The SEC Will Leave Good ICOs Alone | Hacker News Reader

The SEC Will Leave Good ICOs Alone

bloomberg.com

272 pointschollida1133 comments

I think couple of things need to be repeated from earlier threads. This discussion happened during a Yahoo conference. So, its more like a person's opinion. Unless we get a press release from SEC it is a difficult statement to make whether SEC is all good with ICOs.

Secondly, the question of Ethereum being a security is a tricky one. It is a security by definition given in the same speech. So, it started out as a security but then it is not a security any more? That is confusing. A good read on this:

https://prestonbyrne.com/2018/06/14/ether-is-not-a-security/

Here's the official statement from the SEC.

"based on my understanding of the present state of Ether, the Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions."

https://www.sec.gov/news/speech/speech-hinman-061418

Please read in full before quoting an article. The very first footnote is:

> The Securities and Exchange Commission disclaims responsibility for any private publication or statement of any SEC employee or Commissioner. This speech expresses the author’s views and does not necessarily reflect those of the Commission, the Commissioners or other members of the staff.

But isn't this person the person in charge within the SEC for setting the policy? It seems unlikely his opinion will be different from the official stance.

Even if one person is in charge, policy is not set in isolation. Their opinion will weigh on the decision but it will not be the decision.

its like a meta-security - they dont have a name yet for this class of product that certainly has broader asset-like features, while at the same time having at least 1 layer of indirection with the `gas` shenanigans

Is it still a greyzone? Yes. Has the grey gotten lighter with a personal opinion on the SEC site? Also yes.

I think the headline might be glossing over some important details. There is a subset of ICO's that consulted lawyers and structured their deals in such a way that they don't run afoul of SEC regulations. If you ever see people talking about a "utility token" that is a why they are calling it that. It doesn't give the owner any stake in the company or right to a share of the company's profits. It's more a kin to a virtual currency in a video game the likes of which preceded crypto currencies.

What people really want or where I think the promise of Ethereum in particular really lies is to tokenize traditional assets in the form of ERC-20 tokens in the case of stocks or ERC-721 tokens in the case of unique property. The SEC will need to be involved in the former to make it legal. Both Coinbase and TZero possibly others are working on that now.

> if you ever see people talking about a "utility token" that is a why they are calling it that

The SEC has consistently seen utility tokens as securities. The workaround, so far unproven in court, is the SAFT (simple agreement for future tokens).

> The SEC has consistently seen utility tokens as securities. The workaround, so far unproven in court, is the SAFT (simple agreement for future tokens).

The issue with all of this is that people are trying to fit a new technology into a series of boxes when it doesn't fit into any of them.

The problem cryptocurrencies aim to solve looks like this. I have a hardcopy of a book that I've finished reading and I'm prepared to sell it so I can use the money to buy a copy of another book. I am not keen on the efficiency of the barter system, so what I need is currency that allows me to sell the book I have and then buy the book I want.

But currency isn't a security. The rules for securities are much more strict, because you have to worry about people defrauding investors and engaging in stock price manipulations etc. In the normal everyday currency transaction where I exchange my book for a $20 bill and then go somewhere else and exchange my $20 bill for a book, there is never any paperwork for me to fill out. I don't have to give anyone my name or anything else to allow them to compile a database of which books I read or which social clubs I patronize or what kind of contraceptives I use.

The rules for digital credit transactions are also strict, because they were designed for credit transactions, where you have to worry about someone buying something on credit and then not paying, or taking out credit in someone else's name.

What's really needed is a digital version of cash. But there is no law designed for digital cash, so people keep trying to squeeze things that aim to serve that purpose into one box or another when the rules were clearly designed for something else.

What we need is for the law to more explicitly allow the internet to work like the real world.

Right, but the article is talking about ICOs, not cryptocoins in general.

But once there is an ICO then whatever it is it continues to be, right?

It obviously impacts the initial value of a coin if it can't practically be used as currency because future trades have to be treated as a regulated securities instrument.

If someone issued a physical banknote for their book-trading club idea and a bunch of those changed hands at speculative prices while the book-trading club didn't even exist, you bet the SEC would regulate it as a security. This has nothing to do with internet versus real world.

"The issue with all of this is that people are trying to fit a new technology into a series of boxes when it doesn't fit into any of them."

No, I think it's more that it does fit into those boxes, but those with interests in the technology desperately want to think it doesn't.

