Paraphrasing somewhat snarkily, you seem to be saying that selling securities of limited intrinsic value to as many clueless investors a as you can find is the future of fundraising. Screw Reg D, the SEC, any concept of selling only to informed investors, having some legal force behind your securities, etc.

Why bother pitching to people who are actually qualified to review your claims and business model?

IANAL, but I think the penalties for improperly selling securities are pretty severe, for good reason.

Don't forget "instant liquidity", eg selling your securi... er tokens before you've actually built a product, much less gotten users/customers.

The ICO craze has clarified, if it wasn't obvious before, why the incubator/seed -> Series A -> Series BCD etc is what it is. The scale of each successive stage of fundraising is indexed to the execution and progress of the product & business development, keeping the startup team motivated and the investors' risk exposure mitigated. ICO's that take in huge amounts of money frontload most of the investors' risk, leaving their only assurance as some kind of ideology-driven social contract where the ICO is now an "endowment" and must manage itself and reinvest its capital in such a way that builds it product as well as the rest of the ecosystem. But that all depends on the founders maintaining their motivation instead of heading off to a private island for the rest of their lives.

Before bashing the ICO model, consider that an ICO really is just (1) crowdfunding (with a blockchain to keep track of the tokens) combined with (2) markets to trade said tokens.

So are you against (1) crowdfunding, Kickstarter, etc?

Or are you against (2) token trading markets?

I'm against crowdfunding that masquerades as investment. People should know there's a high chance of 0 return and complete loss of principle with something like Kickstarter; it's better to think of it as patronage of artists you like with a small chance of something back.

i think you mean to say that you're against token trading that masquerades as crowdunding.

i agree, its a problem. but its solveable.

When you buy a doohickey on Kickstarter, it's just like buying from a normal vendor except that you accept the risk that it might never arrive. When you buy a magic token on the average ICO, you're usually buying an interest in some future business that you hope to resell at a profit.

One of these is a doohickey. The other sounds awfully like a security...

You don't think individuals should have the choice to invest their own money where they please?

That's one way of looking at it. Another is that you should not be able to sell arbitrary securities to the general public.

If you assume that everyone is an informed, rational actor, then the rules are silly. I would argue that this is an incorrect assumption.

Of course you are correct. Almost nobody is an informed, rational actor in the fullest sense. However, it's my view that the state ought to view people as such, because to do otherwise is a fundamental violation of human rights (my view of human rights, that is).

The issue, of course, is that when people inevitably start losing the entirety of their savings in a fraudulent "investment", either the state is left picking up the tab or we wind up with a starving, homeless elderly population. Neither are acceptable outcomes, in my opinion.

Where is your evidence that the lack of this regulation would lead to that outcome? Plenty of countries don't have these regulations. Most, in fact. Europeans and Canadians have no legal problems participating in these ICOs. Perhaps I simply haven't heard about the massive elderly starvation problem it's causing over there.

Most people have no idea that ICOs exist, so no, ICOs right now are unlikely to cause a problem. Also, the EU has plenty of securities regulations, just because nobody's decided whether they apply to an ICO yet doens't mean they don't exist. At least some subset of ICOs likely are securities under EU regulation.

ICOs, penny stocks, and other scams being advertised in the cash4gold shops with a pushy salesperson? Yes, that'd be a problem, and the obvious result of no regulation.

Cash 4 gold stores exist now (and are everywhere in cities). Penny stocks exist now. Where is the deluge of poverty stricken elders? This idea that the government needs to protect people from these things just isn't borne out by evidence. If there are no regulations, will there be scams? Yes, absolutely. And that's ok. Sometimes people will get scammed. Culture will adapt to educate people about it.

You're entirely misreading my comment. Yes, cash4gold stores exist now, no, they don't push penny stocks or ICOs on people, as much as they (and CEX, BrightHouse, etc) would no doubt like to. There's nowhere on the high street you can go to be told that you should be buying penny stocks - and there would be without regulation restricting them from doing so. And it'd all work wonderfully until it didn't. Gambling establishments are properly labelled and regulated as such for a reason.

In the EU, there are a lot of regulations around marketing securities to inexperienced investors, and if you screw up, you are liable.

I basically agree. It's unjust that anyone can go broke in Vegas but only rich or connected people can get a chance at pre-IPO returns. I'd support the accredited-investor thing more if it were more like you had to pass a financial rationality test and wait through a cooling-off period. It'd be undignified, but how about an official SEC qualifying poker league?

