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Comment by nyx_ | Hacker News Reader

"The complaint further alleges that Kik marketed the Kin tokens as an investment opportunity. Kik allegedly told investors that rising demand would drive up the value of Kin, and that Kik would undertake crucial work to spur that demand, including by incorporating the tokens into its messaging app, creating a new Kin transaction service, and building a system to reward other companies that adopt Kin. At the time Kik offered and sold the tokens, the SEC alleges these services and systems did not exist and there was nothing to purchase using Kin."

Who even bought this stuff? Doesn't this throw up all the red flags of a scam ICO?

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> Who even bought this stuff?

A buddy of mine from my home town called me up and needed a developer to work on his "crypto-currency hedge fund." This guy has always been a bit dodgy on looking for the least amount of resistance to the most money.

I tried tell tell him all the reasons it was a bad idea. He claims he had done all the research (guy is not a programmer, couldn't pass Anatomy I the two times he took it in an attempt to start his career as a radiologist .. for the money -- sure as hell couldn't do the maths).

He told me investments would be a minimum of $250k and he was promising (yes promising) 120% returns. ... I told him he needed to be careful, because with that type of pitch, he would most likely end up in a ditch somewhere two to to the head .. or jail .. and he should hope for jail.

Besides telling him it was a bad idea, I told him he couldn't afford me. He told me he'd pay more than whatever I was making. I told him what I made .. and that I wouldn't take anything in crypto currency. That ended that.

He had several tens of thousands in different crypto currencies (before the BTC bubble broke in 2018). So in response to your question: this kind of person.

It's important to note that while this person seems, you know, not very smart, the laws against unlicensed securities exist precisely to protect this kind of person from getting themselves in trouble.

I'm no lawyer, but it certainly seems like Kik worked to circumvent these laws in order to raise a bunch of money to keep their business alive. I look forward to seeing where the SEC investigation/trial goes.

>> It's important to note that while this person seems, you know, not very smart, the laws against unlicensed securities exist precisely to protect this kind of person from getting themselves in trouble.

Which is counterproductive, really. Natural selection is the only effective cure for stupidity known to the mankind. Stupid people should be allowed to make stupid mistakes and suffer all the consequences.

When the poor get poorer because of their stupidity, they don't die. They regroup, kill the rich, and take the money.

I think it was Buffet who said that the stock market was a giant machine for taking money from the impatient and giving it to the patient.

>Who even bought this stuff? Doesn't this throw up all the red flags of a scam ICO?

What’s amazing is they raise nearly $100M selling the token, spent $5M in legal fees and then began raising additional legal fees (over $5M to date) from the public to continue to fight the SEC and anticipation of future litigation with the SEC.

They raised $100M and can’t be bothered to use that for their own legal fees...And the public is apparently happy giving them millions more, it’s insanity.

It isn't insanity if you used other cryptos to buy big on Kik/Kin and they only way to protect your position is to not have it go away.

Well it’s throwing good money after bad.

I believe it was Einstein who defined insanity as performing the same task over and over and expecting different results.

If you invested/bought Kik because you wanted a “position” to make money on it, then it fits the definition of a security, so by throwing more money to fight the SEC to claim it’s not a security is a losing battle by your own “position”.

The real irony is that the Kik token probably was structured as a non-security utility token, it’s only the CEO statements/marketing of the token as something that will become extremely valueable to investors that will come back and haunt them.

https://quoteinvestigator.com/2017/03/23/same/

Not Einstein. It's a quote from a 1981 Narcotics Anonymous pamphlet.

Honestly, that sounds a lot less scammy than nearly every other ICO out there. Kik is an established company with a social network product used by millions. Given their market position, I think their idea isn't totally farfetched. I could be missing some aspects that indicate it is a total scam, but just from that paragraph alone (which is all I know about the topic), I could see warranted interest from investors.

Look at all the payment integrations that've been added to platforms like Facebook lately. It isn't cryptocurrency, but the idea seems to be pretty similar.

But not an established profitable company. This is a money-losing startup looking for another funding round.

Vast majority of people don't understand how Internet startups are run. Even here on HN, people need frequent reminders.

Myself, for a long time I believed tech startups are micro-R&D for new technologies. Couple years of HN and in the local startup community later, I finally realized that a lot of Internet startups tend to turn investor money into business model R&D - i.e. ever more innovative ways to break an existing market and siphon off enough wealth to get flipped and net the founders FU money. Regular people don't know any of that; they don't understand how the game is played, or why - they only enjoy free web services and cheap pirate taxi rides.

