Well it was about the damn time! A lot of ICOs are borderline (or just straight) scams. There have been even cases where the ICO funds have been "stolen" but rumours say the founders just took the money and ran.
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.
The whole thing is just a ball of insanity. I'm not sure what it is about cryptocurrency and ICOs, but it seems the representation is heavily populated with insane people.
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?
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.
I make no comment about the morality. If you read the linked thread, you will see that I make absolutely no judgment about the morality of the business in question.
In fact, morality hasn't anything to do with my statement. It's not an argument that I need to make, nor is it one I'm interested in making. In fact, it dilutes the conversation at hand.
I believe that's colloquially known as a 'red herring.'
No, my comment is that he is going to go to prison. My comment is that he has already opted to violate the law AND that he intends to break additional laws. My comment is that he not only is going to go to prison, he openly discusses his plans in public, completely ruining every possible legal defense he might have.
My comment is that he is openly conspiring and mocking the legal system. My comment is that he is going to have his comments submitted in a court of law, or that there is a good probability that those comments will be read aloud and submitted into evidence at his trial. My comment is that he is very likely to find out how angry a judge gets when one mocks the legal system and announces intent to violate the law - and then carries through with it.
My comment is that it isn't a very sane position to hold and that he should hire a lawyer.
Your reply completely chooses to ignore this and, for some reason, tries to change the topic to a morality conversation. I am not sure why you'd do such a thing? I'm not sure why you think it matters. I'm not sure why you think it needs to be addressed when it is, quite pointedly, not the topic.
I don't care who is having sex with whom, nor do I care if it is paid for - so long as there is consent. Even if I did care, it is not relevant to the topic at hand. The topic at hand is that they are going to go to prison and that they do not appear to be sane.
I don't know you but, if you think his actions are reasonable, then I'd suggest you consider seeking council from a qualified mental health professional. That's not pejorative. Mental health issues are real and should be addressed before harm occurs. If you think they are reasonable, look at their replies where they insist they will commit more crimes and where they believe they are impervious to the law.
Seriously, this is not meant to be derogatory. If you think they are reasonable and exhibiting rational behavior, you may wish to see a mental health professional. There is nothing good that can come from you ending up in prison beside them.
You will not like prison. My last years as a Marine were spent working at a detention facility. Prison is not a nice place. That's kind of by design. Buying sex and intentionally defying the SEC are not good reasons to go to prison.
Hmm? I think we're just talking past each other. I didn't mean to imply it was about morals -- it seems inherently amoral.
His motive is clearly money. He wants to get rich. That's a fine motive and he's not killing anyone or defrauding anybody (yet).
Why is it only ok to tap into a market when the legal system says it's ok? He's not even a drug dealer; drug dealers really do ruin lives.
Your argument here appears to boil down to "If you think it's sane to climb Mt. Everest, I suggest you rethink your actions. You'll probably die."
Except it's more along the lines of climbing a mountain no one has ever climbed before. Yes, you certainly have a point. He'll probably get caught and probably go to prison. But... So? It's his life to risk.
In the meantime, you've got to respect the raw determination. We'll see if he delivers. If not, then it's just a bunch of hot air. But he's onto something. The legal system is going to have to adapt to something it has never had to deal with before outside of cartels: the ability to operate a full business completely anonymously.
Even if he fails, someone else will come along and do the same thing. You want ten million dollars? Heck yeah you do. Tap into that feeling and amplify it by 100x, and that's the drive that pushes people to do this kind of thing.
Really though, as long as he's not hurting anybody I don't understand why we have a right to trash on him. He hasn't stolen anyone's money yet, and he's trying to build something new. I'd like to interview him, to be honest.
(I agree you weren't really trashing on him, just pointing out how crazy his plan is. That's true, but he's not a run-of-the-mill lunatic, which is sort of what your comments imply.)
No, my argument boils down to he is willfully breaking the law while openly stating his plans and that the judges aren't going to appreciate that, the SEC isn't going to find it funny, and the prosecuting attorney is going to submit it as evidence. He is doing this while he is fully aware that prison is the likely outcome.
That's not rational. That is irrational thinking that is likely to result in harm coming to the actor.
That's pretty much the definition of mental illness.
They aren't even alone. They are just one example. Watch the comments about ICOs and cryptocurrency. You'll see comments that are saying the government can't stop them, them the individual.
No, the government can't necessarily stop an idea. They can't even really prevent cryptocurrency. What they can do, and do very efficiently, is stop the individual.
That is irrational thinking. It is how people end up in prison. I'd like it if, you know, HN visitors didn't end up in prison. I'm kind of fond of some of you. Prison is not a nice place, I've worked at one.
When you start mucking about with things with real-world implications, it's no longer a game. It's no longer something you can talk your way out of. It has real-world penalties. There are negative consequences.
The government can, and will, stop those who draw negative attention. They really, really hate it when you negatively impact the economy, as a general rule.
However, you're right. It is their life to risk. That doesn't actually make it sane.
It's not like they are going to go to prison rich. No, the government is going to issue fines to go along with their prison sentences. Do not taunt the men with guns. Taunting men with guns only works in video games and movies.
Please stop talking about mental health in this context.
You may or may not be correct in your prediction about the legal ramifications of this person's actions actions but making comments about their mental health is completely erroneous.
KGill if you have a specific criticism that we're being irrational, please contact us. Info in profile.
This country was founded on taunting men with guns and winning. Every bit of social progress does too. I am a small actor in comparison but the ideas are what matters.
It's not like they are going to go to prison rich.
Well, this is the most interesting part: They will. If they go to prison at all, they'll go to prison rich, and no one will be able to take their money. Once they're out, if their opsec is half-decent, they'll still have it.
Having money in a third-party-inaccessible form just means that when the government decides to confiscate it, you sit in jail indefinitely for contempt of court until you make it accessible.
I think its because they have unique beliefs, and a lot of positive reinforcement for these beliefs. Along the lines of what Naval Ravikant said recently, even the craziest ideas in crypto which failed completely would still be a net win for people at this point if they got paid in bitcoin/had enough of an interest in it to buy some a few years ago. Unlike the tech crash where the shares employees got in dud companies become worthless.
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.
Greed I can understand, the seeming insanity I can't. I'm not sure how many times I've seen stuff like, "They can't stop me!" That's pretty crazy, because it's well known that they can, and will, stop someone who gets their negative attention. They may not be able to fully prevent an activity, but they sure as hell can stop a person.