Ya, I think a financial literacy test could be appropriate, although that's not my preferred solution. I'd prefer it all be mediated by civil law. That is, everyone is free to do what they will: create financial products, purchase financial products. But the court system would intervene in cases of clear deceit, or manipulation of naivete (obviously there's some subjectivity here, but I think that's ok).

I lean the same way, though the critics do have a point and I could see compromising on it.

Still easy to argue that no rational person would do x, therefore x should not be allowed.

Really I think it's just too hard to scale the protections and legal mechanisms. ICO solves some (not all) of the scalability problems.

Since when do individuals know what's good for them? That's why we have regulation.

I don't think that's the main reason we have regulation. Preventing individuals from externalizing costs to others, against their will, is more common and much more justifiable.

The some obvious examples are environmental and food safety. Another is financial regulations to prevent "too big to fail" institutions from taking wild risks that result in bailouts with taxpayer funds.

Food safety regulation has nothing to do with unpriced externality and everything to do with people not knowing what's good for them.

Food safety regulation isn't about making me to eat my vegetables. It's about making sure my vegetables aren't contaminated in ways that I can't reasonably detect.

A producer who skimps on food safety can save costs, and the externality is people getting sick, through no fault of their own.

That is not what "unpriced externality" means.

And if your vegetables being "contaminated in ways that you can't reasonably detect" isn't a case of you not knowing what is good for you, I don't know what is.

They don't. But they ought to have the right to decide what's good for them, even if they're wrong.

But it's government's job to make sure its citizens don't get conned. People have the right to decide to join a suicide cult, but also the government needs to stop the cult because otherwise all these innocent yet naive people will die.

Why is it the government's job to ensure people don't get conned?

because thats we as a society agreed was the governments job.

You are arguing what is. I'm arguing what ought be. I believe it is a violation of fundamental human rights to prevent people from doing with their own property what they like, provided that so doing does not impinge upon the rights of others. My right to be taken in by any scam I choose ought to be absolute. If, ex-post, I can show that I was conned, I ought to receive compensation for that, and maybe the perpetrators ought to go to jail. But the government shouldn't stop me from doing it.

That's your opinion. I'm not saying there's anything wrong about it, but it's just that a modern capitalist government's priority is to make sure its society stays stable (unless you think its priority should be to seek chaos) because that's what governments were built to do--to provide stability.

What you're not taking into account is macroeconomics. When you let anyone do whatever they want, it is very likely that the rich will get richer (because they are more informed) and the poor will get poorer. And with that comes corruption. That's why the government steps in to break off organizations that become too large and make sure things like antitrust don't happen.

If you think the society is unjust, first try to learn WHY things work that way, that way you may either come up with a solution that can solve it, or go build your own nation, or at the least understand what's going on.

thats not at all why we have regulation?!?

we have regulation to prevent people from being misled.

No, we are selling utility tokens which will be redeemable for mobile data, never did I say nor would I suggest that we are selling securities of any kind. As an entrepreneur, you can now raise funds to develop a product based on an idea - you get potential users excited, pre-sell access to a future product, and then use those funds to build the product.

I can't begin to explain this to someone who has been locked into the traditional mindset. Everyone on HN knew about bitcoin before everyone else did yet most still missed out on 450,000% gains if buying in at $1. Sometimes the future is staring you in the face but you can't accept reality.

> never did I say nor would I suggest that we are selling securities of any kind

Probably the most relevant part of the SEC's report on the DAO [0] for you is this sentence: "These offers and sales have been referred to, among other things, as “Initial Coin Offerings” or “Token Sales.” Accordingly, the Commission deems it appropriate and in the public interest to issue this Report in order to stress that the U.S. federal securities law may apply to various activities, including distributed ledger technology, depending on the particular facts and circumstances, without regard to the form of the organization or technology used to effectuate a particular offer or sale."

To put it simply: it doesn't matter what you call it. If it passes the Howey test, they'll deem it a security. If I fold my company's share into a paper airplane and call it a "utility share" (or "AirShare" ;) ) because I now have a use for the piece of paper, it's still a security.

[0] https://www.sec.gov/news/press-release/2017-131

Yes, as with every company that ICO's, we are acutely aware of the Howie test and have paid lawyers a lot of money to review our business model and white paper. But the lack of clarity from the SEC means we and every other company are somewhat in the dark.

OK, but you realize that the blockchain in your case is only used because regulation exists right? As in, if the SEC did not exist, you could just sell shares on an open market without registering. But you're using the blockchain so you don't have to do this. Is this correct?

I understand your token thingie can be used like a digital coin to redeem for data, but surely that doesn't require a blockchain... you can just do internal accounting of the digital coins in MySQL? Then you wouldn't have to pay the Ethereum network for every state change or transaction so you could cut costs.