"What we need is for the law to more explicitly allow the internet to work like the real world."

Why?

No, they haven't. I think you misunderstand what they have said. As recently April 26th a SEC official in testimony before Congress [0][1] explicitly said a utility token was possible. They have warned that something having utility doesn't mean it isn't also a security. The SAFT is an interesting beast but it is generally only offered to accredited investors where as utility tokens are usually offered in an everyone can participate style ICO.

[0] https://www.youtube.com/watch?v=rNdly_FXlKs

[1] https://www.forbes.com/sites/astanley/2018/04/28/sec-officia...

>It doesn't give the owner any stake in the company or right to a share of the company's profits.

This underscores the absurdity of the SEC's position on investing in the first place, including the requirement for "accredited investor status", etc.

You can spend as much as you want on a thing which may patently have zero-value, as long as you call it an asset (or something else). No one will stop you. But, the minute it's suggested that the thing represents the possibility of profit-sharing or ownership in something of potential value, then it is verboten or otherwise heavily regulated.

Likewise, no one stops you from blowing your entire paycheck on a slot machine or lottery tickets. And, this, with a simple disclaimer of odds.

Seems investment opportunities can be similarly disclaimed so that people can make their own decisions. This would not preclude SEC prosecutions for outright fraud, etc. when people are found to be nakedly defrauding the investing public.

> no one stops you from blowing your entire paycheck on a slot machine or lottery tickets

Yes they do.

Those things are illegal in most places, and where they are legal they're heavily regulated or run by the state.

Incorrect. Most U.S. states have a lottery and the few that don't generally don't because they have local casinos to "protect".

Also, any regulations in place have nothing to do with restricting how much customers can spend.

I see you edited your comment to add "or run by the state" after my reply.

For future reference, it's OK to just say "My bad. I didn't know that. Thanks for the info."

there's already an app that could be used as a huge example of where utility tokens can work, imagine HQ Trivia giving their own HQ Token ICO instead of rewarding users us dollars, better margins, easier questions, more winners

But, a large part of why people play, or at least started playing, was the possibility of being paid, in a currency they could actually use for stuff. What on earth would I be able to use HQ-coin on, other than to make the game easier for other people?

you can exchange the HQCoin to dollars, there are already cryptocurrency debit cards, HQ Trivia can mint HQCoins cheaper than they can get dollars

This is how the internet and the tech industry in general have worked. Legislators and regulators are reluctant to clamp down on an emerging industry before it's clear how it's going to work. At one point the legality of Napster was legitimately up for debate. As time went on, however, those regulations have come. I think this is actually the right approach. Be conservative in regulating a new industry and wait until it's mature and understood, while allowing it to grow and work out as many kinks in the free market before the government steps in.

"This is how the internet and the tech industry in general have worked."

Well I don't think that IBM, Sun, Nvidia, Oracle, Apple, Google, Microsoft, Sandisk, Cisco, Ebay, Craigslist, Wikipedia, Facebook, Snapchat, Wechat, Instagram, Pinterest, fall into that category.

AirBnB, Uber, some weed companies ... DraftKings, Kik, Telegram ... I suppose fall into that.

But 'hotel permits' and 'cab permits' are in another league altogether from 'selling drugs / gambling' or 'unregulated securities', so I think ABnB and Uber really are in a middle category.

Selling 'classically licentious stuff' like porn, drugs, gambling - and also selling financial scams - these things are as old as time ... and there's good reason we regulate it, even if we don't always agree on the thin red line (i.e. should weed or prostitution be illegal?).

That doesn't leave to many real companies skirting regular law and waiting for regulation to catch up.

ICO's I think are a special case.

The one's the SEC has said are 'cool' are basically the token-only one's and I think they are all de-facto scams, to the extent I highly doubt any of those tokens will be viable.

The SEC is missing one thing - and that is the speculative nature of the coins and that they are not bought up front as 'currencies to do stuff'. No - they are bought with the hope of massive increase in valuation of the currency, thereby making them more like securities than currencies. Or rather, they are 'financial options on some future currency'. In which case, I think they need to be regulated, at least lightly, or at least in some basic way, i.e. requiring minimum amounts of transparency, at very least the executives have to register with the CEO and can go to jail if they just run off with the money willy nilly, which it seems they can do today ...

