Emergency. Emergency. We interrupt the crypto primer series for a special post on ICOs.
I decided to write intros to crypto, starting with “Why Bitcoin is Important” and “An Explanation of Blockchain for Non-Technical People” because I believe in the technology but more so, think when it’s normalized, it can change the world.
As I was drafting my next post on Smart Contracts and the Promise of Ethereum, I got ping’d for the thousandth time with a barrage of questions about Bitcoin and ICOs.
I am so sick and tired of repeating the cookie cutter response I have memorized, I decided to write it.
The explanation usually goes like this:
Hey. Remember the ICO Paris Hilton endorsed? Well it turns out, the company is run by a piece of shit who kicked the crap out of his girlfriend 117 times and was sentenced to a year in jail. He is also fighting four lawsuits and super radioactive in the tech community, no one wants anything to do with him. Paris Hilton found out what she was backing after she promoted him and distanced herself right away. Do you want to be known as a person who was duped like Paris Hilton?
Okay, okay, so Paris Hilton may be as smart as a box of rocks.
What about DJ Khaled’s endorsement? Remember that? Turns out, the founders of that ICO were accused of multiple charges of fraud, have outstanding bills, payments, and what have you. Just seriously not so… straight peeps and they recently resigned. You wanna end up like Khaled?
I’m sorry — well not really — but right now, you (you = my friend, acquaintance, etc.) are as knowledgable about ICOs as Paris Hilton and DJ Khaled.
So if you don’t know who and what you’re investing in, most ICOs are sketch level fucking bajillion and it goes without saying: You’re better off staying far, far, away until you understand what ICOs are.
Usually, the frankness wakes people up but I find myself getting more and more impatient when explaining ICOs. So I’m doing what every nerd does: Blog about it. (And to anyone I may have offended or angered, I’m sorry. It’s not you, it’s me. Really.)
Long legit explanation:
In short, an ICO (initial coin offering) is like a project on Kickstart built on the blockchain where a product or service is backed by the community versus investors. An ICO is not like an IPO, since ICOs are not regulated and due diligence best practices change rapidly since there isn’t an entity or regulatory party telling entrepreneurs what to do and how to do it.
Loose outline of how a company/startup typically launches an ICO
- publish a comprehensive white paper on what they are offering, how it will work, how they will make money, why people who back the project should invest, and the background of the founding team.
- find an ICO platform to launch the campaign
- tap into a network of high profile or influential figures, get them to back your project, and if you’re lucky, they will market when the general public can put money into backing the project
- market, market, market. Founders start Slack and Telegram groups to engage the community of potential backers. They publish posts on blogs and Medium. And of course, social media marketing on Facebook, Twitter, et al.
Now that we covered the basics of ICOs, some data points.
While looking through ICO stat sites like 1, 2, 3, I came across this post (in Japanese). This random guy in Japan plugged in all the numbers into an Excel so I didn’t have to, which I’m translating into English so you don’t have to. (You’re welcome.)
This guy took a sample of 48 ICOs with the following conditions:
- ICO launched between 2014–2017 and listed on ICO stat sites
- projects that didn’t use an ICO platform since data of products launched on platforms aren’t as easily trackable
- projects that don’t require software or hardware development
Of the 48, he found projects to be bucketed in four categories:
- working product: at the time of the ICO there is a product and users
- beta: βversion of product is released; no users
- alpha: only a pro-type, not ready for beta release
- no product: just a white paper and a community, nothing to show (not even a prototype. Yikes.)
He lists several findings (YoY product delivery comparison, amounts raised, thoughts on why ICO products can not be delivered on time, etc.) but the one finding that raised the alarm bells was this one.
Of the 48 ICOs
Working product: 3 (6.25%)
Beta product: 7 (14.58%)
Alpha product: 11 (22.92%)
No product: 27 (56.25%)
Uhhhhhhhhhhh. 56.3% don’t have product on delivery? That’s insane. Where is the KickFailure equivalent site of ICOs? And I wonder if someone is keeping track of these people who fail to deliver. Just because ICOs aren’t regulated, it doesn’t mean individuals shouldn’t be held accountable.
Even more worrisome, is looking at the track record and seeing evidence such as this:
15 ICOs in a day and a half? What. The. Fuck.
Now I am a believer of blockchain. I champion Bitcoin, Ethereum, Litecoin, Monero, and a few others I’m closely monitoring. I am a fan of ICOs in theory and in time, cautiously optimistic that ICOs will help move crypto forward. But right now? Hedge your bets elsewhere; there are plenty of investment opportunities in cryptocurrency once you understand the basics.
A very rich man once said:
“Risk comes from not knowing what you’re doing.”
That rich man is Warren Buffett. Warren Buffett is worth $80B USD so I think he knows what he’s talking about so for God’s sake, before talking about investing in an ICO or buying Bitcoin: please, please, please educate yourselves.
Thank you for reading this very long rant. The End.