EDIT: I just had a realization. This means you intentionally chose inefficient tech (Ethereum as a database for your coin) JUST so you can pay for a regulatory circumvention mechanism. Oh god...

Most Silicon Valley companies are based around regulatory circumvention in some way. But you're right; in this case you're just trading the SEC's governance for Ethereum's. I'm not sure that's a good tradeoff.

Most SV companies are based around regulatory circumvention?

Nah, just the unicorns.

Uber -- sure

AirBnB -- sure

Palantir -- They may be scummy in other ways, but I don't think they're based on avoiding regulations

WeWork -- I don't think they're ignoring zoning or whatever

SpaceX -- No. But maybe they don't count because LA?

Pinterest -- No.

Dropbox -- No.

Stripe -- No.

Hulu -- No.

Lyft -- sure

Magic Leap -- Nope.

Zenefits -- Okay, sure.

Cloudera -- Not even a little.

Credit Karma -- I don't think so.

Docusign -- No.

That's how far down the list of wikipedia's unicorn startups I got before I got bored.

I disagree on a couple of these (SpaceX being the biggest) but yeah, I do think a lot of what comes out of Silicon Valley are solutions to the problems of business owners created by regulation.

Notice the way that is phrased. The whole backlash across the western middle class against the "liberal elite" is a sense of "all tech has done for me is replace my nice union job with a gig job driving for Uber". There is a real sense that Silicon Valley doesn't have to play by the same rules as the rest of us, and people want that to stop.

> OK, but you realize that the blockchain in your case is only used because regulation exists right? As in, if the SEC did not exist, you could just sell shares on an open market without registering. But you're using the blockchain so you don't have to do this. Is this correct?

No. He's not selling shares in the company. He's selling the product, he just hasn't built it yet.

The reason to do this on Ethereum instead of MySQL is partly because it makes it easier for users to exchange tokens with one another, partly because the infrastructure is already built, and mostly because people ho mad for it and it seems to be an easy way to get millions of dollars.

I think almost all ICOs are basically scams, but that doesn't mean they're just a way to sell shares without regulations.

Edit: and in fact the vast majority of Ethereum network costs are paid by the customers, not the company. I'm confident that using Ethereum for this is a cost-saver relative to MySQL, but it wouldn't even matter if it wasn't because of the huge ICO craze.

So it's essentially just a mobile data pre-sale with fancy tech?

Why is this better than crowdfunding in general??

Well, the funders can sell the tokens immediately if they're unhappy with the team's progress. Try that on Kickstarter or your favorite JOBS act crowdfunding service.

But the tokens are not equity. Its not like "Kickstarter or your favorite JOBS act crowdfunding service" can't give you a little digital token (on blockchain or off blockchain) next to the equity or next to whatever you get on Kickstarter and then the business can claim you have a token to sell as protection if your not happy with the team's progress.

They don't have to be equity, and even if they were equity it wouldn't make a difference to his point.

If you think the tokens (equity or not) are likely to become worthless, you can sell them to somebody else, as long as there is anybody willing to buy. It doesn't matter that it's not equity.

Even if it was equity, at the point where it was a dead cert that the tokens would be worthless, they'd still be worthless, regardless of how hard the SEC ensures that you own a slice of that worthlessness.

Sure, but that's really no different than just selling transferable vouchers.

The tokens are immediately transferrable on the open market at floating prices. You aren't locked in for 5 years with your money stuck, and if you think the project will fail you can sell your tokens, unlike with kick-starter where you hope and pray they deliver.

Either

a) the token is redeemable, and in that case why buy securities you don't intended to use (speculation is the only reason) b) or the company folds before delivering and the token is worthless, so by selling it you are just pushing the loss to a greater fool

Either way, this is objectively worse than Kickstarter.

Let's say you give $50 to a kickstarter project, and in return you get some special benefit, say early access. If this was tokenized, as you follow the project, you could sell early access. If you thought it was less likely to happen, maybe you sell it for $40. If it was super exciting, and the founders capped how much early access there could ever be, maybe you sell at $60. This is the benefit that tokenization gives you. You don't get any say in the company, any stock, etc. - you get access to a product, and through the blockchain you can easily trade it securely and provably.

People who buy diamonds, physical diamonds, may be speculating on them. Others may actually like the diamond. For whatever reason, they bought the diamond, and now own it, and can resell it. It isn't illegal to buy something in the hope it goes up in value. People do that all the time with videogames, cars, whatever.