> Well I don't think that IBM, Sun, Nvidia, Oracle, Apple, Google, Microsoft, Sandisk, Cisco, Ebay, Craigslist, Wikipedia, Facebook, Snapchat, Wechat, Instagram, Pinterest, fall into that category.

I don't think you're right about that. Congress waited to pass laws about software patentability. They waited to hold Craigslist accountable for potentially illegal ads on their site. They took a conservative approach in applying things like libel laws to the likes of spam filters, to Wikipedia and social networking. Instagram and Pinterest definitely skirt the law when it comes to copyright violations and they could have easily ruled early on that if you publish something on your website, you're responsible for the legality of that content. YouTube (not that you mentioned it) grew out of illegally hosting copyrighted material before they learned to play nice with the big corporations by implementing contentID and the like. The government could well have regulated these websites like they did with television: banning the use of profane language or sexual content. You severely underestimate the wild west that a lot of these companies were operating under. Hardware, fine, but I don't know of what regulations a person might want to place on them to begin with.

Except that none of those situations you suggest indicate 'laws catching up to the internet' - except in the case of Craiglist prostitution ads which is within the special case group I noted.

None of those companies were broadly breaking any rules to the point of fundamental ambiguity wherein 'we all waited to see what was going to happen'. I see your point about Pinterest but it wasn't really an existential issue, really.

And none of said companies faced existential issues or angst awaiting legal clarity on anything really.

> None of those companies were broadly breaking any rules to the point of fundamental ambiguity wherein 'we all waited to see what was going to happen'. I see your point about Pinterest but it wasn't really an existential issue, really.

Huh? It's absolutely an existential issue. Pinterest's entire business is built on unauthorised use of content from other websites.

Early on there were some question marks ... but really it's not really a problem, there will be no legislation regarding it, and nothing really will come of it in the end.

> Pinterest's entire business is built on unauthorised use of content from other websites.

That’s 100% true of Google too, and actually Facebook as well to a large extent. And certainly Reddit.

I'd argue that at least Ebay falls into that category. Lots of scams are being pulled there, e.g. fake Nvidia GPUs with hacked firmware to appear as higher end models, or power banks and batteries which claim to have 10 to 100 times more capacity than they actually have:

https://www.ebay.com/itm/323268262433

https://www.ebay.com/itm/311915446387

https://www.ebay.com/itm/222645678821

Ebay could proactively fight those scams or at least remove the fraudulent offers after they've been reported, but they do nothing and profit from it instead.

Hopefully, laws will eventually adapt, but until then, there's a lot of money to be made from unsuspecting customers.

So basically, if you want to raise money by selling gift cards for a product that doesn’t exist to speculators who will trade them, make sure you describe it in terms of some inscrutable crypto protocol network thing that doesn’t map neatly to stock or gift cards.

I don’t disagree with your characterization of many ICOs.

But... is there anything wrong with that? It’s a junk investment, but aren’t junk investments just as valid as strong investments? If my gift card for an unreleased product trades for pennies on the dollar... isn’t that still a valid investment?

Anything can be an investment. There are laws about gift cards and equity. Cryptocurrency systems are so technically complex and overloaded with ideals, uses, and philosophies that they can be simultaneously nothing like and everything like these things, IMO. It’s not about what’s right and wrong, it’s just amusing to me that if you want to exploit this particular opinion, as a loophole, the way you’d do it is to make your cryptocurrency sufficiently abstruse.

Edit: To be really clear, I’m talking about the opinion that basically says, if your coin functions as equity then it’s equity; if it functions as a gift card, it’s a gift card; but if it functions as a protocol, it’s a protocol, even if it has speculators bidding it up and benefits going to coin-holders — basically a lot of the properties of equities and gift cards that cause them to be regulated.

If anyone at bloomberg reads this comment, please stop the bar at the top from periodically coming down. It makes the article impossible to read for those that use the top of their smart phone as a place holder.

Why are there so many ex-convicts in this ICO/crypto space? Like literally, a huge chunk of these so called ICO investors and founders have very shady pasts. Why isn't anybody calling people out on this? Why do we have criminals being entrusted with people's livelihood?

These types of people are very much attracted to get rich quick schemes, obviously.

Given that cryptocurrency currently and historically has existed almost solely as a "you can get rich quick with this" scheme, I don't find it surprising at all.

