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Comment by firefoxd | Hacker News Reader

Maybe I'm the last to join the party but if i understand correctly, is this money they are going to receive as investment?

I ask because as much as i can google I can't find any product they are selling or any ad they are displaying, so what is being bought here?

I'm not trying to be sarcastic, is there something i am missing?

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Per the SEC filing, yes, they are receiving the $850M as cash from private investors (mostly VCs).

The "product" they are selling is tokens for their ecosystem, described in this leaked whitepaper: https://drive.google.com/open?id=1oaKoJDWvhtlvtQEuqxgfkUHcI5...

Thanks, that was a good read. And raises a lot of questions in my mind.

They are going to use PoS mechanism. So, I had to look at the token distribution scheme. 4% by the team and 52% by "Ton Reserve", which I think is not explained. With only 44% held in hands of non-Ton people, is this even decentralized?

If it's proof of stake and the majority is held in a single hand and the proof of stake required isn't a supermajority... then it's basically a database under the control of one entity.

ICOs aren't decentralized. They are tokens sold by an entity that premine them and generally control most aspects of the project. There might be exceptions, but I can't think of any.

So are you saying when Ethereum did ICO it was not decentralised? And you do realise this will have its own blockchain and only reason there needs to be a blockchain is "decentralisation".

Ethereum didn't even exist when it ICO'd, neither in code or in blockchain.

> is this even decentralized?

not in the least

Note that the $/coin scale was exponential during the ICO and private. Essentially premined by well-connected vcs.

Similar to startups before reaching IPO but much faster.

All coins in presale were sold at a fixed price, will be same for second round then on curve for future tokens

Does it say in the document who the investors are? How did you know they are VCs?

Not the parent, but I suppose it's safe to assume that VCs populate most large deals in tech. He also said 'per the SEC filing', so his source could be that.

With that said, Telegram's founder, Pavel Durov, is a Russian entrepreneur and of the $850m from 81 investors, an entire $300m was invested by a well-known oligarch in the country, Roman Abramovich.

Presumably they will use the tokens in the app for payments and a way to run decentralized applications (so paying for computation, storage, etc.) What's being sold is the potential for the token price to appreciate in value. It's definitely a worse deal for investors than an IPO as there is no equity being sold.

Apologies if I ask stupid questions, but can someone explain me the relationhsip between the tokens created in ICO and ethereum (or bitcoin)?

I mean, are these new tokens completely indpendent (economical) entities with no connection to the value of other cryptocurrencies, or do they somehow derive value from ethereum?

To put this in practical terms, if I want to raise money via an ICO and promise that you can use a token in one year's time to buy USD100 worth of gadgets from me, is that doable without anyone taking any risk on the fluctuation of value of cryptocurrencies?

The new tokens are completely independent of other tokens. Buying at ICO, you’re acquiring tokens that you hope will have value once the system is up and running.

I’m sure you could do that somehow, but I don’t believe anyone has done it.

But isn't there some link between ICO and traditional cryptocurrencies? I thought the transactions are somehow logged to e.g. ethereum blockchain?

Most tokens are implemented by ethereum contracts, because it is the simplest way to implement such thing, but they don't have to be.

Here is where I go confused. New tokens are supposed to be completely independent from ethereum economically, but at the same time they are somehow ethereum contracts. Would that not mean that someone needs at some point own ethereum and take the market risk?

Yes, to transact tokens that run on top of Ethereum you have to pay transaction fees in ETH, which AFAIK means you need to buy at least a small amount of ETH. There are some recent proposals that would allow fees to be paid in other tokens, so I guess if those go through then you could use tokens without ever touching ETH.

That certainly depends- Ethereum didn't sell equity and investors in the pre-sale did very well.

> It's definitely a worse deal for investors than an IPO as there is no equity being sold.

If you pay $100,000 for 100 shares of Google I guess you're technically getting equity, but what exactly is the advantage of that?

Sure, your broker has a digital ledger that records your ownership, but is that fundamentally different from digital entries in any other ledger just because there's equity?

Whether you buy Google shares or Telegram tokens, the only reason you're buying is because you expect the price to go up in the future.

I'm not sure equity has anything to do with it.

Well, with shares you are more or less guaranteed that they will increase in value, if the company does well.

With tokens this is not clear, as it would be possible for Telegram to do insanely well, but the tokens not being very popular/being used for some unimportant feature.

Thw tokens not being used is what gets me. Is telegram incentiveized at all to use the tokens? Sure they own a lot of them, but so what? They already got the cash and they can just use it to do business like normal and make money that way. Why try and get people to use tokens to do business when they can just have them use fiat to buy things? The transaction of the tokens is taxable just like any sort of barter exchange, so it's a lot more complicated to work with than fiat. I just don't get it. It might work for a business that is locked out of the banking system, but otherwise, why bother?

