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Everything old is new again.
The talk of the town in the cryptocurrency and blockchain space these days is the concept of an initial coin offering (ICO), which has been used to raise over $1.5 billion by various startups, open-source projects, and other organizations since the start of the year (according to Coinschedule).
If you’re unfamiliar with ICOs, check out this explainer from cryptofinance research group Smith + Crown.
While nearly all of the current token offerings are made via the Ethereum blockchain, this is not the first time that an alternative digital asset craze has happened in the greater Bitcoin and blockchain ecosystem. Long-time Bitcoin users have seen plenty of instances of hysteria around altcoins, appcoins, and even bitcoin-denominated securities offerings throughout the years.
Having said that, the hype around Ethereum-based ICOs has surpassed any of the alternative token crazes from the past, especially when considering the effect it has had on the ether price, which is the underlying token of the Ethereum platform.
The bitcoin-denominated securities found on sites like BTC-TC, Bitfunder, and Havelock Investments are one of the more interesting parts of Bitcoin’s history because they allowed anyone to raise funding for their business or project at the click of a button in a manner that may have been even easier than what is seen with the current ICO phenomenon. Those newly created assets could then be traded on the aforementioned, legally-dubious exchanges.
As the founder of BTC-TC, Ethan Burnside was once at the center of these sorts of offerings in the Bitcoin space. Things changed dramatically when he received a letter from the SEC in late 2013. After exploring options with his legal team and realizing there was no way to continue operation, the tough decision was made to gracefully shut down the exchange. Today, Burnside spends most of his time working on his social casino gaming startup Yapping Moose Entertainment.
Recently, an SEC report revealed that Ethereum ICOs can also be considered securities.
I reached out to Burnside to reflect on BTC-TC and get his thoughts on the hype around Ethereum-based ICOs. Our question and answer session can be seen below:
Kyle Torpey: How do you think the ICOs of today compare to the assets that were traded on BTC-TC? Do you feel many of either set of offerings are/were legitimate?
Ethan Burnside: It’s amazing how fast things change. When we launched the exchange in late 2012 it was a completely different world. There was a lot more skepticism about the future of Bitcoin. Governments hadn’t recognized it yet. It was easy to get for free by mining or from a faucet. If you offered a guy on the street a choice between 100 Bitcoins and a hamburger they’d probably take the hamburger.
In that context you can see the scope is completely different. In most cases the assets traded on BTC-TC were individual’s pet projects, things like small one-man mining operations and other one-man crypto endeavors. This was actually our intent because the BTC-TC Terms of Service made it clear that the platform was intended for learning and experimentation. We turned down or were otherwise passed over for many much larger offerings because we refused to move outside that scope in our terms. So it’s not really an apples to apples comparison to what is out there today where ICOs I’ve seen are larger teams with actual incorporated entities. If I had to draw a parallel to what is out there today, BTC-TC was probably more like a GoFundMe than anything else.
I do think that many of the offerings on BTC-TC were legitimate initially, started by operators with good intentions. Where a lot of them went south is when they realized they could come under fire for the same regulatory issues BTC-TC itself had. With the close of BTC-TC several operators went dark out of fear, others took the opportunity to run, and others just didn’t have the business acumen and were in over their heads from the start.
Fast forward to the ICO’s today and I see a lot of the same behaviors being repeated. Entrepreneurs seeing an opportunity to fund a project. Scammers seeing an opportunity to fleece investors. Investors seeing an occasional success and thinking they don’t want to miss the next one. I’m sure some of the offerings are legitimate. I’m also certain many of them are not. It seems like no one learned the first time around, but reality is that these cycles have been going on since the beginning of time. Each new generation it seems has to learn the hard way.
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