
In the World of Cryptocurrency, Even Good Projects Can Go Bad - petethomas
https://www.nytimes.com/2018/05/31/technology/envion-initial-coin-offering.html
======
tlb
I missed the part where this was ever a good project.

Cryptocurrency mining has to use the cheapest available power, or else it
loses money because the mining rewards float at just above the cost of the
world's cheapest power. Because many companies prefer renewable power (such as
data center operators who want to claim they are carbon-neutral) and there's a
limited supply, renewable power will always be at a premium over the cheapest
power.

A big problem with successful ICOs is that the companies immediately have too
many shareholders to let them pivot. The idea could probably be morphed into
something that works, but not with 100s of retail shareholders demanding
progress on the idea they originally backed.

~~~
Lazare
> I missed the part where this was ever a good project.

Agreed.

> Cryptocurrency mining has to use the cheapest available power

Mostly agreed.

> A big problem with successful ICOs is that the companies immediately have
> too many shareholders to let them pivot.

An ICO doesn't give you shareholders. Some ICOs outright call the money you
give them "contributions" or "donations". (Tezos, who had a very successful
coin offering and then hit somewhat similar challenges as this lot was very
explicit: "Any contribution made to TEZOS during the Contribution Period as
described below is qualified as a non-refundable donation...") But even the
ones who label the money as an investment aren't giving out anything remotely
resembling ownership, control, or voting rights to the purchasers.

I don't see any reason why a pivot wouldn't be possible. And, cynically, a lot
of ICOs do pivot almost immediately, from "building the product they promised"
to "spending the money they raised". :)

> not with 100s of retail shareholders demanding progress

They can "demand" all they like, but what can they do? They have no ownership,
no control, and no votes. The company is apparently owned by one Matthias
Woestmann; as the article notes, he doesn't even have to listen to the
_founders_. He certainly doesn't need to listen to the people who participated
in the ICO.

~~~
siruncledrew
Agree to all of those points. The part where any "investors" essentially have
no say, control, or equity in the company would certainly defy any possible
reason for a sentient angel or corporate investor to make an investment.
There's an abundance of red flags that people need to seriously look at.

Other gems from the article:

> “I know most of the I.C.O.s out there are either fraud or won’t deliver on
> their promises,” he said. Envion, he believed, was different.

Uhh...

> Seif Shieshakly, an adviser to Envion who is based in the United Arab
> Emirates, said that the I.C.O. structure had “cut out so many middlemen” and
> created new investment opportunities, but that “the lack of regulations,
> again because of the infancy of I.C.O.s, carries risks that regulated
> environments would generally have far less of.”

This one again speaks for itself.

> The investors have also turned up evidence that some of the founders sold
> their own tokens before the current mess spilled into the public.

Wow... so I guess with a lack of regulation, insider trading is suddenly cool
again.

> But he said the funds added up to only $50 million at this point, not the
> $100 million that the founders had claimed. Mr. Woestmann said the founders
> hadn’t raised as much money as they claimed. And the declining price of
> virtual currencies has dropped the value of the various digital tokens
> Envion is holding.

So they not only willingly defrauded investors, but also basically used the
money like a bank instead of a company, and just purchased other crypto assets
to trade and earn from.

> Jessica Smith, a 21-year-old in England, said she had put $28,000 into
> Envion — almost all of the money she had made over the last two years of
> trading cryptocurrencies nearly full time. She said she was now looking for
> new work.

That's a very painful lesson about putting all your eggs in one basket, but
one she will probably learn from.

~~~
ceejayoz
> That's a very painful lesson about putting all your eggs in one basket, but
> one she will probably learn from.

Gamblers often don't.

------
adwhit
_Envion said it would use the money collected from investors to build mobile
rigs, filled with computers designed to “mine” or digitally create new
Bitcoin. The rigs could be moved between sources of renewable electricity,
which would power the mining computers_

Good project?? Sounds absolutely pie-in-the-sky. Another ridiculous idea that
raised an insane amount of money from extremely naive investors. In other
words, just another ICO.

~~~
Maybestring
It would be a great idea, had only cryptocurrency been invented before
powerlines.

~~~
EnFinlay
Powerlines are far from lossless, so there is still an advantage to being
close to the power source.
[https://en.wikipedia.org/wiki/Electric_power_transmission#Lo...](https://en.wikipedia.org/wiki/Electric_power_transmission#Losses)

~~~
Maybestring
Hauling trailers around isn't lossless either.

