A lot of the so called "products" and "businesses" pitched by these ICO companies are just well known already working models somehow forced into the blockchain with the only reason being the ability to do an ICO (and generate an absurd amount of money for the founders).
Another common feature of ICOs: there's never any equity on the table. The founders are gonna cash in on the ICO and then later do an exit (sell the company, IPO, whatever). ICO "investors" are not gonna get much for their money here.
At least during the dotcom bubble some companies made it and the investors then got real equity for their money.
I will recommend reading this sub-thread:
https://news.ycombinator.com/item?id=15369840
Now, there is someone bragging that they are intentionally and willfully going to break multiple laws. They are already breaking laws, so they are also going to break some SEC regulations.
They think that being nice is going to keep them from going to prison. On top of this, they are posting about it in an open forum. They quite happily admit their criminal acts and intent to commit more.
If you're curious, their profile has more information.
I'm no psychiatrist and a few Internet posts aren't enough to diagnose someone, but I'm pretty sure they are crazy. Not 'so crazy they might just get away with it' crazy, but 'should seek professional care' crazy. Also, a lawyer... They should also seek legal council.
I'm not sure if it is the ICO and cryptocurrency that attracts crazy people, but it seems to have strong correlation. It may just be the cryptocurrency?
I've been following him for a little while. Lurk his slack channel. If you think he's going to jail, you may be underestimating him: https://medium.com/@PinkApp/pink-app-trading-latency-for-ano...
Do I think he is in it for the money? Oh yes. There's no doubt. But he clearly has the energy and drive to be creating something new. It's either a new kind of scam or a fundamentally-new type of enterprise, but either way, it's new.
Very few people have used tor to forge a public persona that they use to influence a ton of people and spark debate about a central issue. Satoshi and maybe gwern.
I am holding out hope that he's genuine, because as far as I know he's already received a ~crapton of money with his ICO and yet he's still here, still risking his neck.
And at the end of it, maybe sex workers will end up with protection. Maybe the system will become regulated. I don't know whether it's a good thing or bad thing, but my point is that it could change things. And that, I think, is worth watching for.
If he's genuine, his business model is the first public execution of the cyberpunk dreams presented in Snowcrash. Hopefully he doesn't get himself publicly executed, ha.
On the other hand, yes, there is a high probability he's outright scamming everybody. If so, then I'll be a bit sad, but scams have existed since the beginning of time. The interesting thing here is that there's nothing fundamentally preventing this idea from being real the next time. It's theoretically possible! It wasn't possible before, and ICOs are the reason.
If you think any of this is a defense of either ICOs in general or his actions in particular, you're misreading me. It's important to look objectively about what's going on and notice any new trends in the world. Especially when they're due to shifts in technology.
EDIT: Interesting that no one is addressing the argument. Quite a radioactive idea.
The crypto community has a lot of people with (at least on paper) f*ck you money, and in a form where they arent really tied the legal system of any country.
We are using blockchain fundraising because tech is good enough to give us enough privacy to operate. That's all. We are not some guys in a basement thinking blockchain & Javascript will fix sex worker problems.
Imagine that a friend is building a casino and asks you to invest. In exchange, you get chips that can be used at the casino’s tables once it’s finished.
Now imagine that the value of the chips isn’t fixed, and will instead fluctuate depending on the popularity of the casino, the number of other gamblers and the regulatory environment for casinos.
Oh, and instead of a friend, imagine it’s a stranger on the internet who might be using a fake name, who might not actually know how to build a casino, and whom you probably can’t sue for fraud if he steals your money and uses it to buy a Porsche instead.
That’s an I.C.O.
https://news.ycombinator.com/item?id=13886125
People were pushing this a while back and the only thing I could see is easy exit for founders and everybody else left holding the bag.
Founders should have no early exit and ICOs make it so they can.
I think they are also working with regulators to help with this ICO stuff.
Which interestingly makes escaping regulation easier.
Your point that many are 'forced into the blockchain' to get an ICO is 100% correct.
That is not true. There are other components to the Howey Test besides expectation of profit. The DAO was one of the most security-like token issued so far, and the DAO investigative report went over how the SEC believed it met all the conditions for classification as a security. Securities laws might not apply to a great many other tokens.
Basically, ICOs are 99% of the time classified as securities in the US. The main exception is if the token is non-transferrable or can be returned for what you paid for it. So, if you can't make money selling our trading it, it's not a security, which defeats the purpose of an ICO.
It sounds like who the SEC goes after is subjective, but at any point in time they could bring a suit against an ICO, even gimmick coins.
Mr Villardo's comments are chilling. If as you said "Basically, ICOs are 99% of the time classified as securities in the US.", the SEC needs to come out and say it.
This will of course lead to the freezing of US persons from participating in most ICOs, and lead most of our crypto community to move to Switzerland.
However, throwing any possible ICO idea at Mr. Vilardo, he was able to cite previous successful SEC lawsuits that the SEC could use as presedence.