Maybe the greed makes them insane? I dunno, psychiatry is not really my domain. I find it curious behavior.
I can't speak to the psychology of it, but I imagine the same sort of invincibility complex exists for big movers in traditional business/finance/politics. We're just being made aware of it here now because of the democratization of the entire system.
For what it's worth, KGIII is mischaracterizing their position. In no way do they feel invincible. They're keenly aware of how vulnerable they are and are hyper-vigilant about their opsec. I'm pretty sure their #1 fear is to make a dumb mistake that gives away their identity.
The idea that they think they're untouchable or that "They think that being nice is going to keep them from going to prison" is just flat-out a blatant misrepresentation of their words and persona.
> I don't offer an opinion on your business methods, recovery methods, or even the morality.
Followed by
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.
I suspect people are simply bothered by the idea that his venture could actually succeed, which manifests itself as "He's crazy." Yes, obviously you have to be a little nuts to go up against the full weight of the law. But there is method underpinning the madness, and he seems to be holding up his end of the bargain so far. He could've disappeared with the money and no one could trace him.
We'll see if that happens, but until then it's worth keeping an open mind. It all depends whether he can execute and actually deliver the app.
Their comment about how they won't get complaints and will be ignored by the SEC says they do believe they are invincible with regards to the SEC. They, themselves said it. That's not my mischaracterization, that's was in their reply.
The SEC isn't going to care that people were happy with their sex purchases. No, they aren't even going to care a little bit. If he follows through on this, he's almost certainly going to prison.
It's not sane. That's not rational thinking that causes harm to the individual. I may not know their diagnosis, but I can tell you that's not sane.
But it's not in their reply. That's not at all what they said:
It's our view that the SEC part won't be what pushes us over the edge. 100% what we're doing is not legal, it's in our business plan. SEC won't care if investors are OK, yes. But if investors are OK, they won't be filing complaints and there will be less pressure to go after us. Not a defense! Just a delaying factor. Prosecution isn't free. Far easier to shut down ICOs that aren't operating as proper anonymous extrajurisdictional companies. They can go after us, but it's a terrible ROI for them.
It's important to represent your opponent accurately. He's saying his biggest threat is law enforcement, not the SEC. And that makes sense: once he starts making headlines, which government entity will be the most motivated to catch him? The SEC, or the FBI?
At no point did he insinuate that he could avoid SEC scrutiny by being nice.
I'd say that's them saying they believe they are impervious so long as they are nice.
He's not my opponent, I feel sorry for him, not that he's my enemy. I feel that's a very accurate representation of what he said.
And no, really, not my opponent. I don't have a nickel invested in any cryptocurrency or ICO. I don't mind if you do, but it's going to suck if you lose your money - or, worse, end up going to jail.
I am admitting it is irrelevant as far as legality goes. My point is that if investors are not being defrauded then it lowers our priority. If we defraud investors then they will complain to the SEC and make us a higher priority.
And for all, it is besides the point. We must have strong opsec and technical measures or we fail.
Just to be clear, I don't have any judgment about the morality, nor any personal complaints with your funding.
Given my druthers, and with the knowledge I have on the subjects, I'd say that I wish what you were doing we're legal.
That said, you seem like a nice enough person with some intelligence. OpSec or not, I'd really not like to see anyone from HN end up in prison. You can do what you want, it's your life, but going to prison sucks.
Long story short, I paid for my education by spending eight years in the Marines. Yeah, I'm old. I was nearing the halfway point to my last four year commitment and things were changing in motor pool.
I was a light-medium vehicle operator. I also had my security clearance. I'd driven staff vehicles and done embassy duty. So, they sent me back to school and my MOS was changed.
My new job was being a transportation officer at a detention facility. Basically, I drove the accused and convicted inmates to court, medical appointments, and other things as needed. I worked in the brig. I worked at a prison.
They are a lot less rapey than they are in the movies. Many of the detainees developed a mental illness while enlisted or slipped through the testing and managed to enlist. Prison is largely an exercise in learning to get really good at doing nothing while time seems to move slower than anywhere else.
It's horrible. There is nothing good to say about it. That was a military prison, ten times better than a civilian facility. It's loud, dirty, smelly, and violent. It is stressful and your agency is stripped away. Your only friends will be other convicts who are not, in fact, incarcerated for jaywalking. You will be told when to sleep, wake up, eat, drink, move, stop moving, sit, stand, and lay down.
You can do what you want, but it's important to know that prison sucks. Who knows? Maybe you'll get away with it? Given the nature of your offenses, and assuming you don't hurt anyone, I'd rather you get away with it than go to prison.
Why? Because I've seen what it does to people. I'd absolutely not wish that on you.
They’ve already made multiple dumb mistakes, and it’s very very unlikely their identity has not leaked already, there just isn’t sufficient motivation to go after them yet.
Within a few months we plan to move nearly exclusively to high-latency communication methods.
There is no invincibility complex. We are acutely aware of the risks. I just believe I am good enough to get the project working and stay ahead of LE until we can take a more hidden approach and reduce our opsec surface area.
It'll be an entertaining thing to watch, though. Natural Selection! The Feds/Sec will hammer the guys they can hammer. But with Natural Selection, is it possible that some guy out there escapes all the Feds?
We are not doing an ICO. We are offering shares like any well-meaning enterprise should do. Anything less is disrespectful to investors.
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.
It’s e-gold all over again. Was going to be the dream libertarian non-fiat currency of the future but ended up being used mostly by scams. At least e-gold was (theoretically) redeemable for real gold delivered, whereas crypto currencies are ‘backed’ by a whole lot of sunk costs in the form of big electrical bills.
Why do people just throw their money at random ICO's? It makes no sense. All they read is a whitepaper, and badabing badaboo...there goes your money. There is literally a site that lists coins deemed safe. That is sad that people in crypto need that. However their forecasts are spot on: https://www.cryptonaire.com
I think they are also working with regulators to help with this ICO stuff.
>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.
Which interestingly makes escaping regulation easier.
That's by design. If there's equity or promise of profits, it automatically trigger the 'it's a security' lever. The SEC DAO paper (linked below) acknowledges the same.
Your point that many are 'forced into the blockchain' to get an ICO is 100% correct.