Now, let's say ownership of a diamond was moved to the the blockchain. Not only could you buy and transfer it easily, provably, securely - you could even buy 0.000000001 diamonds, or 100000 diamonds, just as easily.

In my opinion, all of this is objectively better than kickstarter.

>In my opinion, all of this is objectively better than kickstarter.

Sure, because you don't even have the little bit of oversight that kickstarter offers. In your case you can just keep pumping coins into the market while they have any meaningful amount of value. Then when they are worthless you just claim your project failed and take the money from selling the coins.

So do a kickstarter and offer a digital token in addition to whatever you claim to be offering, then the funder have a token to sell when they aren't happy or think you will fail to deliver. And I am not sure that is a selling point, "hey you have an immediately transferable token you can sell at floating prices on a secondary market, if or when you feel we won't deliver."

And what justifies these tokens you are offering having such a variable price? They aren't tied to the company equity or actual success of the company, but for your inability to launch when they would become completely valueless, in fact you claim they are a utility transferable for data but why would the price of the product/data being offered fluctuate other than speculation of a blockchain based crypto coin separate having nothing to so with the alleged utility.

> in fact you claim they are a utility transferable for data but why would the price of the product/data being offered fluctuate

The same reason the price of anything fluctuates. Do you think the price of mobile data should be different?

Do I think the price of mobile data should fluctuate before the company releases a data product on the market...no.

You can claim it's the same reason anything fluctuates, but point me to other products/goods/services with prelaunch fluctuating pricing.

For example the price of crude oil fluctuates. Corn, gas, electricity. Every commodity.

If mobile data becomes more of a commodity, it, too, will have a free-floating price.

This guy is claiming his coin isn't regulated because it is a utility to exchange for a product (that doesn't even exist, and may never exist). The rest of that stuff you mention may fluctuate in price, but its a direct price to the end consumer for the product, not a fluctuating price of a "token" to exchange for those products before they exist, but if that is what you are talking about, buying/selling "things" you can exchange for corn before the corn exists that sounds an awful lot like buying/selling futures contracts which is heavily regulated. Either way you would need to find an example that actually fits the facts.

It's easily tradable, so as a buyer you don't have to predict your personal usage.

> I'm saying this as someone who is living the ICO experience

As an old guy, I can say with equally "unquestionable" authority that you're going to look back on this statement and cringe one day.

As someone who has spent the last 30 days barely sleeping, I can say it was an experience!

As someone listens to someone talk about themselves as someone does, someone is somewhat silly

When the majority of ICOs start to crash and burn (and the house of cards will fall), no one with a shred of legitimacy will want to be associated with the process. It's just too toxic, with too much room for bad actors to operate.

I'm hugely bullish on Bitcoin and crypto in general, but ICOs are like a bad joke that won't die (look at e.g. https://icowatchlist.com/ and tell me that isn't a fucking farce). I'd love for ICOs to be able to democratize investing, but the information asymmetry is too large. At best, you enable tech workers to make some more money if they're smart and understand a particular business space.

No, a 'blockchain powered' competitor to WeWork (i.e. Primalbase) and the billion other office-share companies isn't going to find any competitive advantage with Ether. None whatsoever. Yet they managed to fleece millions out of gullible investors. Tell me, do you honestly think that's a 7 million dollar idea? Oh, sorry, closer to 9 million when you count the non-public tokens. Late to the game in a super-saturated market that's 99% real estate? Have fun, I guess.

At least your Airtoken thing doesn't reek of scam; there's something actually distributed and blockchain-y going on there. Perhaps you guys are completely legit; if so, kudos. I hope you don't get dragged down with the rest of the charlatans.

But take off the blinders and take an honest look at what is going on.

Word. So many scams around and so many people buying just to "trade" and earn some money, it's making the space a huge stink for anyone interested in real crypto work.

I agree, but here on HN you'll get downvoted into oblivion for saying anything pro-blockchain. VCs (and other insiders) have long enjoyed the advantage of being the only ones that are allowed to participate in early funding, and thus reap the rewards. It leaves everyone else behind. This is one of several reasons why people who are already rich are the only ones who are becoming wealthier.

The old system is no different from how ICOs work. The difference is that now everyone can participate, not just those who are wealthy and have the right connections (i.e., insiders).

I don't think this will be the death of the crappy VC model as we know it, but I think that opening up the market to everyone is a wonderful thing.

I don't know why people intuitively hate blockchain here, I rarely comment about this stuff anymore, even though I have a trillion anecdotes that make me know something big is going to happen, and soon. HN is an echo chamber like anything else.