Are there any ICOs that have tokens that are valuable based on anything other than their speculative value? Do any even have a dividend or are useful for anything besides trading on exchanges? Most tokens seem to have a big spike and then slowly grind down in value over time. It just seems to me like a "make your own speculative bubble" industry.

The U.S. government has a set of laws that govern what “shares” in a US-listed company mean. If Google’s management tries to completely nullify what equity ownership means, the US government will go and take it back. They will freeze the founders assets. They will ground the company aircraft. They will send scary men with big guns to make arrests of people indicted by a grand jury. Those things are pretty hard to get away from, short of fleeing to Venezuela or something.

What analogous threat of violence is behind the value of Telegram tokens?

IRS, FTC, or SEC raids?

Fraud is fraud whether it is in equity shares or ico magic money. Granted, equities are much better monitored and regulated, but if they steal from investors through the ico, they will likely face similar enforcement.

It’s only fraud if the promises of the contract have been broken. Nowhere in their whitepaper they equate a token with a right to receive dividend or to claim a share of the company’s assets in the event of a sale.

> Whether you buy Google shares or Telegram tokens, the only reason you're buying is because you expect the price to go up in the future.

I am not arguing the equity angle. I kind of agree with you on that, especially because you used Google as an example.

But, I am getting a bit tired of people making it sound like IPO and ICOs are the same. They are not. Google or any other company have to be in operation for year(s) and show consistent revenue, if not profits and even talk about their future plans on how they will use the money before people "expect their prices to go up.

ICOs on the other hand rely simply on paper. No one knows whether they will deliver on their promises and expect price to go up. It is like VC investing for sure. But, without the expertise required to vet ICOs the whole "expectation of price going up" can be described as FOMO.

Shares can also pay dividend.

Shares mean you get a vote in the running of the company. You also have recourse in law to bayous standards according to the country's laws they are registered in

google as a class of shares with no voting rights, and historically the market price is not very different from the voting stock.

None of these dapps have implemented or demonstrably plan to implement any systems that require the use of these tokens in a way thats compelling. who cares if youre goldcoins on flavorville are on a blockchain? its such a trivial and incredibly boring use of the infra. I’m actively working in this space on open financial instruments, a common standard and “designer software” to model and test contracts before they get issued and broadcasted by market participants. also needed is a formal specification for contract formation that doesnt cripple rapid prototyping by quant devs or enterprise companies. Mass-market adoption of arbitrarily complex financial products is tricky and could be fraught with problems and dangerous classes of errors, which makes the need for the new instrument types to be interoperable across wallets and exchange venues, while also being editable and more easily deployable is critical to be aware. While displacing intermediaries structurally due to the extinction of prior trusted models, its important to understand that these tokens basically do represent ewuity ownership and calling them in app currency is not a reasonable “trick” to get around securities legislation

If I own shares of Google, there are two methods of earning money. Appreciating of the stock or dividend payments for my share of profits.

ICO only offers me the speculation part.

GP may have selected GOOG because it does not pay a dividend (like BRK.A).

Neither did apple, until it did. But regardless, the appreciation is there. Google reinvests profits and buys back stock thus adding to the capital appreciation of their stock (something that yields better tax advantage than dividends anyway).

Are you saying BRK.A pays a dividend?

No sorry I see how that was confusingly worded... GOOG does not pay a dividend, much like BRK.A does not pay a dividend. I'm sure there are other stocks that don't, I just can't think of any others off the top of my head.

Majority of stocks pay dividends, but some double digit percentage do not.

There's no product yet, they're selling the tokens that will be used in future products.

When we finally find use cases that make cryptoassets relevant to regular people for routine activities, then the skeptics will understand that there's more going on here than just tulips and Ponzis.

Telegram has real potential to do that, it just takes some imagination to see what it could be.

They way you describe it makes it sound like you're giving free money to vapourware. Telegrams ideas around tokens could be useless and lead to the tokens being valueless. At a minimum we should expect a clear product roadmap from them.

Small nit: Until we finally find use cases that make cryptocurrencies relevant to regular people there's nothing more going on here than Tulips and Ponzis.

unless

I chose "until" specifically because finding a good use case does not justify any of the shenanigans that happened before that discovery. The word "when" doesn't carry that connotation, and "unless" doesn't either - though I'm guessing you chose it because it implies we may never find one?

We may as well do, but unless that actually happens, it's going to continue being just wishful thinking.

Given that nobody has found those use cases yet, why do so many people assume they exist?

Well, investing such cryptoassets into other cryptoassets as well as hodl’ing those cryptoassets are two robust everyday use cases.

I think the strategy is getting in a central position in people's communication; they also have a huge user base; perhaps that doesn't justify 850M but those are some things to look at.
Wherever someone has this big influence and strategic position, they will have big chances to leverage them and make such investment worth (especially if the founder has a proven business-runned mind).

There's a private whitepaper floating around.

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