>>That's by design. If there's equity or promise of profits, it automatically trigger the 'it's a security' lever.
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.
I spent 30min on the phone with Mark Vilardo, special counsel at the SEC and the guy who will call you if you all questions about ICOs.
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.
Just to be clear, the quote is my interpretation. The SEC's official position is the DAO guidance and the Howey Test.
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.
Please don't spread FUD. In the DAO guidance [1] you reference, the SEC explicitly calls Ethereum a virtual currency, and does not call it a security.
"From April 30, 2016 through May 28, 2016, The DAO offered and sold approximately 1.15 billion DAO Tokens in exchange for a total of approximately 12 million Ether (“ETH”), a virtual currency used on the Ethereum Blockchain."
They might change their mind on the matter, and expand their definition of virtual currency to be securities, but they went out of their way to publish a piece which references the word "Ethereum" 39 times, "Ether" 2 times, and "ETH" 15 times. None of those times do they refer to Ethereum as as security.
Something can be a currency and still be a security, they are largely orthogonal concepts.
That's actually the entire point of the Howey test, which was established as part of a case to determine whether or not property that was classified as real estate could also be classified as a security.
lead most of our crypto community to move to Switzerland
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).
Token sales are on track to raise over $2 billion worth of cryptocurrency this year, which is more than early-stage VC funding, and most of that for distributed application (mostly blockchain based) development.
Given crowd funding through token sales is the first major use-case for cryptocurrency, and is funding numerous cryptocurrency projects, I can't see how one could argue that it is not important to the cryptocurrency sector. Also, almost all token sales are on Ethereum.
My followup question is, if exchanging World of Warcraft gold for currency was supported or facilitated by Blizzard, would the SEC classify it as a security?
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.
I'm not sure you can hand wave the "expectation of profits" factor as easily as you did. Seems like it would have to be a reasonable expectation of profits and would probably have to be true of the majority of the purchasers.
Imagine that I bought $10k worth of Chuck E. Cheese tokens and I could convince the SEC that I sincerely expected the value of those tokens to go up substantially. I doubt that would be enough to meet the Howey requirements, even if my expectation was sincere.
From my conversation, I understood "an expectation of profits" to mean from a reasonable investor. In fact no one even has to complain if the SEC thinks someone could have expected profits then it satisfies that bullet in the test.
Not being that familiar with WoW, wouldn't it be classed as income more than speculation? These people grinded away at a game and earned "gold", now they want to convert it into a different currency.
Doesn't seem speculative for the people playing the game. Though for a trader it is.
Fail to see the difference between buy/sells on the company platform compared to a third party. Both could be used for speculation.
The difference from what I understand is an exchange vs a platform. A platform has utility, an exchange is investing. On an exchange you can trade one currency for another to ideally make a profit. On a platform you buy/sell as part of using the system.
They would classify it as a security if they could conclusively prove that people were buying WoW gold "for the expectation of profits solely from the efforts of a third party or promoter."
Doesn't have to be wide spread. Even one investor complaining they thought they were going to make money is enough to satisfy the test. However, the SEC will probably only act in cases of high dollar value or many complaints.
Is that really how the law is technically phrased? I doubt it. You're telling me that if Jose does an ITO (Initial Taco Offering) to open his new taco joint, selling 1000 tacos to anyone that wants to eat one, and I complain to the SEC that I thought Jose's tacos would be worth more if I resold them tomorrow, then his tacos fail the Howey Test and are classified as securities? Obviously that's not the case, but are you saying that's only due to selective SEC enforcement, not because the law has a higher standard than "Even one investor complaining they thought they were going to make money"?
That's what I understood from my call with the SEC. That if anyone could reasonably expect a profit it satisfied that bullet in the Howey Test.
For your tacos to be securities, the company would have to be working in some capacity to give those tacos more value in the future. Since tacos expire, all reasonable taco investors know that their investment will go to $0 in the near future, therefore no expectation of profit.
It's amazing how broadly security is defined and enforced. The only examples I was able to discuss with the SEC that were not securities were when the asset being sold could not reasonably generate a profit and could not be transferred. Basically like selling a product or accepting a donation.
There is also securities case law where a company sold a security to a single person or very few people and they were sued successfully.
> That's what I understood from my call with the SEC. That if anyone could reasonably expect a profit it satisfied that bullet in the Howey Test.
“reasonably expect”, in law, imposes an “objective” standard; the mere subjective expectation of a buyer won't meet it, the court applying the test will need to find that the expectation was objectively justified in the concrete circumstances that existed. It's a much higher bar than merely did any individual buyer have a subjective expectation of profit.
What about taco futures? I would prepay for tacos now, knowing that it's a stable investment that will likely have returns at least as good as inflation.
If you invest money and the money is used by the taco company to grow their business and your taco futures are transferrable and the value of a taco future can go up through the efforts of the company (their tacos becoming more delicious and therefore going up in price), then I think so.
Here is the big reason why. If you are creating an ITO, you are implicitly promising that you will provide tacos to someone in the future.
It is a taco future. You can't just create futures, even taco futures, without falling under regulations.
THAT is the problem with ICOs. Look, if you just want to sell a cryptocurrency, that has ALREADY been created, you won't run into any issues with the law. There is nothing illegal about premining, and selling a crytocurrency.
The problem is when you say "This cyptocurrency represents stake in something that doesn't exist yet, but I totally promise that it will exist in the future". No. Thats a future. Thats a security. If it doesn't exist yet, you can't sell it without falling under security laws.
Probably not a security. But transferable WoW gold has bigger problems -- money transmitter laws. It would make Blizzard a money transmitter like E-gold, [1] or liberty reserve. Any centralized e-money issuer is doomed. That is an important part of why bitcoin exists.
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.
What surplus money? The issuer no longer has the coins, but USD instead. If they make a second offering at a higher price later, they'll need to keep that money in reserve as well or else the new coins will be unregistered securities.
Well, the issuer has USD / BTC whatever but has to keep full reserves to be willing to cash everyone out in a case of a "run on the issuer".
This is a worst case scenario and realistically they can probably spend half of the USD / BTC / whatever raised on actually running the business.
As the token goes up in price, less and less people will want to buy at the current price. At some point issuer insure themselves against the remote possibility of the price crashing and people making a run on the issuer, by buying out-of-the-money call options if they can find some underwriter.