The only token I could conceive that he thought there SEC would not be able to go after is a token that can only be bought and sold at a fixed price and only from the issuer (non-transferable).
He also reminded me that the SEC is one entity. States have their own securities law and you could easily be sued in state court under a different set of securities rules than the federal government has.
EDIT: Also, to be clear ICOs and securities are not illegal. Selling an unregistered security is illegal. If you want to sell a security you can register it with the SEC and be fine. That will of course be pretty expensive.
ICOs are not crypto. They use a small amount of cryptography in their implementation, but no serious member of the real crypto community is working on any ICO (based on Ethereum anyway. Yes, a proof of stake coin is worth working on).
Could Blizzard have an ICO for WoW gold that could only be used as it is now with no attached ideas of selling equity?
1. Was there an investment of money? (money is actually broadly defined to mean anything of value)
2. Was there an expectation of profits from the investment? (this is easy to prove because it's the opinion of the investor)
3. Was the investment of money in a common enterprise? (this means are the interests of the investor and company aligned, or does the investment go into running a business)
4. Does profit come from the efforts of a promoter or third party? (This means is the investor mostly powerless in having their investment go up our down in value)
In your WoW example:
1. Yes
2. Probably for someone
3. Yes, the money is used to develop the platform
4. Yes, if Blizzard hypes their coin or if you can trade it on an exchange
I think the biggest difference between an ICO and a digital good is that ICOs are traded on exchanges. If you buy a digital good and can only use/redeem/trade on the company's platform then it is not a security.
"can be returned for what you paid for it"
This seems like a safe harbor if it's true! This is huge. So, an ICO with this clause would require the company to keep all the money raised on reserve, but then if the token goes up in price and never goes back down to the original level they can start using that surplus money. Kind of like a bank does with fractional reserve lending.
Do you have any more info on this?
Hopefully we'll see more cases like this happening to the actors that deserve them the most. I need not mention names since I think others will do that for me.
One of the interesting questions for me is the extent to which the space will start to self-regulate. Once an investment type develops a bad reputation, it can be very hard to recover. That's why major stock and commodities exchanges are serious about regulating participants, and can be much more stringent than governmental regulators. Contrast, for example, the way investors feel about NYSE or NASDAQ stocks, versus the penny stock market, which is rife with scams. [1]
Based on the history so far I'm not optimistic. But maybe they'll turn it around.
I've found that ICO's are almost identical to OTC pump and dumps - they're much less sophisticated versions of the same thing
Opportunities that are marketed as investments first, products second. Website homepages that resemble the "investors" section of ordinary website with no actual "product" presence. Vague products in markets that are easy to obfuscate or fake. Affiliations that can be purchased. High profile board members or investors who can be purchased. Social media footprint where people talking about the stock outnumber customers, etc.
If you've spent any time in Yahoo! message boards or Seeking Alpha looking at the hundreds of reverse-IPO's and pink sheet startups you'll recognize all of the same scams (and some of the same names! cough McAfee cough-cough)
I have yet to see any crypto-coin-fueled innovations that solved real world problems. I have seen a lot of crypto-coin-fueled innovation in making more money with crypto-coins and their derivatives.
Like how email is mostly unregulated and yet it works remarkably well.
There are no regulations needed to go after fraudsters. If someone is committing fraud, they can be prosecuted under common law.
So this space is not rediscovering anything. Everyone supports fraud being prosecuted.
What everyone doesn't support is the creation of a centralized gatekeeper and a preemptive blanket ban on an entire category of digital value/information exchange, that is only lifted on a case-by-case basis if one is approved/registered by/with that gatekeeper.
In other words, people oppose a law being passed to treat non-security tokens the way securities are treated now. That would be disastrous for personal freedom and economic evolution.
Couple of things which are noticeable first up are: a. ReCoin at least attempts to appear legit by having a "team". DRC doesn't even do that.
b. While some (most?) ICOs do not have a convincing reason for using ethereum or blockchain, this one takes the cake. The only reason for using blockchain is..well because "blockchain".
c. The sidechain is called "Altcoin" for Recoin. DRC doesn't even get that mention. On looking through the whitepaper for DRC, there is a mention of the sidechain but nothing on site. So DRC site looks like a rush job when compared to Recoin ;)
d. Quite a lot of coins avoid SEC by kinda of ensuring they are not shares in something but paying for an unreleased product. They also try and mention that coins don't have an explicit real world value. But DRC and RECoin do neither of these.
e. These guys are based out of US, so quite easy for SEC to take action too.
Devil is in the details. It will be interesting to know how the complain landed on SEC's desk.
They also spelled their name as "Diamond Reserved Club" but on the website it's "Diamond Reserve Club" (noticed the extra d).
I honestly think this is a good thing. Most people's (understandable) knee-jerk reaction to big regulatory bodies is to roll their eyes and get pissed at the cost of government interference, but these two fraudulent ICOs is a fine reminder of why we have bodies like the SEC, and of how completely screwed over investors could be without them.
Good job SEC.
I just hit up the mighty Google and it was interesting, but not helpful.