>Why are there so many ex-convicts in this ICO/crypto space? >Why do we have criminals being entrusted with people's livelihood?

The second sentence answers the first: we do not want to trust criminals with people's livelihoods, so we leave lots of brainpower lying around outside of "normal society" because we don't want to let an embezzler write accounting software. Is it any wonder, then, that we would see an abnormal number of criminals end up working in a field where there was money but nobody to keep them out? You and I can choose between academia, industry and weird self-owned schemes, but there is a certain group of smart people that have only one option...

That's an incredibly interesting way of looking at it. At first blush I was thinking more of a "Wild West attracts Wild West criminals", but it definitely is more nuanced than that.

I suspect there are reasons why people with convictions for deception and fraud are particularly likely to be attracted to ICOs other than the reluctance of accounting software firms to hire them...

The answer is pretty simple: makes for easy money laundering, at least for how some of these ICOs are set up. That’s why they’re involved, as to why our wider society has decided to trust them, I think the only answer I can think of is greed.

Please list the founders with shady pasts that you're referring to.

Well, here's one:

Embermine is a mostly unknown project but one in which the scam is pretty obvious. Search for `"James Carl Drake" Nebraska Mugshot` on Google Image Search and you will see mugshots of the founder of the "Embermine" platform. "CEO" served 15 years probation for defrauding people writing bad checks, among other convicted felonies. Has been known under at least three different legal names. Convicted felon in multiple states. All public info.

Their ICO raised very little money but they have funded their cryptofailures through lying to unsuspecting speculator/investors, promising all sorts of big developments that are bound to happen "soon". For example, promising to be listed on Binance to one investor to secure a deal. Sometime back in December people began to notice that nothing was going on, which is when it was revealed by ex employees that nobody was working for him/them anymore. Turns out the guy took out loans to many people online, didn't repay them. Stole money from some as well, i.e. people sent ETH for tokens but got nothing back. People started asking tough questions, got banned from Telegram (of course). One "proof" of progress given by the CEO was a picture of him writing an Ethereum smart contract in... Microsoft Word. Can't make that up.

Their "CEO" is basically defrauding people, claiming to possess all sorts of skills he obviously does not have in order to instill confidence in his variety of projects. The stream of bullshit that comes out of there is endless. James Drake makes up a random project, associates a token to it, mints it all to himself and then "airdrops" part of it all the while selling his own tokens on the market or in OTC trade with unsuspecting investors. His latest idea? "BONG" tokens. This is completely insane, I could go on for hours.

So it's really just simple, low-level crookery. Yet it's still ongoing, people are still getting scammed. This sort of long-tail scam you don't hear much about but I suspect it's much more widespread than cryptocurrency proponents would like to admit. I'm sure others will recognize the behaviour even if they have never heard of Embermine in particular.

What do you want these ex-convicts to do the rest of their lives? Ostracize them into some sort of societal prison forever?

They served their time, and the justice system has deemed them safe, and they hopefully learned their lesson, so please welcome their return to free society. It is much better for everyone if they could actually contribute their skills to the betterment of humanity by participating in the legal free market, especially if they have specialized skills in demands, rather than potentially risking that they return to the life of crime out of necessity as a result of being isolated from the legal free market.

This seems to be a trend in the US with crypto and marijuana as examples. If you move faster than the government, the letter of the law no longer seems to apply once you have established a substantial market.

I like that both are gaining acceptance, but to the early entrepreurs willing to sell a clear security without filing or the growers willing to sell a controlled substance underground, go the spoiles when the states and federal government bend to the will of the market.

Unfortunately, it creates an unfair playing field for those willing to take a criminal risk and puts those that try to do things legally from day 1 at a disadvantage.

There is a better way to think about this.

What the SEC cares about is whether uninformed investors are being ripped off.

What matters way more than the letter of the law is whether people are being scammed.

Ans I don't think this is a bad thing. The whole POINT of these laws in the first place is to protect people from being ripped off.

And if you ARENT ripping people off, then the government probably won't go after you.

Fairness isn't the purpose. The purpose is to protect people.

And if you don't hurt anybody, well what was even the point of the law to begin with? No harm no foul is a perfectly reasonable philosophy.

That’s not law. It’s exactly the kind of thing the rule of law is supposed to prevent. What constitutes “ripping people off” is an incredibly political and ever-shifting judgment. We vigorously debate and make laws, so that everyone knows what is allowed and what is not, regardless of what they think the law should be.

