ICO Craze Lures Australian Investors

ICO Craze Lures Australian Investors

The hype surrounding the profit-potential associated with initial coin offerings (ICOs) is continuing to attract participation from Australian investors. Despite the potential to incur fast losses just as easily as fast profits, many Australians appear to be dabbling with casual cryptocurrency investment.

Also Read: US Regulator Warns Against Pump-and-Dumps and Advises How to Buy Crypto

Australian Investors Seek ICO Exposure

ICO Craze Lures Australian InvestorsInitial Coin Offerings are attracting investment from ordinary Australians, with a recent report by the Australian Broadcasting Corporation describing the experiences of many investors actively trading the ICO markets.

Warren Stokes, a 58-year-old casual crypto investor, recounts being introduced to the world of cryptocurrencies when his high school-aged son began receiving postal bags filled with $50 notes in the mail approximately seven years ago. “He explained to me he was on a group on Reddit,” Mr. Stokes said, “1,000 people were joining their computers together to mine, […] honestly, I had no idea what he was talking about.”

Risks Posed to New Investors

ICO Craze Lures Australian InvestorsAlex Saunders, a Youtuber who has covered the cryptocurrency markets since 2012, has indicated that some ICO investors are gaining exposure using borrowed money, stating “I’ve heard people are taking out money on their home loans to get into cryptocurrency. Unfortunately, there are lots of people in this space and this is their first investing experience so they’ve been burnt once or twice and they’re learning that the hard way.”

Forty-year-old Australian, Neil, has invested in roughly nine ICOs so far. Neil attests to having had mixed experiences with initial coin offerings, stating “With the number of scammers out there who have made really high-quality fake websites and fake LinkedIn profiles … it’s actually very difficult to know what’s true and what’s not.” Neil stated his belief that the recent frenzy surrounding ICOs may now be dying down, stating that initial coin offerings now must prove their value as a genuine financial tool.

For Mr. Stokes, many of the losses incurred by new traders are the consequence of the inexperience with the psychology induced by trading. “Some people who don’t know how to ride out a drop have sold out at the bottom,” he said. “There will be a lot of people who will panic and lose their money.”

What is your opinion regarding the present outlook for the recent ICO boom? Do you think the hype is start to plateau? Or are was 2017 just the beginning? Share your thoughts in the comments section below!


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Atari Joins Growing List of Old Brands Trying To Revitalize Through Cryptocurrency

Atari Joins Growing List of Old Brands Trying To Revitalize Through Cryptocurrency

For generation X-ers, old enough to remember a time when photographs were analogue and games consoles were 16-bit, brands such as Kodak and Atari evoke fuzzy nostalgia. Nothing perfect lasts forever though, and those companies which once dominated their respective spheres have not aged well. Many assumed these 80s stalwarts had already given up the ghost amidst growing financial problems. As it turns out, not only are the Kodaks and Ataris of the world still limping on, but they’re seeking an injection of new blood and fresh capital in the form of an ICO (Initial Coin Offering).

Also read: Kodak Getting Into Bitcoin Mining

The Childhood Companies Coming for Your Crypto

Atari Joins Growing List of Old Brands Trying To Revitalize Through CryptocurrencyKodak’s descent from photographic giant to failed firm desperately trying to find its niche is a sad one for anyone old enough to associate the name with better times. In the pre-digital age, companies such as Kodak and Atari were mainstays of popular culture. Times change and the companies that fail to innovate get left behind. Kodak’s sudden transformation into crypto miner and ICO entrant has already been picked apart. Atari’s has attracted less scrutiny, but bears many of the same hallmarks.

In 2013, Atari filed for bankruptcy which, coincidentally, was the same year that Kodak followed suit. Five years on and Atari is throwing its hat into the blockchain ring. The pattern is a predictable one now: company trading on former glories announces ICO. Stock leaps by over 50%. Reality settles in. Stock tumbles. The company once synonymous with such classic games as Space Invaders, Pac-Man, and Asteroids is now seeking to establish a reputation as a cryptocurrency pioneer, powered by its Atari Token.

Faded 80s Brands Are Coming for Your Crypto and Ruining Your Childhood

You Nostalgia, You Lose

Brands are obliged to move with the times. The alternative is extinction. Thus it would be unrealistic to expect Atari to base its core business model around churning out retro consoles, just as it would be unrealistic to expect Kodak to turn a profit from selling photographic film. The entry of these brands into the crypto space is not in itself a cause for concern or recipe for mockery. Rather, it’s the way in which these firms have gripped onto this outstretched branch in a bid to break their fall that invites scepticism.