Myself, for a long time I believed tech startups are micro-R&D for new technologies.

They were from about 1970 to 1998. Then came the dot-com boom.

During that period, most VC firms made money. Now, VC funds as a a class are a net lose.

"business model R&D" used to be called "fraud"

There was no disclosure that they were hemorrhaging money nor that their product was significantly unprofitable though. I imagine interest would've been a lot less had that fact been public at the time. They were literally selling it as "invest now and we all make a lot of money later"

I think the SEC is interested in the conditions around their ICO, the misleading tactics, and the aftermath of it, more than the fact that they did an ICO

Kin definitely isn’t a scam. My company has implemented Kin into our app with over 10 million users and many other apps have as well.

The only times I saw people use kik for anything is when I was in the mood for a little recreational degeneracy and made the mistake to browse 4chan's /b/ and suddenly spammy kik threads pop up left and right advertising "trades" "no rules" "teens".

That is not to say, this is the only kik users, it's just the only instances I anecdotally saw people advertise their kik handles, and it didn't leave a good impression. This ICO stuff made me think of that.

People lower their shields when scammy stuff comes from something they trust. Kik has been around for 8 years and was pretty popular at one point, so its long-time users wouldn't notice how much it seems like a desperate moneygrab.

One is the key aspects of ICO pumping was reputation building. So, launching a currency by leveraging a trusted or recognizable name lends credibility to the extent unsophisticated people might buy and assume “they know what they’re doing.”

> scam ICO

It seems like you might of repeated yourself...

This is the cryptocurrency roosters coming home to roost, no?

Ethereum also had an ICO (paid in Bitcoin) and it delivered. Cosmos held an ICO and delivered. Not all ICOs are scams.

I think the point is those are the outliers and the majority are scams.

Ethereum is an outlier in the cryptocurrency world?

Ethereum is the reason there have been so many ICOs in the past 3 years.

Yes, Ethereum is an outlier in the sense its ICO wasn't a complete scam.

So it was a non-scam ICO in support of a platform for facilitating scam ICOs? Great.

You may not like how it's, but it's not fraudulent nor illegal. Similar to to sellers of alcohol, tobacco, or firearms operating legally.

You could make similar arguments about US Dollars

thats not distinct from funding models that you respect, don't you find that at least weird?

>Ethereum also had an ICO (paid in Bitcoin) and it delivered.

According to the SEC it was also an illegal offering of a security, and its receiving special treatment bc they considered it to have matured and no longer be considered a security, therefore grandfathered its grandfathered in unlike any other ICO.

No one else is going to have the good fortune of being able to offer an unregistered security then mature into a non-security with the SEC acting first.

....which is the point of this lawsuit, the determine if an ICO is a security or not.

ETH is more of a commodity than a share in some enterprise.

They “delivered” only because they sold wheelbarrows to the 49ers. As gold rush history will tell you, most fortunes were made by merchants not miners.

Name a non-ICO-infrastructure ICO that isn’t a scam.

Ethereum as infrastructure is also a dicey proposition. It works, slowly, but it doesn’t seem like there’s a lot of demand for “dapps” outside ICO tokens, gambling, and the odd Ponzi scheme. The smart contract revolution at this point is complete vapor ware.

Other popular smart contracts right now: an ETH-backed token that uses a derivative to maintain a fairly stable value, the Uniswap decentralized exchange, and games with non-fungible tokens for player assets.

“popular”

At its peak the stablecoin contract held $2 billion, I'd say that's reasonably popular.

None of this stuff is ready for the mass market because scaling is so limited, but that's on track to get about 1000X better over the next two years.

Ethereum is currently being used for decentralized finance. It's not vaporware at all: https://defipulse.com/

This market is not validated by anything close to mainstream.

A lot of the building blocks for mainstream use don't exist, but could conceivably emerge in time given Ethereum is Turing Complete.

There are projects with a very high potential to provide those building blocks in development right now, like Matter Labs' use of zero-knowledge proofs to scale Ethereum:

https://matterlabs.dev/

But yea it's all very speculative right now. I speculate it will work, but it'll depend on what the various players in the industy actually accomplish.

I will try to not laugh at this the next time I pay escrow and other closing fees. We are in Web 1.0 in terms of the technological application of programmable consensus.

One, don’t mock people on HN. Two, you’re going to need to cite real examples to support your claim, not just spout a bunch of buzzwords.

