50 years I can come in and redraw the property boundary lines and keep what I carve off."

The token is not pegged to some dollar-valued fixed amount of that service. Using the air miles analogy, it's like instead of purchasing a fixed number of miles, you are purchasing some percent of the total miles that the airline will fly, and are free to sell those to people who want to travel later. It's theoretically a good investment because it will not be possible for anyone to fly on the airline without buying air miles from someone who participated in the ICO. For example, if you think that the market for filecoin file storage is going to be bigger than $200 million, then it makes sense to buy their tokens in the ICO.

ICOs are a terrible idea for most business ideas today.

But they also may enable new business models that haven't quite been figured out yet, especially in areas where network effects and adoption are key drivers of success. The question is what kinds of novel organizations can be built with this model, not how can these be slapped on existing ideas for a quick influx of cash.

I've always enjoyed Matt Levine's explanation of an ICO:

It's like if the Wright brothers wanted to sell you airmiles to fund their invention and development of the airplane.

> What the Hell Is an Initial Coin Offering?

A fast way to lose money.

or make money. Depends which side you're on!

Either way it's gooing to be a great way to get in touch with the SEC from the wrong end of the stick.

Valid answers:

1. A scam 2. A fad / bubble 3. An example of the reason why the SEC was created and why securities are regulated in the first place. 4. An efficient way to lose your money

Do we have to make this comment on every post about crypto on HN? Let alone the 5+ clone comments on this very thread?

This article already addresses this: "The scene does seem ripe for swindles and vaporware," but goes on to discuss it with more nuance. Perhaps we could do the same?

It's like it's 1992 and a bunch of Luddites are bashing this new thing called the internet because it's unregulated. All the while, failing to realize that the underlying technology has the potential to change the world for the better in a major way.

What happened to the maker spirit of HN, I wonder? I used to think it was the paragon of technological discourse, rather than simply a bunch of white collar workers all cozy with their barely six-figure incomes who think they are the beginning and end of innovation simply because they know how to string API's together and use google.

It makes me think of this community's nearly unanimous stance that code schoolers/bootcampers are bad hires and that a compsci degree is the end all be all when it comes to making a hiring decision. It's obvious that the devs who took a more traditional route feel threatened by the fact that learning to build applications is not as difficult as they think it is. If it was, code schoolers wouldn't be finding jobs in record numbers like they so obviously are.

And sure, ICO's are risky. It is probably not wise to put your life savings into one. So how do we make them less risky? What sorts of netsec lessons learned over the past 30 years can be applied to them to make them less so? How do we bring about the next major technological revolution and insure the future is something to look forward to rather than fear?

This community as a whole needs to climb down from its ivory tower and realize that innovative technology and ideas are what put them there to begin with.

I'm not saying we ought to blindly champion every new idea that pops up, but I do think we could be using our experiences to contribute rather than burying our heads in the sand and pretending that things can't or shouldn't change.

In most markets people have some understanding of the produce they invest in or they choose not to invest at all. In the markets of ICOs, the percent of money held by people able/willing to dive into both the technical and economic side seems to be a small percentage.

I wish I could back up that 'presumption' with facts. But my only real evidence is having seen maybe 3s ICO themselves and read accounts from people investing in them. There is just no explanation other than that people don't have the slightest clue what they're doing and have simply seen 'crypto investments pay big!'

An ICO is one thing and one thing only: a scam.

To clarify, after YEARS in crypto, I have never seen a widely announced ICO really do anything revolutionary or wind up sticking around beyond the initial pump / dump and market manipulation period.

What about TenX? They have a debit card you can order now

How is that revolutionary? There are APIs that do this already. https://www.shiftpayments.com/

So, 2, 3 years?

It is like someone from 97 that was using computers since the 80's saying that didn't see anything revolutionary or useful being building in that time.

The ICO craze seems like perfect material for the TV show Silicon Valley, especially after FileCoin has become a real thing.

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