Then the underwriter's issuing the securities, and the issuer can spend some or all of the money protected by the call options / insurance.
This is completely wrong on so many points, I truly doubt that you are even honest about talking to Mr. Villardo. He wouldn't be that stupid to even insinuate something along those lines. Magic the Gathering Trading Cards would be classified as securities by the card printing company with your silly interpretation. After all, they are transferable, the value of the rare cards go up the more popular the game/network becomes, you can't get your money back from the store or the company if you wanted to return your pack of cards, so it's a security? Please. I'd recommend editing your post so you don't come off as clearly clueless.
It's nice to see action like this being taken in cases so blatantly fraudulent. One thing to take note of here is that the reason why the SEC is taking action is not simply because of reasons related to tokens or securities, but instead due to defrauding and lying to investors.
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.
Agreed. I heard an ocean of hype about how freedom from regulation would unlock untold innovation. It's been fascinating to watch this space rediscover the reasons that the regulations were created in the first place.
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.
> It's been fascinating to watch this space rediscover the reasons that the regulations were created in the first place.
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)
This is why the hype typhoon of ICOs makes no sense on HN. If you did a "Show HN" with a site that was all pedigree and vagaries, no product, it would get torn to shreds. But by and large, ICO coverage seems breathless and overblown.
It's nice to see the SEC take a more active role though. Maybe they can be a decent enough filter where the ICO world can grow enough trust to be a legitimate vehicle for investing.
I'm only a casual observer of the financial realm, and thusly hadn't heard of a reverse-IPO.
A reverse takeover or reverse merger takeover (reverse IPO) is the acquisition of a public company by a private company so that the private company can bypass the lengthy and complex process of going public.
> Agreed. I heard an ocean of hype about how freedom from regulation would unlock untold innovation. It's been fascinating to watch this space rediscover the reasons that the regulations were created in the first place.
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.
I wonder though if this wasn't regulated wouldn't it eventually become just a filtering / spam problem that the market would solve? There'd be significant damage early on. Then buyers notice and the demand for a private sector solution would emerge.
Like how email is mostly unregulated and yet it works remarkably well.
Email works reasonably well because a) we can afford to burn computational resources, b) spamming is not very lucrative, and c) we can hide the impact from end users.
Looking at my mail logs, 96% of recent mail on my server is spam. Sampling what I get, it's mostly incredibly dumb-ass garbage, built to take mostly small amounts of money from very unsophisticated people. Nobody is getting rich off it, partly because spamming is illegal and they will put you in jail [1] for it if you do it at large enough scales to make real money. Most importantly, end users don't see the spam, so they don't even know how terrible the medium is.
For financial markets, the way it gets solved in the real world is mostly by investors moving to better markets, ones that are strongly regulated. And it's not just investors. Companies will list on highly regulated markets like the NYSE and the NASDAQ as shows of strength and as ways of tapping the more available, less expensive capital that comes from trust.
So my bet is that the market will solve it by driving entire marketplaces or kinds of assets out of business.
>>It's been fascinating to watch this space rediscover the reasons that the regulations were created in the first place.
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.
> There are no regulations needed to go after fraudsters. If someone is committing fraud, they can be prosecuted under common law.
This is apparently written from theory, not from data. Actual successful financial marketplaces, like the ones I named, have much more stringent regulations than that. Why? Because waiting for a fraud to blow up and then hoping the police can crack down on it is immensely damaging. Not only to the people who get suckered, but to everybody who hopes to use the marketplace.
Think of it like food safety laws. In theory, the marketplace would take care of this, driving unsafe restaurants out of business through the magic of the invisible hand (plus a lot of visible vomiting from food poisoning). In practice, though, everybody supports food inspectors, food safety ratings, etc. Even restaurant owners, because they want people to not even think about safety. A trusted, regulated marketplace benefits all sincere participants.
> What everyone doesn't support is the creation of a centralized gatekeeper [...]
Sure. And we'll see how that works out.
Historically, gatekeeping behavior both from regulators like the CFTC and the SEC and from marketplaces like the NYSE and NASDAQ arose in response to problems. It's not something people just made up.
Now that the same problems are happening here, I expect there will be some response. Partly, it is regulators coming along and applying existing financial laws. Partly, it will be investors abandoning the whole asset class. But there's also room for the industry to self-regulate. Will the antiregulatory fetish, as typified by your response, win out? Or will, as often happens with other industries, some self-regulation happen?
>>Actual successful financial marketplaces, like the ones I named, have much more stringent regulations than that. Why? Because waiting for a fraud to blow up and then hoping the police can crack down on it is immensely damaging.
There is no data to support your assertion. We don't have a control to see what the effect of regulation has been. How can you confidently conclude that regulations made the markets more successful, and that a traditional deterrence approach to fraud wouldn't have worked even better? You can't.
>>Think of it like food safety laws. In theory, the marketplace would take care of this, driving unsafe restaurants out of business through the magic of the invisible hand ... In practice, though, everybody supports food inspectors, ... A trusted, regulated marketplace benefits all sincere participants.
You have not provided any evidence for your last assertion. A policy being wildly popular doesn't mean it's socially constructive or ethical.
>>Historically, gatekeeping behavior both from regulators like the CFTC and the SEC and from marketplaces like the NYSE and NASDAQ arose in response to problems. It's not something people just made up.
Of course, and the War on Drug arose in response to the problem of drug abuse. Alcohol Prohibition arose in response to alcohol abuse. The Iraq invasion and Patriot Act arose in response to terrorism. It doesn't mean the response is either ethical or socially constructive.
>>Now that the same problems are happening here, I expect there will be some response. Partly, it is regulators coming along and applying existing financial laws. Partly, it will be investors abandoning the whole asset class.
I suspect neither of these things will happen. The sector will remain effectively unregulated due to the near impossibility of censoring cryptocurrency transactions, and investors will wisen up just as they have for the last six years in cryptocurrency. Online server side wallets use to be a big thing in Bitcoin. After a string of exit scams and hacks, the collective intelligence increased, and cryptocurrency communities began strongly urging people to avoid such wallets. I suspect a similar spontaneous evolution will happen with token sales as the community matures.
All gatekeeper regulations will do is rob the US of business and cause unnecessary human suffering for those caught in the dragnet.
>>But there's also room for the industry to self-regulate. Will the antiregulatory fetish, as typified by your response, win out? Or will, as often happens with other industries, some self-regulation happen?