Faded 80s Brands Are Coming for Your Crypto and Ruining Your Childhood

Investment research firm Kerrisdale Capital savaged Kodak’s proposed ICO, branding it “worthless” and the last grasp of a “dying relic of American manufacturing”. Little is known about Atari’s proposed cryptocurrency, other than that the company’s CEO Frederic Chesnais was quoted as saying: “Blockchain technology is poised to take a very important place in our environment and to transform, if not revolutionize, the current economic ecosystem, especially in the areas of the video game industry and online transactions”.

Faded 80s Brands Are Coming for Your Crypto and Ruining Your Childhood

Until more information emerges, Atari deserves the benefit of the doubt. It is hard to shake the feeling though that these companies are less interested in blockchain’s disruptive potential than its ability to prop up their balance sheets. Beware of faded brands coming for your crypto and tainting your childhood memories into the bargain.

Do you think Atari’s entry into the cryptocurrency market is genuine or is it just a cash grab? Let us know in the comments section below.


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Token Holders Don’t Give a Damn About Voting Rights and Community Governance

Token Holders Don’t Give a Damn About Voting Rights and Community Governance

You’ve probably heard of The DAO and you’ve certainly heard of the ICO. Now say hello to the DAICO, an “innovative fundraising model” that aims to combine the best of both frameworks. The Abyss Platform is the first project to utilize this hybrid organizational structure, which has been credited as the brainchild of Vitalik Buterin. There’s just one problem with The DAO, the ICO and the mutant DAICO it’s spawned – the public couldn’t give a damn about key tenets such as voting rights and community governance. All they want is cheap tokens they can flip for a quick profit.

Also read: U.S. Corporate Customers Barred From Bitfinex’s Margin Markets

Live and Let DAICO

The DAO (decentralized autonomous organization) was the first major project to be launched on the Ethereum blockchain, complete with a novel governance structure that replaced a board of directors with a community-run model. It didn’t end well. A vulnerability in the code saw one third of the ether committed to the project stolen and The DAO collapsed. As prominent crypto critic and agent provocateur Preston Byrne explains:

The original DAO could pass resolutions with a simple majority drawn from quorum of 20% (meaning as little as 10% +1 of the investors could bind the remaining 90%). No resolution ever passed because none of the tokenholders actually cared enough about what the DAO was doing in order to participate. Their primary motivation was to sit on their hands and wait for their investment to pay off.

Byrne may be a perennial bitcoin bear, but as a practising English solicitor, he knows more than most when it comes to the sort of legal matters that DAOs and DAICOs were meant to solve. Take a look at many of this year’s ICOs and you’ll find, somewhere in their roadmap, talk of token holders being empowered to vote on key protocol changes including platform developments and new features. It all sounds very progressive and democratic, but the trouble is even the loyalest of community members don’t care enough to want to micromanage decisions using the power invested in them by tokens. The real reason why ICOs are so eager to assign voting rights to their investors is to add legitimacy to their claim that the token is a utility and not a security.

Token Holders Don’t Give a Damn About Voting Rights and Community Governance

Good Intentions Lost in the Abyss

The Abyss “merges some of the benefits of Decentralized Autonomous Organizations (DAOs), aimed at upgrading and making the initial ICO concept more transparent and secure”. It allows “token holders to control the fund withdrawal limit, also providing an option to vote for refund of the remaining contributed money in case the team fails to implement the project, with Oracles (appointed industry leaders) acting as arbitrators.” The idea is plucked from a concept Vitalik Buterin mooted a few weeks back.

Token Holders Don’t Give a Damn About Voting Rights and Community Governance

In his scathing critique of the DAICO, Preston Byrne writes: “I feel like I’m taking crazy pills here, because the SEC literally wrote a report about the original DAO scheme, likened it to a security, and cited as authority for this proposition not one but TWO cases relating to an infamous 1970s pyramid scheme that landed its promoter in federal prison for nearly a decade.”

He finishes: “A DAICO is nothing more than a new acronym for the same old bad ideas. The broken DAO concept, in particular, requires extensive rethinking and movement onto private/permissioned blockchains in order to shed its pyramid scheme-like qualities and serve a useful function. On account of which I am completely amazed that anyone would want to combine the DAO and ICO concepts under any circumstances.”