> What constitutes “ripping people off” is an incredibly political and ever-shifting judgment.

I think that for the example given, ICOs, the opposite is true.

For "most" of these situations, whether something is a straight up scam or not is very obvious. And I am glad that the SEC has chosen to mostly go after the scams.

Sure, grey areas will come up. But what does it matter if the grey areas are less than 1% of the market?

There are certainly cases in the world where the nitty gritty details matter, and that there are huge grey areas. I just don't think the ICO market is one of these nuanced cases.

Fairness actually is the point sometimes. Obama talked about raising capital gains tax, even if it results in lower money for the government, simply for reasons of fairness [1][2].

[1] https://abcnews.go.com/Politics/DemocraticDebate/story?id=46...

[2]https://www.washingtonpost.com/opinions/obamas-flawed-sense-...

Then why not scrap the Howey Test (which was out forth as the definitive test to determine if an investment is a security) and just keep the existing fraud laws?

Security law is in place for good reason, to protect investors.

The Howey Test was created by the Supreme Court, not the SEC. Harder to scrap.

The problem is, those that are doing the action usually will disagree that they are harming people.

Part of the problem is that we’ve criminalized too many regulatory violations. Exclusively civil liability is more appropriate for the vast majority of regulatory violations. Provision for statutory and punitive damages if you want extra bite.

If it is truly worthy of prison time, it will probably fall under existing general crimes: criminal fraud, reckless endangerment, theft, and so forth.

Securities are civil though

Many violations of securities laws carry the possibility of criminal sanction.

Not by the SEC which was the point

That’s misleading. All federal criminal prosecutions are done by the Department of Justice. But when it comes to prosecuting regulatory violations, it usually starts with a referral by the regulator (e.g. the SEC) who otherwise enforces that regulation.

My point is about the regulatory regimes being enforced with criminal penalties, not some technicality over who does the prosecution. I’m not sure why you’re so focused on that.

That absolutely is not misleading, the SEC flat out doesn't have the power to criminal prosecution and send someone to prison.

The problem is that we haven't criminalized it enough. Civil fines are bullshit. In 2008 thousands of people should have gone to prison. Not be allowed to continue to move on to the next insane scam.

How is that an unfair playing field? People being rewarded for productive risk taking is one of the fairest things I can think of.

Pablo Escobar was on to something then, ... well until he wasn't.

His crime was he got too big and bold. Fly under the radar and you'll survive.

Even facetiously, that's a hard point to make. Cocaine has been illegal in the US for a very long time.

Well, I called the SEC and they said they can't think of a way how these ICOs are not violating the Howey Test. Basically that in time, they be prosecuted.

So, those of us that decide that the potential for financial or criminal consequences is not with it miss out when it turns out all but the most egregious scams will get a pass.

Through my work we’ve been in contact with the SEC as well, a few times, and they are pretty clear on not stating any real absolutes unfortunately. We do more of the service side of things for the institutional space, however - so perhaps our questions were a bit different.

Sure, I understand where the risk is coming from. I don't understand where the unfairness is coming from.

I guess because it's unfair to people who view breaking the law as an unacceptable risk when those who bend or break the law are profiting.

Because what you classify as "taking a risk" most of us classify as "potentially breaking the law."

Breaking the law shouldn't be considered a competitive advantage.

That depends on what the law is and if it is ever enforced.

So, you'd consider for-hire hitmen a fine business, if they pay off your police?

but it is, and always will be, a competitive advantage. that's part of why the law should be kept as small as possible.

Well, yeah, exactly, but that's why it's the law. Stealing is a competitive advantage (for the thief), but a net negative for the society, which is why it's illegal and persecuted.

I agree with you, that the law should be as small as possible, but you're missing the second part (just as important IMO) - that the law (small as it should be) be enforced fully and applied fairly.

If she doesn't say no it's a competitive advantage to other suitors, right?

That's literally what you're advocating for.

The rule of law is a public good; companies that damage it are imposing a negative externality on others for their own advantage, and should be penalised rather than rewarded.

'everything is legal if you scale it up'

Wish I could recall the months old thread I found that in. I believe it was also blockchain-related

> If you move faster than the government, the letter of the law no longer seems to apply once you have established a substantial market

The track record of firms breaking laws to get ahead is grim. Where running ahead of the law has worked, it involved a trifecta of (a) popular support and (b) a municipal (not state or federal) law challenged with (c) civil (not criminal) penalties.