It is not a fetish to not want to be subservient to a centralized gatekeeper and be forced to get permission from it to interact with other adults. It is belief in the basic value of human freedom.
> There is no data to support your assertion. We don't have a control to see what the effect of regulation has been.
The data is called "history".
The US started with no financial regulation; we got regulations and regulatory agencies over time, mostly in response to problems. The exchanges whose history I'm familiar with started small and became more internally regulated over time, again in response to actual problems. Those exchanges were generally run by traders, who are dispositionally anti-regulation. But they are also strongly motivated to have smooth-running marketplaces that are generally trusted. So they made some tradeoffs and found ones they were pretty happy with.
The fact that no devil-may-care marketplace has survived, and the fact that countries with successful financial marketplaces have all converged on similar approaches is as reasonable set of evidence that regulation has value to market participants. You will never really have a control group, because the "no regulation" control group fails hard enough that it isn't sustainable.
> A policy being wildly popular doesn't mean it's socially constructive or ethical.
It doesn't prove it, but for regulations that are popular with all sorts of market participants, it's excellent evidence. The alternative explanation, that you alone are way smarter than all the people who are experienced professionals on many sides of the marketplace, is not particularly persuasive.
> It is not a fetish to not want to be subservient to a centralized gatekeeper and be forced to get permission from it to interact with other adults.
Sure. A desire only becomes a fetish when the desire becomes hugely dominant, pushing all rational consideration aside. Which I believe is often the case in the cryptocurrency/ICO space. For whatever reason, cryptocurrency advocates often value the "you're not my DAD" kind of freedom way more than they value success.
As an example, look at Bitcoin. 8 years in, and its real-world, non-criminal use is approximately zero. That's despite all the hype about Bitcoin international money transfers, Bitcoin shopping, Bitcoin ATMs, et cetera, ad nauseam. In roughly the same time M-PESA has ended up with 30 million users and 6 billion transactions per year. And those are actually useful transactions, not financial speculation.
I have no beef with cryptocurrency advocates pursuing their personal desire for radical independence. Godspeed, and may their Heinlein novels find a nice spot in their seasteading cabin. But I do object to the enormous ahistorical hype and denial that has gone along with it.
It's fine to say, "Well, sure, regulation would make things better for many practical use cases, but we think a high endemic level of fraud and low real-world impact is an ok price to pay for the very narrow kind of freedom we're dedicated to." But I don't appreciate the quasi-religious evangelicalism about the magic power of technology and markets to make everything sunshine and rainbows; and the concomitant notion that the rest of society should just follow their vision and values, never mind the human cost.
>>The data is called "history".
The US started with no financial regulation; we got regulations and regulatory agencies over time, mostly in response to problems.
I've already addressed the weakness of this rationale, and provided multiple examples where even you might agree that institutional and social acceptance is not aligned with good policy.
>>The fact that no devil-may-care marketplace has survived, and the fact that countries with successful financial marketplaces have all converged on similar approaches is as reasonable set of evidence that regulation has value to market participants.
There is absolutely no evidence for your assertion. I present to you guilds:
>>As Ogilvie (2004) shows, the guilds negatively affected quality, skills, and innovation. Through what economists now call "rent-seeking" they imposed deadweight losses on the economy. Ogilvie says they generated no demonstrable positive externalities and notes that industry began to flourish only after the guilds faded away. Guilds persisted over the centuries because they redistributed resources to politically powerful merchants. On the other hand, Ogilvie agrees, guilds created "social capital" of shared norms, common information, mutual sanctions, and collective political action. This social capital benefited guild members, even as it hurt outsiders.[24]
We're not in an age of enlightenment. It's entirely possible that the dominant social forces support regulations while said regulations do harm on the balance.
>>It doesn't prove it, but for regulations that are popular with all sorts of market participants, it's excellent evidence.
I strongly disagree. The opinion of the average person on a complex economic subject is about as reliable an indicator of truth as their opinion on the innocence or guilt of a person charged with a crime. With special interests involved, public opinion could easily be swayed.
There's a reason we have a court of law with deliberations in the justice system. Opinion polls are not a credible barometer of the truth.
>>Which I believe is often the case in the cryptocurrency/ICO space. For whatever reason, cryptocurrency advocates often value the "you're not my DAD" kind of freedom way more than they value success.
I don't see why you mock this viewpoint. The government is not our dad. We have legal principles like the First Amendment, that says that "Congress shall make no law * abridging the freedom of speech", and it arose out of a philosophical belief in the inherent right of Man to his freedom. To mock it as if people should accept others dictating their personal life decisions seems totally irrational to me. Why would you not want people to be respected as adults, instead of being treated as children?
How could you not see the danger of abandoning the principle of personal autonomy in voluntary and consensual interactions? There are so many slippery slopes that emerge as that principle is steadily eroded.
>> and the concomitant notion that the rest of society should just follow their vision and values, never mind the human cost.
The rest of society can stay out of cryptocurrency. The side wanting to create centralized gatekeepers are the ones that are the busybodies, sticking their nose where it doesn't belong, to control other people.
> I've already addressed the weakness of this rationale
You're addressing the wrong rationale. I'm saying that everything started out the way you suggest and none of those things survived.
> It's entirely possible that the dominant social forces support regulations while said regulations do harm on the balance.
It's entirely possible we're living in a simulation controlled by malicious aliens. Anything is possible. But when deciding how to organize our society, we don't have to give all possibilities equal credence.
> The opinion of the average person on a complex economic subject
Yes, but I'm not talking about average people. I'm talking about expert participants in the system, ones with differing interests. When chefs and restaurateurs and doctors and public health officials and eaters of restaurant food and consumer advocates all say, "Yes, we think some basic mandatory health regulations are a good way to run things" then it's a solid sign the regulations are not some sort of one-sided, exploitative thing like the guild system.
> There's a reason we have a court of law with deliberations in the justice system.
Sure. A justice system that time and time again accepts reasonable regulatory burdens in pursuit of broader shared benefit.
> I don't see why you mock this viewpoint. The government is not our dad.
Yes, exactly. The government is us. We the people. When we the people say, "Roads are great, but they would be even better if everybody going the same way drove on the same side of the road," that's government. Does this take away from the freedom of somebody to be independent of government constraint? Sure. Is that a worthwhile trade? Most think so. Is the fact that everybody with roads converges on either the drive-on-the-left or the drive-on-the-right solution and basically nobody minds a sign that this is not some irrational tyranny? Yes, definitely. Parallel evolution tells you something about utility.