------
lordnacho
How much of this ICO story is simply rediscovering things that old finance had
already found?

All this talk about being able to trust the entrepreneurs, that they were
building a real business in good faith, it's not exactly a new problem.

The solution, before blockchain muddied the waters, was that you'd find a
reputable investment bank, which would stake its reputation on your sincerity,
and they'd introduce you to people who would be willing to invest. There would
be a bunch of rituals to go through, like a road show, presentations,
meetings. And that's not all; there was a regulatory process they would show
you how to pass as well.

~~~
wpietri
Definitely. So much of cryptocurrency world seems hell-bent on rediscovering
why current financial regulation exists.

At one point in US history, it was relatively easy to create a bank, and the
banks could issue their own private currencies:
[https://en.wikipedia.org/wiki/Wildcat_banking](https://en.wikipedia.org/wiki/Wildcat_banking)

This provided relatively little value and quite a lot of failure, so it was
taken as a "let's never do that again" lesson.

The Etherium fork after the DAO theft was in my view people rediscovering the
value of having a regulator.

Given the regular and massive losses due to breakins, scams, and fraud, I have
to wonder if this is the most efficient way to learn these lessons.

~~~
jesusthatsgreat
> Etherium

Is this a running joke or something? I've seen the misspelling of Ethereum
several times now on hackernews and it's a tell-tale sign that the people
talking about it haven't invested much time researching it or delving in to
the space in any way.

> Given the regular and massive losses due to breakins, scams, and fraud, I
> have to wonder if this is the most efficient way to learn these lessons.

Where there is money changing hands, there are scams and fraud. The difference
with crypto is that you can follow / track the money at all times. It doesn't
mean you can get it back, but it does increase the chances that somewhere
along the line the attacker will slip up and reveal themselves once they try
to buy something or exit in to fiat currency.

The bottom line is that crypto exists because the banking system is perceived
as broken by many. It's slow, expensive and corrupt as far as the average
person on the street is concerned.

~~~
lalaland1125
"Ethereum" does not match normal English spelling rules, so native English
speakers have a tendency to spell it in the "correct" way as Etherium.

If anything, I would argue that "Etherium" is the more proper spelling and
that we should migrate to that.

~~~
wpietri
Yes, that was indeed my mistake. Thanks.

------
latchkey
I've been watching this one very closely as I'm a fairly large miner. This was
a scam or failure from day one.

Totally over-engineered and zero experience running an actual mining
operation. They put so much effort (patents!?) into those MMU shipping
containers that there is no way for them to compete with all the other people
who are just building a simple box and throwing miners into it.

The MMU had substantial airflow design issues as well. To the point that
something as simple as opening the door of the container would throw
everything off balance. How about putting 90+ holes on the side for sucking
dirt and bugs into the container? I could keep going on and on...

The also heavily moderate their community. Anyone who speaks up with hard
questions, is silenced with blocking and removal from their group.

To watch it get to the point where it has is quite entertaining to the say the
least.

HydroMiner is a far more interesting project, run by two sisters, with actual
long term experience in this industry. Nicole got ripped on the math for this
article [1] which was directed at Envion, but at some level, she is pretty
right. There was no way that Envion would ever pay back what they claimed they
would.

[1] [https://medium.com/@hydrominer/why-there-is-no-161-profit-
in...](https://medium.com/@hydrominer/why-there-is-no-161-profit-in-
mining-a876ebb91443)

------
wmf
_The founders of the company ... set it up in Switzerland...

...problems had begun even before the project started fund-raising late last
year because of the chief executive the founders brought in, Matthias
Woestmann.

According to Mr. Martin, the founders gave Mr. Woestmann what they thought was
temporary control of their shares in the company. Mr. Woestmann later refused
to give them back, and then diluted the shares of the other owners, providing
him with control of the money that was raised._