The narrow opinion this article is based on is limited to Ethereum. It is the personal opinion of a single SEC commissioner (albeit, an influential one).

Don't forget Uber and Airbnb ignoring taxi laws and hotel/zoning laws, then expecting that governments change the law to suit them.

This is a good point... But actually they call themselves ride sharing instead of commercial activities.

And yet the vast majority of Uber drivers I talk to derive their primary income from being an Uber driver.

And likewise, the majority of listings on Airbnb are properties that aren't normally resided in by the owner.

The whole "sharing economy" is a cheap veneer. It's commercial activities at heart.

Marijuana is more states rights vs federal though. Those MJ operations following state law are making a bet on federalism, rather than simply flagrantly ignoring law.

you mean like uber disrespecting taxi laws or paypal blatantly breaking international banking and money laundering laws?

this seems to be the trend for a few years already.

Ridesharing and Airbnb is another example.

More important than any of that, which you don't mention at all are the people who get caught in the middle and lose out. The victims of the move fast, break stuff attitude.

I care about protecting them far more than preventing an unfair playing field for the unfortunate startups that didn't break the law fast enough.

Who are the victims?

Anyone who gets scammed by an ICO?

Do you mean to imply that there are ICOs that aren't scams?

You are not protecting anybody, Holden Caulfield, and nobody asked for your protection in the first place.

I think the idea is to respect the spirit of our laws and you won't get punished. Taking a risk here is fine, but make choices which are moral/ethical and aren't abusing your customers and are generally a positive for the economy. Do that, and if the laws turn in your favor, you'll probably do ok.

Government, good government, isn't trying to crush the entrepreneurial spirit. They also recognize that startups deserve a different legal arena than more established companies.

I did a panel on ICOs last Thursday. Me as crypto skeptic, two crypto guys as well.

Video here: https://davidgerard.co.uk/blockchain/2018/06/14/topline-comm... (no transcript, sorry)

We all concurred: assume your ICO is a security, talk to your regulators.

And, ah, don't do fraud - "fake it till you make it" needs to not become "make material misstatements when making an offering". Doing your best to do things properly will definitely make regulators much more helpful.

Remember that financial regulators actually want you to do well in business, and make a great big pile of money! The SEC's mission statement is: "protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation." They'll be delighted to help with that third part as long as you're not messing with the first two parts.

Note also that the regulators are all going "what on earth", and they all talk to each other. FINMA in Switzerland has some surprisingly clear guidance on ICO tokens. Basically: it's a security unless it's pure utility, and if your "utility" token is exchange-tradeable it probably becomes a security. We expected this would be a good rule to work to.

Let me stress again: talk to your regulators first. One of the guys on the panel (Davide Vicini from Maveric SA) spends way too much of his time helping ICOs who launched and then tried to square things with the regulators.

Let me know as soon as they find this elusive "good ICO".

I hear they're generally found in the same habitat as unicorns.

Plenty of unicorns out there.

I had a bad experience with a coin, and I'm hoping the SEC gets involved with investigating it.

They claim it was not an ICO, but I never got the coins I expected. They were doing quite well, and are in the top 20 on coinmarketcap. I feel cheated, and have received a lot of flak since becoming more vocal about the issue... there were even some half-joking death threats and websites created to discredit me.

They claim there was a deadline I missed. I maintain there was insufficient notice of the deadline, and that they just wanted to keep the coins themselves. Also, I'm not sure it's legal for them to keep something like that once it's paid for...

It's a big question, worth a lot of money, and I'm glad the SEC is finally getting involved in this area.

"But if there is a company, and it raises money by issuing a token to the public, it has the same securities-law obligations it would if it raised money by issuing stock or bonds."

And there's the rub. Sometimes, it's hard to tell.

Check out the rest of the writing by this author. Matt Levine is great. He has an impressive background which gives him great (and usually cynical) opinions about various financial topics.

Hopefully the SEC actually finds a good one to leave alone. but I am guessing that will be a challenge for them. The entire landscape of ico could be decimated and nothing of value would be lost.

You could probably do the next gen stock market as ICOs

But why? It has zero benefits.

Lower transaction costs, more control, easier to trade for small cap companies?