I mock it not because there's anything wrong with wanting that kind of freedom, but because some people become fundamentalists about it. I am happy to mock fundamentalists of all stripes. Especially ones who entirely ignore the many other kind of freedom in favor of a fixation on a very particular kind.
> The rest of society can stay out of cryptocurrency.
This is something you are welcome to pursue in a private context, but not a public one. You want to build your own racetrack or lot and drive whichever way you want? Go crazy. But if you want to drive in the US, your options are narrower, because your choices no longer affect just you.
>>You're addressing the wrong rationale. I'm saying that everything started out the way you suggest and none of those things survived.
I've already addressed this. There's no sense in me repeating myself for a fourth time.
>>Anything is possible. But when deciding how to organize our society, we don't have to give all possibilities equal credence.
Not just possible, but plausible. The dominant social forces supporting rent-seeking institutions that harm the general welfare is not an anomaly.
>>Yes, but I'm not talking about average people. I'm talking about expert participants in the system, ones with differing interests.
You're moving the goalposts. I was addressing your comment about the vast majority of people supporting some given regulation, and pointing out that public opinion in support of something doesn't indicate that it is a good policy.
>>When chefs and restaurateurs and doctors and public health officials and eaters of restaurant food and consumer advocates all say, "Yes, we think some basic mandatory health regulations are a good way to run things" then it's a solid sign the regulations are not some sort of one-sided, exploitative thing like the guild system.
No it isn't. Your argument gives no consideration to the conflicting financial and social interests that these participants can have. The guild system had numerous experts supporting it, and it was horrible for economy at large.
Like Hazlitt noted:
>>“Economics is haunted by more fallacies than any other study known to man. This is no accident. The inherent difficulties of the subject would be great enough in any case, but they are multiplied a thousandfold by a factor that is insignificant in, say, physics, mathematics or medicine - the special pleading of selfish interests. While every group has certain economic interests identical with those of all groups, every group has also, as we shall see, interests antagonistic to those of all other groups. While certain public policies would in the long run benefit everybody, other policies would benefit one group only at the expense of all other groups. The group that would benefit by such policies, having such a direct interest in them, will argue for them plausibly and persistently. It will hire the best buyable minds to devote their whole time to presenting its case. And it will finally either convince the general public that its case is sound, or so befuddle it that clear thinking on the subject becomes next to impossible.
It's not just possible, but highly plausible that the prevalence of regulatory controls limiting the freedom of Man is a result of the "special pleading of selfish interests".
>>Sure. A justice system that time and time again accepts reasonable regulatory burdens in pursuit of broader shared benefit.
The justice system has no choice but to accept regulatory burdens. It is a creature of legislation and has to enforce it. You're going off on a tangent rather than addressing my point about how public opinion is not a reliable barometer for the truth, because it is not based on deliberations by uninterested parties the same way the court system is.
>>Yes, exactly. The government is us. We the people.
We the people do not have the right to violate the rights of an individual through majority vote. Democratic will is not ethical in all its expressions.
>>"Roads are great, but they would be even better if everybody going the same way drove on the same side of the road," that's government.
Rules of use of public resources like roads is incomparable to impositions limiting the right of people to privately interact with other adults in whatever manner they wish.
>>This is something you are welcome to pursue in a private context, but not a public one.
What public one? I'm not using public resources. This is a private forum. There are numerous private cryptocurrency forums as well. You're mischaracterizing the context in which your desired regulations would be applied, to try to extend the power of government and the collective into all domains.
>But if you want to drive in the US, your options are narrower,
Who said anything about me wanting to "drive in the US" according to my rules. You're conflating the use of public roads with communication through private channels like Reddit.
Really what you're implying is that all private resources and private citizens within the United States are public property of the US government, no different than a public road. Your subtle conflation of private forums and interactions with public roads really reveals the philosophy of government control and ownership over everyone that's embedded in your ideology.
Me critiquing the style of your argument and your apparent unwillingness to engage is not a personal attack. They are salient, material features of the discussion.
My style of argument is to disagree with you on the ethics of using the criminal justice system to dissuade entirely personal choices on one's use of their own resources. For my disagreement, you label me a fundamentalist. It's nothing more than you attempting to stigmatize me for holding social and political views you disagree with.
No, it's because you're acting like a fundamentalist. Real-world society-level choices involve balancing competing concerns from many groups of people. When somebody optimizes for exactly one thing (e.g., the you're-not-my-dad kind of freedom) and refuses to acknowledge anybody else's concerns as legitimate, all the while spouting dogma that relates to their views, I call that fundamentalist. I'm all for minimum state intervention and wide devolution of power, but unless you balance that with other concerns it, like anything, leads to pathological results.
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.
This one sounds bad, but the problem with the Howey test is that it's overly broad. Anything from presales in a Kickstarter to ICANN selling those new domain names (like .attorney) to selling tickets to a yet-to-be-arranged event could all be considered a security under the Howey test. It's just too broad and nobody knows where the SEC will draw the line. It would be good for everyone if the SEC would simply explain on what would make a ICO legit, because currently their guidance is still too unclear. It's like they want the ability to selectively prosecute anyone, not caring that the regulatory uncertainty is keeping legitimate, risk-adverse teams away, which doesn't help.
The SEC is more concerned with actual economic outcomes rather than ticking off boxes on a requirements checklist. If the ICO community is willing to do a good job self-regulating, then the SEC might decide to be more hands-off. If there's rampant fraudulent behavior going on then they're going to step in.
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.
Yes. The SEC's involvement in the cryptocurrency space has been very reasonable so far. They're really trying hard to understand the new technology developments and regulate them appropriately, and not just be curmudgeons.
Has any company tried to do proper registration with the SEC? If so, we're they successful?
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.
Thanks! I will see if I can find some stuff to read about them later. I want to see how hard it was, the process, etc...
I believe they changed some VC funding rules, not that long ago. I'm not sure if the apply in these types of cases, but I think 'regular' people are now allowed to invest, but only a small amount. I seem to recall it was $2000/year.
It's not much, but it is a start? I didn't pay much attention to it, so I don't remember all the details. Sorry, I don't even remember the name of it so that I can dig out some info. I noticed it in passing. I'm not into the VC game and prefer investing elsewhere. So, I didn't pay much attention to it.