Search terms 'ICO proper registration SEC' yields some interesting results, including some stuff that I'm not sure made HN, but doesn't reveal any companies that have done so or tried to do so.
I'm not suggesting this, but I bet the first one that properly registers with the SEC (even if it fails horribly and was bordering in scammy) would make a mint. The tag line of 'Officially sanctioned by the SEC' would go a long ways, even if it was doomed (intentional or otherwise) from the start.
Again, that's not a suggestion to make something meet the bare minimal requirements, register, and then make a killing.
Even if there was a lawyer at Howey's orange tree advising Howey on securities regulation, Howey might have asked "okay where do I go to register to trade the interests in my orange tree" and the lawyer would say "well you can't, because you are selling fucking oranges"
2. These are not high tech crypto startups, as most ICOs are. This is some guy selling diamonds. The text from the website sounds ridiculous and makes no sense.
> "By acquiring at least 1 DRC you will claim the membership in the exclusive Diamond Reserve Club (DRC) with privileges such as access to the blockchain transactional databases"
A non-event for ICOs
CoinMarketCap lists values for 265 known tokens.[1] The biggest market cap is OmiseGo, for which a market cap of over $1 million is claimed. As far as I can tell, owning an OmiseGo token lets you do absolutely nothing.
As a joke. someone did an ICO of the Useless Etherium Token. It's totally worthless. They tell you that up front. They raised $95K.[2]
[1] https://coinmarketcap.com/tokens/ [2] https://uetoken.com/
You know very well that the value of OmiseGo tokens is based on the token-compatible platform they have said they are developing, and not what can currently be done with the tokens. Leaving out this point is disingenuous.
It's not that they raise far too much money for their projects (although they do), its just that without equity in the company performing the ICO you simply don't get alignment of incentives.
Guys like Juan Benet talk about this utopian fantasy of coins funding open-source protocols, but think about the reality. A legitimate project raises 15-45million dollars with a stated intention. Even being well funded, it is still highly speculative, and most startups "fail". So the team raising money has 2 options. Spend the entire amount trying to get the protocol going - which will probably fail (as most projects do), or have a half-hearted go at getting the protocol going, and keep the rest of the money - a 100% chance of getting comfortably rich, but further decreasing the already small odds of the project succeeding.
If the protocol/token model is so good, then companies can launch a token and use that to feed profits back to equity-holders. There is no reason why investors should have to take their chances on some made-up instrument that puts an extra barrier between their interests and those of the founding company.
Current token sales waive this responsibility, but investors should demand that it is there.
And you're just scratching the surface.
I am not good at predicting how the SEC will act, but I expect this action is a good thing over all. If people think twice before doing an ICO it feels like a step in the right direction. I do think there are some company narratives that make sense as an ICO, but maybe that's just survivorship bias. It's really too early to tell in the lifecycle of crypto.
In short, I think ICOs are the cheapest cost of capital so doing one makes sense right now. That might not always be true, which may or may not be a good thing depending upon your perspective. I think it's nice to see some action from the SEC that's clearly aligned with the interests of the public.
Fact: crypto currency will be a mechanism for fundraising startups. Either deal with it or stick your fingers in your ears.
If you don't bother to elaborate, I will just call it as hyperbole.
[0]: It's ok. Everyone does.
Colony are a legitimate business and honest. The SEC is only going after the egregious ones, as they don't want to kill nascent crypto/ICOs in the USA.
The fly-by-night ICO market has the difficulties of both trying to defraud investors and sucking at it. Successfully fucking over the general public usually requires building an institutional apparatus around you to confer legitimacy - you can't just take the money and run without expecting some form of sanction.
It seems objectively difficult to find anyone that's going to say the SEC is doing a great job at reining in the financial sector -- so my question stands, why are they doing such a good job at reining in ICOs, using tech that's barely understood by the general populace (though it's probably easy to spot how scummy they are), and in an absolutely new regulatory landscape?
I never understand this kind of logic. So if x agency is bad at following through some it's stated objectives in some cases, it shouldn't even attempt at trying to complete it's objective in other cases too?
I'm not saying the SEC must always move at the same speed on all issues, but it is anomalous that they are moving this fast on this relatively new thing.
That said, I find it very interesting that JFK's father Joseph P. Kennedy was the first one in charge of "cleaning up wallstreet" via the SEC, but all the indicators show it was much more about going after the mid-level and low-hanging fruit on wallstreet in order to assuage the publics view of the markets (remember the 29 crash was in recent memory as SEC was formed in 34).
Please, us conspiracy theorists have a hard enough time on the internet, if you are on HN please take the time to put in some effort (one of the things that makes HN consistently better for discussion than other forums), otherwise you are just making it harder on us to reach others.
There will be a reckoning at some point, but the tech is here to stay. I invest in ICO's that have the focus, vision, and team to build something lasting.
SEC has not charged with fraud rather than with violating anti-fraud and registration provisions. Since almost no ICO implement anti-$FCRIME provisions, even honest ICO can be charged similarly.
