All the rage these days in the Blockchain startup world are Initial Coin Offerings (aka ICO’s). And quite frankly as these campaigns continue to proliferate, they have become downright nauseating to my stomach.
Before pontificating further as to why I feel this way, below is a brief definition of what an ICO is.
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Defined by the online site Investopedia:
“An (ICO) is unregulated means by which funds are raised for a new cryptocurrency venture. An Initial Coin Offering (ICO) is used by startups to bypass the rigorous and regulated capital-raising process required by venture capitalists or banks. In an ICO campaign, a percentage of the cryptocurrency is sold to early backers of the project in exchange for legal tender or other cryptocurrencies, but usually for bitcoin.”
So if you’re a startup founder that was previously unfamiliar with what an ICO is, then your ears probably perked up. This approach certainly has garnered tons attention from businesses seeking to raise obscene amounts of money; often in the millions for the project they are pushing.
The hype around Ethereum-based ICO’s has reached epic levels. And sadly the vast majority of these projects have no proof of concept, consist of a white paper that only a Ph.D. can comprehend, and are marketed via a website that was thrown up in record time.
As a result, despite being a heavy Bitcoin/Blockchain enthusiast since 2012, I have not invested in a single ICO. The projects that do have credible legs are in my opinion few and far between. The rest feel speculative, in some cases downright slimy.
I know, I know, my views here are harsh and will probably subject me to some hate mail. But it is what it is.
As a journalist, I feel this energy every day as my email inbox is often inundated with press releases pitching the latest and greatest ICO campaign on the planet. The email subject line typically starts out with the often repeated mantra of “we’re the world’s first blockchain blah, blah, blah” in an attempt to loosen me up so that I’ll cover the story.
Then there are the magical fairy tale success stories about ICOs that have already broken it big. The new brief typically reads something like the following:
“The groundbreaking (insert a name) project which is poised to revolutionize the global blockchain landscape sold out its ICO in 15 minutes, all while the co-founders were sipping lattes at their favorite coffeehouse. The project is now set to launch, the alpha version details of which are covered in their 30-page whitepaper. And no worries, the actual proof of concept will be forthcoming in 2020.”
It’s also interesting to observe the tsunami of celebrity ICOs that are now popping up. Celebrities like Jamie Fox, Paris Hilton, and Floyd Mayweather are all jumping on the bandwagon.
All of this feels like the irrational exuberance leading up to the global financial crisis of 2008. Could the world of ICO’s ultimately experience this same fate?
The truth of the matter is that if I had a cool blockchain project that was valued at $250 million and I would walk away with at least 10 percent, then why would I continue innovating. Hell, I’d just cash in my tokens and retire on a beach. Because in reality, what sort of incentive is there for the co-founders to have a functioning project when their pockets are already full of money.
Perhaps the most obscene aspect of this racket is that everyday blockchain and crypto enthusiast are apt to toss money at these projects anyway, often based on pixie dust claims of a rich future return.
Now with Ponzis, pump and dump schemes and hacks becoming more prevalent, the howling jackals of the regulatory community are starting to step forward and say, enough is enough.
In full disclosure, I consider myself a free market libertarian who harbors a general disdain for regulations that constipate small business and free enterprise. But in this case, I’m even willing to admit that a common sense approach to reigning some of this in may be warranted.
One stakeholder that appears to be taking a leadership role here is Coinfirm. This blockchain-based regulatory compliance company recently announced a new Ethereum and ICO Anti-Money service that enable ICO compliance with AML/CTF regulations. In offering this, Coinfirm hopes to address a major roadblock to the Ethereum ecosystem becoming commercially adoptable, namely, the compliance risk associated with cryptocurrencies and blockchain-related entities.
Says Coinfirm CEO and Co-founder, Pawel Kuskowski, “We’ve been met with a great response so far from clients who use our AML reports for ICOs and token issuance. Our capability to service Ethereum for AML/CTF changes the game not just for us but the cryptocurrency ecosystem overall. Now one of the largest regulatory problems around ICO’s and tokens, for example, is being solved.”
Coinfirm is the first company to publicly break out and also offer AML/CTF capabilities for Ethereum on top of their services for Bitcoin and Dash. The company is also working on additional features and efficiencies for the platform that will be disclosed soon. My sincere hope is that their efforts signal the first of much more broader steps in bringing some rationality and common sense to the ICO landscape.