Do you think I should consider an ICO for a company which has been unable to close its seed round (except under ridiculously bad terms)?

I have an extremely strong association between the words ICO and "scam", but I also recently found out that seed rounds are basically non-existent [1]

If the SEC tacitly allows for "good-faith" ICO's, I would consider it. I don't want to shutter the work of my cofounders and contributors just because the seed-stage startup ecosystem is this broken.

However, I have gone down extremely long rabbit holes and I am very wary.

I would like to raise approximately 300k for a play that is built for an acquisition for a major player (within a small number of years). We got one term sheet for effectively 51% of the company for $17k or so. (That was from a real VC.) There were no other serious offers.

Another (more promising?) alternative would be to bootstrap doing something unrelated. For example we have some expertise on our team in machine learning and perhaps could use it in an unrelated market where the size of the opportunity is pretty small (and it's pretty competitive).

Is ICO worth exploring at this stage? (Bearing in mind that we are built for acquisition.)

We are a "real" startup and don't have anything to do with cryptocurrencies or tokens. I also personally think the SEC does fantastic work that makes the whole startup ecosystem, and indeed investment at all, possible.

There is a reason the United States investment climate is one of the best in the world, if not the best, and I think the SEC and general legal framework is one of these. So I am strongly biased against unregulated ICO's and would be very happy to submit to any oversight that would increase transparency and investor protections.

[1] https://news.ycombinator.com/item?id=17284796

> I also recently found out that seed rounds are basically non-existent

$8.5 billion were invested across close to 14,000 seed and angel-stage rounds in 2017 [1]. On both deal frequency and gross volume, seed and angel financing grew from 2016.

[1] https://news.crunchbase.com/news/q4-2017-global-report-vc-se...

> close to 14,000 seed and angel-stage rounds in 2017

worldwide. :) That's "basically non-existent".

Maybe you can flip it around like this: the number of people worth at least $30 million worldwide is 226,450.

https://en.wikipedia.org/wiki/Ultra_high-net-worth_individua...

Try reg A+

Reg CF would be far cheaper, faster, and easier

CF then A+. I think SEC gives pretty good choices already.

But majority ICOs just choose avoid US investors and SEC

Do you think I should consider an ICO for a company

As soon as you said "for a company", it became an ICO the SEC would consider a security. Read the actual article closely.

I don't think OP would have any issues with that. Their problem seems to be that they can't find financing through a regular seed round, and are asking if considering an ICO would be a good idea.

yes and yes.

"We are a "real" startup and don't have anything to do with cryptocurrencies or tokens."

Then no, you should not be attempting an ICO.

Can you elaborate on your reasoning for saying this? (Below what you chose to quote.) At a guess, your reason for saying this is that you consider doing an ICO to require extremely sophisticated expertise in "cryptocorrencies or tokens".

Like if I had said "We don't have anything to do with cryptography or any expertise in cryptography. Should we roll our own cryptographic protocol?" Then the answer is "Then no, you should not."

Are you saying the same thing? If we're not experts in ICO's and crypto currency (if indeed it has nothing to do with our business) then we should not be doing anything with it? (i.e. is it only appropriate for companies that are specialized in it?) Please elaborate if you can. And thanks for the response!

If your business has nothing to do with cryptography or you are not are cryptographers, then no, you should not be rolling your own cryptographic protocol.

As for the previous comment, I mean that if your business has nothing to do with cryptocurrencies or blockchain, and your entire motivation is to jam in some vague token into your business model for the purpose of fundraising, then no you shouldn't be doing an ICO.

Do what makes sense from all angles, not just the one angle of needing a fundraising method.

Laughable! What's a "Good" ICO?

FTA: "Loosely speaking, then, ICOs that seek to fund the construction of decentralized open protocols should still work under the SEC’s rules."

Also "ICOs that are just fundraising schemes for companies will be treated like securities.."

I'm looking at this distinction with both eyebrows raised. I'm highly skeptical that an ICO will be treated differently under different use cases. This would only lead to confusion. Further down, in the article, the author brings up a third category - Ripple. What's to prevent a fourth and a fifth category? The law when it comes down is going to be uniformly applicable to ALL ICOs not just "Good" and "Bad" ones.

Good luck because you won't find an ico that is not a security aimed at swindling teachers, baristas and other innocent people.