Original thinking deserves a chance to flourish, and blockchain governance – for all its pitfalls – may yet find a way to work. It probably won’t arrive in the form of the DAICO though or any of the other “revolutionary” governance models being used to float the current crop of crowdsales. Good ideas will ultimately prevail, while the ones deemed too wacky and unworkable will return to the abyss that spawned them.

Do you think blockchain democracy and token-based voting is a viable concept, or is it destined to fail? Let us know in the comments section below.


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The Satoshi Revolution – Chapter 5: ICOs – Peril or Menace or Expression of Satoshi Spirit? (Part 2)

ICOs - Peril or Menace or Expression of Satoshi Spirit?

The Satoshi Revolution: A Revolution of Rising Expectations.
Section 2 : The Moral Imperative of Privacy
Chapter 5: Implementing Crypto Privacy
by Wendy McElroy

ICOs: Peril or Menace or Expression of Satoshi Spirit? (Chapter 5, Part 2)

It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way…

– Charles Dickens, A Tale of Two Cities

Crypto advocates differ dramatically on the impact of Initial Coin Offerings (ICOs). They are a valuable dynamic that financed Ethereum’s smart contract; they are a blank cheque for scammers; they give government a wedge with which to separate cryptocurrency from freedom. The damnable thing is that all the assessments may be correct.

What does this have to do with privacy? In my opinion, current ICOs are regulation bait. The bad behavior of some ICOs and the recent hacks of others provide the perfect justification for governments to clamp down, not only on ICOs but, perhaps, on all cryptocurrency. Just as centralized exchanges are becoming quasi-banks, which are the “trusted third parties” Satoshi reviled the most, ICOs could come to resemble securities or private equities. In some places, that process is underway. The regulation gives government access to additional funds, of course, but it also provides detailed information on every investor. It nationalizes another bastion of free-market finance.


What is an ICO?

An ICO is a type of crowdfunding or crowdsale for startups, which allows them to generate capital while bypassing the restrictive requirements and costs of regulatory compliance and of dealing with intermediary financial organizations. A startup allocates a specified number of “tokens” to early investors in exchange for an established “money,” often bitcoin. The token is a pre-mined cryptocurrency that is issued by the startup. If the crowdfunder’s financial goal is not met, then the money is supposed to be returned to investors.

Some startups add incentives, which vary: dividends on future products, or services, for example. But the main incentive: if the financial goal of the crowdfunding is met, and when the ICO goes public, the token holders may see their investment soar in value. The tokens become a functioning currency, with a value linked to that of the startup. In 2014, for example, Ethereum’s ICO raised $18 million, which made each Ether coin worth approximately $0.40 US. Today (January 26, 2017), the price hovers around $1050.


The Disagreement

Some crypto advocates believe ICOs embody the original spirit of Bitcoin. Marcel Chuo of bitcoin.com wrote, “ICOs allow any investors around the world to have complete freedom to choose how to invest their money. By contrast, private equity is restricted to ‘accredited investors’ which is the result of a bunch of rich people pressuring the government to set up barriers to the common folk making money…” It is a fair and accurate point.

An accredited investor is a person who is rich enough to qualify for a government-granted privilege; he is allowed to invest in so-called high risk ventures, like startups, while the average person is prohibited. It is a financial privilege accorded to the upper echelon of wealth. Regulations vary from country to country, but the American ones are typical. The Securities and Exchange Commission (SEC) offers one of three ways to qualify. The individual (or entity) must have an annual income of $200,000 or a joint one of $300,000; he must have a net worth of over $1 million; or, he must be a general partner, executive officer, or somehow in business with whomever is issuing the security. Common people are deemed to be too stupid or unsophisticated to take such financial risks. They are generally restricted to investing in mutual funds and other low-risk, low-return vehicles.

Importantly, accredited investors must file a regulatory disclosure form with the SEC, which lays open their finances to government.

Cryptocurrencies and non-regulated ICOs blow past the legal privileges of the rich. They open a wide window for the average person to invest by the same rules as the rich, while skirting reporting requirements. Cryptocurrencies and non-regulated ICOs give average people the chance to profit hugely by taking a risk.

Of course, it is also possible to lose hugely. Under the best of circumstances, startups are high risk. The best of circumstances include – and, perhaps, rest upon – the honesty of those conducting the ICO. But even legitimate startups can go bankrupt, be hacked, be shut down by government, or collapse for another reason. Without honesty, however, the ICO is a scam.

ICO scams seem to have increased in recent years. Several factors are at work.