No, I think it's a healthy dose of skepticism. Many applications for blockchain tech are impractical at best, leading to discussions about the ethics and legal implications of selling a token that quacks like a security via irreversible funding rounds.

Most of the big things are either tied around vice or price. If an early adopter (or group of them, depending on your Spoofy theories) decide to manipulate the price enough to pump the price and create floors, they can. I haven't seen a killer app that specifically adds to people's lives in a way that doesn't provide liquidity to human rights violators (backpage, DNMs, kids/adults committing fraud, etc).

Sure, there's Venezuela using and mining Bitcoin because their currency is unusable, but Bitcoin wasn't designed precisely for them.

Shite companies love to prop up their use cases on developing country citizens (Coinbase with their 'African mothers will use us for businesses instead of M-Pesa' ), but the practical matter at hand is that most of these developing countries don't have stable enough internet and crypto-liquidity in a way that's conducive to using crypto on their phones.

Where's the funding round for decentralized Wi-Fi balloons, or a legitimate competitor to M-Pesa? They're about as practical as another decentralized storage platform with minimal commits since the token sale and an ICO that raised a quarter billion based on hype

I think people naturally dislike what they don't fully understand, or that which does not confirm their biases, so many new technologies are ignored or ridiculed early on. You just have to brush off the haters.

https://hbr.org/2012/09/ten-reasons-people-resist-chang

ICOs are being over-used in the context of blockchain oriented companies. Tokens were never meant to be a fundraising/shareholder vehicle, they were designed aide distributed apps in their mission of decentralization. Tokens are meant to allow you to decentralize the operation of an app, not provide a means for fundraising. Augur is an example of a useful token, they issued a token as a means to decentralize the oracle for the markets that will be created on their platform. Their token (REP) obligates the holder to adjudicate market resolution on their platform in exchange for fees. Most of these ICOs are just mechanisms to raise money for blockchain based businesses.

That's one viewpoint, but token sales have been used as fundraising for several years. One of the earliest descriptions of a token sale on Ethereum is in the tutorials on ethereum.org; one quote: "Do you already have ideas that you want to develop on Ethereum? Maybe you need help and some funds to bring them to life."

And of course Ethereum's own crowdsale in 2014 was a fundraising operation that made the whole project possible, and Augur itself used the money it raised in its token sale to fund development.

Scamming gullible people out of their retirements is probably easier than doing hard work, that's true.

Hi! You write

>ICO's of some form are unquestionably the future of raising capital for most tech companies up to a certain size

But do not mention "in the fintech space" or even software companies - you just say "most tech companies up to a certain size."

May I ask what the largest/most successful "traditional" tech company that used an ICO is? By "traditional" I mean that their tech has nothing to do with blockchains and they could have also just raised money on angellist, and today are just a normal tech company shipping some kind of a product, like a hoverboard.

i.e. nothing related to ICO's or anything like that. Out of such 'traditional' tech startups (that just used it as an alternative to angel and VC money) what is the largest and most succesful one? (Or what are some of them.)

I am not asking for anything related to blockchain or fintech as such companies are easy to find. Thank you.

This is early days, very early days. Give it a few years, and people won't bat an eye at raising capital via the blockchain. It's just more efficient and easier. I mean, if you like having to travel around, having tons of meetings and discussions, hoping your lead investor doesn't pull out and fuck up the whole round, by all means keep supporting the current system. It just is going to change, massively, in the coming years. There will be some sort of place for traditional capital but blockchain capital raising will hit every industry.

I understand. I asked for the "largest/most successful 'traditional' tech company that used an ICO" (totally outside of fintech) -- a company shipping products, like a hoverboard or whatever.

I take your response to mean that you don't know of a single ("traditional") tech company outside of fintech or blockchain-related technology that has used ICO's instead of angellist/VC's investors. But your response makes it clear that this will happen in the future.

I hope I have this right? Thank you.

Kik? Brave?

Thanks - this is what I asked for in my first comment. Any hardware companies?

I don't understand how these coins have value. Surely things only have value if they:

1) have some scarcity, and 2) have some useful purpose.

I can see how these coins get scarcity, but what is their useful purpose? What can I do with FacebookKillerCoin or TwitterKillerCoin or EAGamesKillerCoin? If they're just essentially 'gift card currency' and the company will buy them off me in exchange for their products, why use a blockchain in the first place? Just call them loyalty points or whatever.

Monetary value isn't entirely founded on use-value of anything though.

'Coins' have value because a corpus of people has agreed it; you can exchange one for anything of you can convince someone else the coin has a particular value (which might just mean that it works as a stable exchange currency).

Unquestionably, huh?