The % of 'Good ICO' is very very small, if non existant. It turns out nobody wants to do an ICO unless they get money. Fuck you. If you've been involved in an ICO or blockchain charlatanism, you are well deserving of scrutiny.

In a few years after the crypto craze is over, everybody will be busy sending out DMCA notices to Google to hide their involvement in the 99% of ICO that will never deliver, get 'hacked', or just take off with the money.

Fuck ICOs

What's a 'good ICO'? I did 2 and didn't get shit for it.

Here's one of my 'test tokens' (KITN):

https://etherscan.io/token/0xd9db1e7eff06dc16347ee2e3f203655...

Here's an 'offical one' that worked (airdropped):

https://etherscan.io/token/0x6a95771d66731e1f59681b9f71f45dc...

Plus a 'flipped litecoin' "Kruhft Coin Classic" (email me for macOS binaries and source, no seed nodes right now). kruhft@icloud.com

We are now somewhen in the 90s, somewhere in the US. Welcome.

People are getting scammed when buying things online. The elderly are sending money to Nigerian princes. There are rapists and murderers on chatrooms preying for victims. Kids addicted to online games drop out of school. There is deviant pornography turning young men and girls into perverts or enticing them to post nudity online.

I strongly believe we must protect the public, and we must put severe regulations on the internet. Noone should be able to just set up a website or online business. It is far too dangerous. Aspiring e-entrepreneurs must be required to file a goverment-reviewed application, and be represented by an attorney throughout the whole process, as well as undergo background checks and pay various fees to state and federal agencies.

If all goes well, within 1-2 years (depending on backlog) they can have permission to put up a website. Every year they must renew their website license, and according to what kind of content they wish to host they will need different licenses (eg different if you want to serve video, different if you want to have chat) /s

Makes sense right? The internet seemed like a weird crazy unregulated space back then. Except that.... that would have killed all of the amazing innovation that happened in the past 25 years in the US.

My point is. We must protect the public, of course. But it is never as simple as pulling out the torches and pitchforks screaming "BAN BITCOIN. BAN THE DARKWEB. STOP ICOs". We cannot risk stifling innovation. Because if we do - innovation will still happen just... somewhere else in the world. And no government wants that.

EDIT: FYI - in case you think I am exaggerating, the scenario I described above is similar to today's internet situation in mainland China. You need an ICP license (granted by the government and renewed yearly) in order to be able to have a publicly accessible domain name. If you want to serve back visual content (images/video) and user-to-user communication (chat or public text posts) you need to undergo extra delays and checks to prove that you are trustworthy and can censor content. Certain websites from outside of China (eg google, fb) are just banned.

> it is never as simple as pulling out the torches and pitchforks screaming "BAN BITCOIN. BAN THE DARKWEB. STOP ICOs"

Straw man [1]. Nobody serious suggests banning any of these.

[1] https://en.wikipedia.org/wiki/Straw_man

please check the comments at this very page. Some people claim that everyone involved is a charlatan, one specifically says "F... ICOs" and someone else that all ICOs could disappear and no value would be lost.

EDIT: I agree with you that they are not serious opinions worthy of consideration, so your point might stand.

Saying "Fuck ICOs" or "ICOs have no value" is not the same as saying the government should ban them. And even if you do think the government should ban them, that's very different from wanting to ban Bitcoin or the dark web; although there are certainly people out there with various reasons they think both of those should be banned, the chief argument against ICOs (that most of them are scams) doesn't really translate to either.

Uh, yes they do.

>in case you think I am exaggerating, the scenario I described above is similar to today's internet situation in mainland China.

I don't disagree with this or condone excessive regulation. However, if what you said is true, innovation would not happen in China. Turns out, the startup scene is just fine in China, and innovations are not happening just... somewhere else in the world. Bad example.

China was severely impacted.

Their big web companies are so far almost all based on US products that were banned in China. They also failed to capture any international audience and are mostly only successful within China. Baidu, a copy of google. Weibo, a clone of twitter. QQ a clone of Facebook. WeChat a clone of Messenger. Alibaba a clone of Amazon. Etc etc

China started properly innovating, countering brain-drain, and going beyond copying what was successful in the west only in the recent years.

>only in the recent years

From what I can tell, the regulation only strengthened in the recent years. Something else must be in the works, then.

Massive government subsidies to keep hot talent in the country.

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