Quick search of “ethereum escrow” returns no real implementations that avoid fees or human intermediaries. Every single blog post I’ve read that tries to sketch an alternative is incredibly poorly thought through and still vulnerable to fraud. That is why they are just blog posts and not real, not because it’s “still early days.” I think it’s fair to say trustless escrow is vaporware.

I'm not going to argue against ignorance. One can simply google the technology and see for themselves instead of drinking the Kool-aid from others. There's a reason for the large push against crypto; an agenda.

Programmable consensus and smart contracts are easy to learn concepts.

https://medium.com/coinmonks/escrow-service-as-a-smart-contr...

*Also one should know it is offensive to call another's work vaporware. Especially, when one is relying on anecdotes. Next I'm going to be told IBM and Google are wasting their time and shareholder money on blockchain.

That's for posting an actual citation. The author of that blog post explicitly states in a follow up comment: "I totally agree that it makes no business sense" and that his objective is merely "to explain how a smart contract implements the terms of a contract."

So yes, fair to say it's vapor i.e. not a real thing. That may be harsh but it is a fair and supported criticism, whereas your prior comment merely engaged in unsupported mockery.

What did Ethereum delivery? What works on their centralised house of cards network?

ICO is a fancy word for "Kick Starter" or crowdfunding. That's why all the crypto people are disagreeing with you.

Are most ICO's scams? Yeah sadly. Are there lots of scams on Kickstarter/indiegogo/etc? Yes sadly.

But an ICO itself isn't necessarily a scam (although I concede 99% of them are)

Kickstarter creates no expectation of profit by purchasers.

The question is no longer if you have been scammed on Kickstarter, it's how many times have you been scammed.

An ICO doesn't imply potential profit either.

The problem is that most of them are run by scammers, which do promise profit.

When I back a kickstarter, I'm probably going to get something like a signed book or a credit in a game - maybe not but at least most of the time.

In an ICO, I get a... theoretical security? A kik kin coin that may or may not have value?

I think you're confusing ICOs with market value.

You don't back an ICO because its "value will go to the moon", you back an ICO because invents a new way for -- Creators to get paid instead of using advertisements, creative ways to organize some kind of distributed system.

The scam comes from them not completing their promises and leaving with the money and no "product". The coin's value is irrelevant (as long as it isn't 0)

Who even bought this stuff?

A lot of 'investors' are firm believers in the Great Fool theory of investment. Basically they are completely aware that it is a scam, they're just banking on the fact that they can get in, take some profit, and get out before the rest of the world catches on that it is a scam.

> Doesn't this throw up all the red flags of a scam ICO?

Is that a good or bad thing?

There was a short period of time when there was immense profits to be had from buying and quickly flipping obvious scam ICOs.

Agreed. The question isn't whether something is a financial scam; at this point, depending on your feelings about certain structures, a large part of the US economy is made up of financial scams. The question is whether it's a viable financial scam, and this one was so viable that the government had to step in.

Probably if they had invested in the right lobbyists and the right lawyers, they would have been able to engineer a level of indirection that this wouldn't have attracted attention.

Maybe they actually have, and will lose this case as millionaires.

> Who even bought this stuff?

My guess is that a lot of this money is dirty. There are also tax reasons, where money needs to be invested or is even expected to be lost.

Yes! ICOs were great money laundering opportunities.

The shmublic investors don’t have access to seed/series-A deals.

I personally feel that rando cryptocurrency vs Uber post IPO has similar alpha, but obviously quite different beta.

> Who even bought this stuff?

North Korea probably.

Actually:

> 167. [...] Kik declined to sell Kin to investors from certain countries, including Canada, China, Cuba, and North Korea.

Why Canada?

Per the complaint, Kik (a Canadian company) asked the Ontario Securities Commission whether the tokens would be considered a securities offering under Canadian law, and the OSC told them yes, so, Kik banned Canadian investors from participating in the ICO. However, Kik decided not to ask the SEC or any other foreign securities regulator their opinion, and just went ahead with the issuance in every other jurisdiction--except jurisdictions which companies are banned from doing business with, like NK and Cuba.

As international users, we have a vested interest in reining in the proclivity of American government departments to engage in extraterritorial expansion. We should wish to see them lose or be made to lose.

This is HN. We all know that anyone from one of those countries that wanted to, could easily have put money into this just by changing their IP address.

>Doesn't this throw up all the red flags of a scam ICO?

AFAICT many/most ICOs operated like this. Not all, certainly but the "raise money through hype about future values, with products far off or non-existant" model appeared to be the dominant one in '17 and '18.

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