Apparently there is a joke amongst securities lawyers about the Howey test.
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"
1. The amounts raised so far are small, a few $100k. That's tiny compared to what ICO lose in hacks.
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"
The SEC deciding that coins fall within its jurisdiction is anything but a non-event. They’re picking lowest hanging fruit, but it shows they’re willing to regulate the space.
It looks like the SEC is starting with the worst scammers. They've also been phoning up ICO promoters, and having a little talk about what's a security.
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]
>>As far as I can tell, owning an OmiseGo token lets you do absolutely nothing.
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 clear that their own platform gives value to their own tokens. They talk about wallets on their platform holding BTC or ETH.[1] Their own token mostly funds them.
It's absolutely clear, given the plan is to make OMG the staking token used for securing the OmiseGo sub-chain. It's right there in the abstract of the white paper:
>>It uses the mechanism of a protocol token
to create a proof-of-stake blockchain to enable enforcement of market activity amongst
participants.
It's no crime to be ignorant of a subject. It's intellectually dishonest to criticize projects while in such a state.
In addition to these blatantly fraudulent ICO's, I contend that even the "legitimate" ICO's are a total shitshow.
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.
Same is true for startups, except that startup funding carries fiduciary responsibility. If you are not spending money in the best interests of the investors, they can sue you.
Current token sales waive this responsibility, but investors should demand that it is there.
These are really bad ICOs (even calling them that is weird because of how bad they are). I think other ICOs aren't likely to succeed for other reasons, but I could say the same thing about most startups. I think it's obvious that an ICO is a more-entrepreneur friendly financing path when compared to really almost any other capitalization method. That doesn't mean it's the right answer, but it is obviously the path that an entrepreneur should choose right now if they can. This is because ICOs are the cheapest cost of capital of any funding source available today.
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.
All big ICO's are through Switzerland and only allow accredited US purchasers if they allow US at all. SEC will kill the next decade of technology companies and let the EU take it over unless they issue clear guidance like the Swiss. You can apply to FINMA for $15k CHF and go through a standard process to be a verified token. Would love that in USA. After Brexit, expect more ICO's in the UK as well (Funfair is a good example) as they try to do anything possible to boost their economy.
Fact: crypto currency will be a mechanism for fundraising startups. Either deal with it or stick your fingers in your ears.
The only advantage that crypto currency has as a means for raising capital is that it is currently unregulated. When that changes, there is no reason not to just use dollars.
VC isn't against ICO, VC has a very important part to play in the ICO system in terms of due diligence and "stamp of approval". I know many prominent VC's who are serious about tokens, but usually they are spinning out new funds without the LP agreements they currently have.
The scary thing to the current system is that entrepreneurs are getting more power. The bullshit common in fundraising (i.e. last minute changes that threaten to blow up the raise, unreasonable asks from capital, multi-month full-time fundraising, I can go on...) will become abnormal as raising money gets easier.
People forget that VCs also raise money. Setting up a venture fund that is backed by an ICO token would be a good way to give public accredited investors access to the private market.
Compare the time to liquidity and global access between VC investments and tokens, and you'll see its the beginning of a solution. But you all would rather see it trampled before being optimized for the benefit of all, for some reason.
I see one benefit coming with a hoard of downsides, and nothing like an attempt or desire to fix those downsides, which in fact play like financial upsides to the ICO providers and high-level players with money to lose.
You can't compare benefits and downsides like that. The single benefit could dwarf all of the downsides by several orders of magnitude.
As for the downsides, these will gradually diminish through inherent market dynamics, like rising collective knowledge within the cryptocurrency investment community, the emergence of reputable services that aid token buyers in vetting token options, etc.
If the benefit alleviates more pain than what's being caused by the technology, why not? I don't know if you know this, but the internet also created many classes of problems that had never existed. You can't simply shut down any new technology or way of living because it's associated with problems. It's not utopianism to make an objective comparison of pros and cons. What's utopianism is to assume that it's possible for a new technology to not introduce new problems.
Also, my main point was about how you're assessing the net effect of cryptocurrency. Benefits and drawbacks aren't uniform units that can be weighed by their count. The individual benefits/drawbacks need to be measured in terms of their impact. One giant benefit/drawback can far outweigh numerous small drawbacks/benefits.
Also, no one is forcing anyone to use cryptocurrency, and unless someone is a ward of the state, there is no justification for removing market options from them, let alone through the drastic measure of prosecuting anyone who offers that option to the public at large on the market, in the name of protecting them from their own bad judgment.
That doesn't follow. "People are still behaving naively and being exploited, ergo, the market isn't getting smarter".
And as an aside: if one is to assume consumers and the institutions that collectively make up the market aren't getting smarter, it would be total irrational to assume voters, regulators and politicians are. The political and regulatory system is teeming with corruption, meaning that expanding the power of government over private interactions could lead to far more exploitation, not less.
I mean I'm totally sure that the Paris Hilton coin and the Floyd Mayweather endorsed ICO were 100% legitimate business models and that these two examples were just a couple of outliers. /sarcasm
Colony took a very conservative view of the way things may turn out. But even if they went ahead, they would have been far far far away from the cross-hairs of the SEC.
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.
Why is the SEC so fast to target initial coin offerings but terrible at actually reining in the financial sector. To be fair I don't know a ton about the inner workings of the street, so maybe I've just consumed one too many movies/articles/whatever but it seems like the SEC is a just handing out slaps on the wrist over there.
Legit financial companies are very careful about following regulations to a T, and only fuck over investors in ways where they are unlikely to get caught or where they have institutional sanction.
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.
You don't know the inner workings of the street, so why do you think it's fair for you to say the SEC is doing a terrible job reining in the financial sector?
Because things like the financial crisis of 2008 happened? Because as far as I know the SEC hasn't introduced any sort of uniform fiduciary standard for financial advisors? While I don't know the inner workings of the street, everything I see seems to point to the SEC not doing enough to penalized well-established players, and is allowing a culture in which firms do their best to not get cauhgt/apologize for transgressions rather than follow the law. Maybe it's just that my news sources are biased, but I try and vary them and pick generally considered good publications (when it's written form at least).
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?