A feeding frenzy for crypto has descended on investors, and many of them do not act wisely because they fear missing the next, best thing. ICOs have also become a fad, akin to the dot.com fad in the late 1990s; the dot.com bubble collapsed circa 2001. Like many of their ill-fated predecessors, some ICO offerings now seem to rest on nothing but talk. Yet, they draw investors. An article in Quartz (July 07, 2017) reported, “A cryptotoken called ‘Useless Ethereum Token’ has raised over $40,000 in just under three days. Here’s its pitch: ‘UET is a standard ERC20 token, so you can hold it and transfer it. Other than that… nothing. Absolutely nothing’.” The useless, gag crypto reportedly raised 310.445 in Ether, $324,120 in US currency, and it issued 3,965,716.097 tokens. The investments occurred despite a header on the main website, which declared, “You’re going to give some random person on the internet money, and they’re going to take it and go buy stuff with it. Probably electronics, to be honest. Maybe even a big-screen television. Seriously, don’t buy these tokens.”

Useless Ethereum called itself, “The world’s first 100% honest Ethereum ICO.”

But there are blatantly dishonest ICOs. Crypto-veteran Kai Sedgwick recently wrote, “Benebit, one of this year’s most hyped ICOs, has pulled an exit scam, making off with a reported $2.7 million of investor funds. Other estimates put the figure as high as $4 million. The fraud only came to light after someone noticed that the team photos had been stolen from a school website. Once this happened, the Benebit team scampered…” Benebit had been endorsed by many respected ICO forums and sites, such as the clearinghouse ICO Syndicate. In short, due diligence would not have saved investors from losing their life savings.

And, then, there are the honest ICOs and exchanges that are simply incompetent. On January 26, 2018, a team from the Japanese Coincheck exchange held a press conference to discuss the theft of between $400 and $534 million; the vagueness comes from whether the stolen funds are assessed at the time of investment or their current value. A hacker cleaned out the exchange’s crypto in a single transaction because it seems to have been held in one hot wallet, which had no multi-sig. In short, the security resembled swiss cheese. Coincheck was one of the respected exchanges; ICOs are far more notorious for bugs and vulnerabilities.

Phoney or incompetent ICOs may seem humorous to non-investors, but there is sobering aspect that could easily affect them. Bad ICOs draw government regulation. In fairness, both ICO successes and scams are regulation bait.

An instance of attacking their success: In early September, 2017, China banned ICOs as being disruptive to financial stability. Translation: crypto and free-market ICOs were so popular that government could not control them. The ban appears to have been a means to clear the financial decks in order to allow only ICOs that function under government control to return. A headline (January 26, 2018) in The Bitcoinist stated, “Chinese Official: New Regulations for 2018 May End ICO Ban.”

If so, only “official” ICOs will be permitted, including ones conducted by government agencies.

Meanwhile, the SEC takes a different tack, which is no less damaging to financial freedom. It has started to classify some tokens as securities and to prosecute startups that issue them for violating federal security regulations. An article in CNBC (January 25, 2018), entitled “SEC devoting ‘significant’ portion of resources for catching cryptocurrency scams,” warned that the SEC “isn’t making much distinction between security and utility tokens, and that securities law applies to at least some cryptocurrencies.” Soon, SEC regulation may apply to all ICOs. Even if it does not, who would issue tokens with the risk of SEC persecution hanging over the process?

Complying with securities regulations is an onerous process. Of course, there are exceptions to when an investment is labelled a “security.” One is if only accredited investors are accepted. This returns the rich to a position of financial privilege, which may be part of the SEC’s goal.

Conclusion
ICOs started as innovative vehicles that allowed average people to invest in startups, and allowed startups to bootstrap themselves without government obstruction. There was always room for scamming, however. Many ICOs now defraud innocent people and give government a perfect excuse for regulation.

Government will only accept crypto and its related manifestations, such as ICOs, if it can be in control of them. Grabbing the wealth is certainly one goal but social control is another. The key to both is information. The looting of data is about to accelerate. Precaution should as well.

[To be continued next week.]

Reprints of this article should credit bitcoin.com and include a link back to the original links to all previous chapters


Wendy McElroy has agreed to ”live-publish” her new book The Satoshi Revolution exclusively with Bitcoin.com. Every Saturday you’ll find another installment in a series of posts planned to conclude after about 18 months. Altogether they’ll make up her new book ”The Satoshi Revolution”. Read it here first.

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