This is exactly the same problem Tezos had. What's the deal with people giving
up control of their money?

~~~
Lazare
I read the same passage and did a double take.

If you give someone ownership of your company, obviously they're not obligated
to give it back. It's _their_ company now. You were dumb enough to give it
away; why do you think they'd make the same mistake?

Also, to the extent that this had worked, it feels like an attempt at setting
up a straw transaction to hide control of the company. Why exactly did they
thing they needed to "temporarily" transfer ownership of the company?

------
flashman
_Jessica Smith, a 21-year-old in England, said she had put $28,000 into Envion
— almost all of the money she had made over the last two years of trading
cryptocurrencies nearly full time. She said she was now looking for new work._

Put it all on red!

------
latchkey
From:
[https://www.investor.gov/howeycoins](https://www.investor.gov/howeycoins)

RED FLAG: CLAIMS OF HIGH, GUARANTEED RETURNS: Not quite 'guaranteed', but
seems quite inflated...
[https://www.envion.org/en/ico/](https://www.envion.org/en/ico/)

RED FLAG: CLAIMS OF “SEC-COMPLIANT”: Yes,
[https://www.envion.org/en/faq/](https://www.envion.org/en/faq/) "Our token is
fully compliant with regulations set by the SEC and Swiss financial regulators
and outside auditors from one of the Big Four auditing firms will vet every
aspect of the business, including prior to the ICO."

RED FLAG: INVESTING WITH A CREDIT CARD: Yes,
[https://www.envion.org/en/faq/](https://www.envion.org/en/faq/) "We accept
Ethereum (ETH) and Bitcoin (BTC) cryptocurrencies and credit card payments
with Visa or Mastercard."

RED FLAG: PUMP AND DUMP SCAMS: Yes, look at the current price.

~~~
ksahin
"The world as we know it, will change" ... It seems like a Bitconnect
punchline !!

Seriously, how can they treat this ICO as a "good project". You are right, the
landing page is full of red flags.

~~~
latchkey
People who invested with a credit card have their funds locked for up to a
year!

[https://www.envion.org/en/news/how-to-invest-short-
instructi...](https://www.envion.org/en/news/how-to-invest-short-instruction)

"Buying EVN by credit card will result your token to end up in a locking
period of 4–12 months (see envion.org/faq). This locking period is a
protection for our investors needed for credit card payments."

------
JohnJamesRambo
>a plan to bring clean energy to the computers that manage Bitcoin.

This doesn’t even make sense. Not surprising this failed and I don’t feel
sorry for idiots that invested in a project that makes no sense. Bad projects
must fail.

------
seibelj
The JOBS act was a push towards securitized crowdfunding but it had too many
strings and never took off like many hoped. ICO's are proof that there is
demand for real-time trading in private companies with micro-investment, but
it also has obvious issues.

My hope is securitized-ICO's develop that make it easier to raise money from a
global pool of investors, and the investors also have liquidity and legal
rights. We need regulation that improves the situation without destroying it.

~~~
dnomad
There's demand but there is no supply. No serious company is going to
crowdfund away actual equity. Only the very worst companies are going to go
out on the street and beg randos for capital hence ICOs. The reality is that
the public will never have access to high quality deals. But there is a lot of
money being left on the table that is flowing into scammy ICOs and badly
managed Kickstarter projects. It's really too bad the IRS has nothing on the
spectrum between private foundations and highly regulated public charities.
There's a case to be made for "micro-foundations" that could be crowdfunded
for a common purpose and would be barred from issuing ownership shares or
taking on debt. (At dissolution time all "profits" of the charity must be
disbursed to another charity.) There's a real failure of imagination here at
the IRS: the internet makes it ever easier people to collaborate but it's very
difficult to effectively pool capital which leads to Kickstarter and ICOs both
of which are very sub-optimal solutions for everybody.

------
duxup
What about this ICO made it a good product compared to others?

~~~
orthecreedence
It had a _whitepaper_.

------
Rapzid
My biggest takeaway from the past few weeks is that POW based distributed
cryptocurrency is a bit like communism; it only works on paper.

The reality is that, even with Bitcoin, the power to stave off attacks has
consolidated to a few big players. The massively distributed protocol and
massive power usage is a huge wast at this point. If your gonna need a few big
players anyway, might as well build a trusted circle from the start and
eliminate the rest of the waste.

The coins that can actually be used for day-to-day transactions are vulnerable
to attacks. The largest and most secure player, Bitcoin, has reached the point
where transaction fees are too high and speeds to slow; nobody takes it
anymore.

Where does it go from here? I predict governments are gonna crack the whip and
altcoins, along with ICOs, will be a footnote in history.

~~~
ojr
EOS has DPOS (Delegated Proof of Stake) which is not wasteful like PoW, it is
a trusted circle model, and transactions are free, and it is easier to
distribute ICO-like tokens, I think it might go there from here

------
granaldo
Bad projects may perceive as good Good may perceive as bad The market dont
know better

------
BurningFrog
Hey kids, good projects can go bad in all worlds!