Three recent and well known high-profile failures at the SEC and books or articles covering them:
0. Enron - Senate committee concludes Enron was enabled by a systemic and catastrophic failure at the SEC[0]. Smartest Guys in the Room[1] is one of the better books about it
1. No One Would Listen - book from Madoff whistleblower Harry Markopolos[2]. He spent years laying out the entire Madoff case for the SEC yet their investigators kept signing off on Madoff. He has a lot of good detail on why the SEC are a bad regulator.
2. Financial Crisis - SEC chairman concedes the oversight program was fatally flawed in monitoring Bear Sterns and other hedge funds[3] - plenty of books on crisis, "After the Music Stopped" was good[4]
Can you accurately and properly trace the blame for any large scale malfunction of society on one small bureaucratic group?
Even if you pin the blame on bad actors that took control of ratings bodies and propogated bad CDOs, are you suggesting that the SEC was blameless? Would you not say it's within the purview of the SEC to manage/monitor/influence CDO product selling/purchasing?
That's because if they did you wouldn't know it. If a certain regulation prevented a certain action that would have caused a recession, you would never know it helped.
I hear you, but I don't think it's relevant to OP.
I'm not arguing that some regulations aren't beneficial. Only pointing out that it's tough to argue, using history, "we had a crash because not enough regulation!!!"
There is a good book on this subject that just came out: The Chickenshit Club by Jesse Eisinger (https://www.amazon.ca/Chickenshit-Club-Department-Prosecute-...). It's about the culture inside the SEC and Justice Department and their motivations over the last thirty or so years.
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?
ICOs JUST started popping up -- is it not anomalous that they are reacting so quickly? The problems underscoring the 2008 financial collapse were in place for years before anyone did anything about it (and CDOs are basically back BTW).
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.
> is it not anomalous that they are reacting so quickly
One factor that flipped me, personally, from bemused curiosity to thinking this needed enforcement is the tone ICO backers and supporters take to the law.
I have had conversations with ICO sponsors and investors where cavalier disdain was shown for securities regulations, its history or the SEC; where tax evasion was treated casually; and the where most defenses boiled down to whataboutism [1].
Pioneering is one thing. Being blatantly blind to the history of our capital markets is another. Involving retail investors in that willful ignorance should merit prosecution.
So essentially your support for punitive measures is politically and ideologically motivated.
>>Involving retail investors in that willful ignorance should merit prosecution.
Making the litmus test for whether someone should be prosecuted your personal evaluation of the ignorance of their political views is pretty far from any semblance of justice.
If someone is walking into a dangerous swamp, and you offer them a map, and they say "fuck your map" and then perish in a marked peril, I think it's okay to have limited sympathy. The peril isn't more likely to spring because they chose to be ignorant. They're just more likely to blunder because of it.
The SEC's tendency to go ballistic when retail, i.e. unaccredited investors, are harmed is common industry knowledge. This common knowledge was ignored. The ignorance isn't a reason for prosecution. But it increases the chances that prosecutable mistakes will be made.
Securities law is too complicated to blunder through mindlessly. When I saw how many promoters and investors were doing just that, it was natural to conclude they would, relatively quickly, break important laws and conventions. They have, and the regulators are pissed just as they would be with anyone else making the same mistake.
> I have had conversations with ICO sponsors and investors where cavalier disdain was shown for securities regulations, its history or the SEC; where tax evasion was treated casually;
Many are like that, of that many some of them have obtained good lawyers which will advise the business practice properly but not change the opinions of the founders so you wouldn't be able to tell the difference but they may be compliant.
Anomaly? How do you figure? With 100s of upcoming ICO, action against two is considered to be an anomaly?
Still I am not following your logic here. If this is fast, when do you figure SEC should have taken action? They should have let ICOs defraud people for years because they allowed it during the 2008 crisis before taking action? Two wrongs doesn't make one right.
Do look at my other post. These coins opened themselves to this action.
Additionally, I am sure if one was to dig enough you will find SEC had taken against some of the outright frauds, like these coins, even during the CDO phase.
ICO crooks are amateurs, they're easier to catch so things appear to move faster. The Wall Street crooks play at a higher level, take advantage of loopholes in the laws they used their money to have installed. They find or make legal ways to rip people off.
ICOs and the way they're offered to the public have strong parallels with all kinds of historical "investment" products and scams that the SEC has already seen and tackled. In that sense, the scammier ICOs are nothing new, they're a new name/cover/veil/buzzword for a common and classic fraud pattern (sell a share in a product that will make you rich, take the money and run), such fads come periodically every now and then, and SEC has had a lot of practice and quickly identifying and shutting down new fads doing the same thing in a slightly different manner.
I don't feel that this is anomalous, this is SEC-as-expected, as they should be doing. If anything "sit out and wait how this new thing works out" would be a major failure of SEC; it's the job of courts and police to punish fraud after it happens, but it's the job of SEC to prevent or restrict fraudulent general reaching public in the first place, it's their duty and law-given mandate to be proactive in shutting potentially shady things down before they've scammed a lot of people.
I've been through Creature a few times but I can hardly remember a reference to the SEC. Of course if you are trying to make the point that it was a systematic move to control all mechanisms around banking, and by extension the SEC would be toothless from the start, then you need to say it and back it up instead of just telling someone to read a pretty obtuse volume. It's a good read about the fed and the international banking cabal in general but I don't think it's specific enough for talk of the SEC.
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.
What do people who post these minimal ‘read this’ comments think people will do? Run out and read the book on a whim? If it’s good, at least say why you might think it’s relevant.
This is very similar to the .com bubble in the late 90's. Everyone wanted to get in, there was massive FOMO, and there were legit businesses along with scams, and terrible ideas.
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.
Obviously we don't know all the facts about these particular ICOs but otherwise this is great news. By going after the least famous, it really shows the SEC is trying to pro business. I expect some sell off in the market from the panic but it's good news for the ETH
Volume is great for Ethereum. If you ignore speculative value, and long term savings value, Ethereum's value is pegged to the float required for its pure transactions. If they are transacting a billion dollars a week in ICOs, and the typical ICO user holds for 6 months, then that puts a floor on ETH at $24B. That's $24 billion of real value. As valuable as $24B of petroleum, so long as there keep being ICOs... even if none of them are worth anything.
But the Ethereum based tokens that do succeed will be a net benefit for ETH, since ETH is required for the smart contracts that govern those tokens to operate.
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.