Shamcoin finds lots of similarities in ICO whitepapers

Interesting use of IA to analyze upcoming ICO whitepapers from Shamcoin.

It’s easy to find patterns from the matrix, and as next steps we would be adding more signals to make relative comparisons even more interesting.

Overall, there was a lot of homogeneity among this set of ICOs, which they also found when they looked at past ICO projects.  They are doing some impressive things to uncover fraud in ICOs.

Check out the charts and full post Whitepaper analysis of upcoming ICOs relative to existing coins at Shamcoin

Highlights from ~95 theses on crypto

95 Theses for 2018On Crypto Prices and “Investing”

1) 2017–2019 will be THE big crypto bubble. Things could get nuttier from here…far nuttier than in the dotcom era. The retail investor base is 10x larger, with 24/7 access to the FOMO and get rich quickism. And we’ve got CNBC to help with the pump!1a) Unbelievably, the institutions will be the last money in this time, with the futures market and custody solutions just coming online, and the mythical ETFs perhaps not too far behind. This has been properly hyped, I think. I could see a Q1-Q2 stampede.

Lots of great ideas in this post from TwoBitIdiot on Medium. Here’s a few more:

3) BTC, ETH, ZEC, and XMR are the main cryptocurrencies. These could still have a LOT of room to run. Money is a reflexive asset where the more people buy it and use it and believe in it, the more valuable it gets. Cryptocurrencies are the ultimate momentum play.

5) Most utility tokens, then, will go to zero, regardless of team quality and execution. You simply don’t need to hold them but for momentum & greater fool investing. When the market lacks “higher order” investors for speculators to flip to, assets will unwind. Viciously.

17) Forks with airdrops will become the preferred alternative to ICOs. You give away free money in order to get people excited about the new and improved project. The only thing they pay is attention. The people who truly buy in become your collaborators

54) Sooner rather than later, the institutions will wise up to the reality that they shouldn’t be paying carry on funds mostly denominated in BTC and ETH. When that happens, you’ll see a massive influx of capital to passive index funds like Bitwise’s HOLD 10.

via 95 Crypto Theses for 2018 – TBI’s Weekly Bits – Medium at Medium

A Bubble Bursting Scenario

From traditional fund manager Denny K comes a fairly reasonable article about how things could playout in a similar manner to the tech crash. 

Denny begins with a few comparisons:

In the .com bubble existing technology firms listed on the Nasdaq sometimes decided to add “.com” to their company name and saw their shares surge, sometimes 30–50%.

Well, guess what is happening now…

During the .com bubble, the major problem for analysts and investors was that most of the companies had losses and not profits, so there was hardly anything to value them on.

Fast forward to today — the same is happening again. While I want to be clear that there are important differences in that Bitcoin does have some sort of a value as a “store of value”, people making up new ideas like network value for token (not so much for Bitcoin) just makes no sense.

Then he mentions the differences that makes this even more risky, including the ridiculousness of ignoring non-released tokens, which we’ve posted about previously:

if you look at coinmarketcap.com, the “go-to” site for crypto market caps, you will notice that they only count the “Circulating Supply”

In equity markets, of course there are occasional scams and there were IPOs that turned out to be founded on not much more than a pyramid scheme. However, looking at crypto ICOs, the sheer amount of obvious scams is breathtaking.

While the .com bubble had its fair share of retail investors, the main driver were the institutions. In the crypto bubble, the field is made up almost exclusively of newcomer retail investors that probably have never held a stock in their life.

And he ends with his projections of how this may play out:

all ICOs will lose 90%+ of their value (just like during the .com bubble…) regardless of the strength of their projects. I keep bringing this up, but Amazon fell to 5.5 USD / share in 2001. It now trades at 1000 USD+. So also the good projects will fall 80–90%…

At the same time the utility token related to the ICO boom will probably crash in tandem

Cryptocurrencies such as Bitcoin will also be impacted, but I would expect an almost V-shaped recovery there as the listing of futures on the major exchanges, the formation of ETFs and more regulatory certainty will undoubtedly introduce institutional money to the space and more than 90% of that will flow into Bitcoin. Make no mistake though, Bitcoin will also suffer.

In the aftermath of this ICO carnage, I would expect the same story as with the internet firms from 2001. Really good projects will give their token holders equity-like rights and fulfill securities regulations. New ICOs will be strong companies that will have a good value proposition and again, will actually be selling something valuable and not just hot air. When this ICO 2.0 phase starts, platforms such as Ethereum will also strongly recover.

I would therefore personally not invest into any random ICOs at all nor their respective token at this late stage in the game. The likelihood you can buy all of these cheaper at some point over the next 12 months is extremely high.

Even if you completely disagree, it’s well worth a read as he brings up some great points.

Are ICOs Are ‘Attracting the Wrong People’?

CoinDesk reported on comments about BitCoin and ICOs by Joi Ito, MIT Media Lab Director

Ito told the crowd:

“The problem is we’re creating a system where people can pump or dump and speculate. Anyone who has issued an ICO needs to sit down and meditate: are you making society better? Or are you making money unfairly?”

In contrast, Ito framed the “whole point” of cryptocurrency as being about using technology to prevent the societal ills he believes have resulted from economies defined by government-issued currencies and the financial institutions necessary for their use.

He included what he’d like to see:

Ito espoused the idea that cryptocurrencies should think more about their intent than their value, with one of his examples focusing positively on the insular economies of online role-playing games as an example of how restrictions can heighten an asset’s worth.

And clearly feels Bitcoin is doing things right while ICOs are missing the point:

“We haven’t won the battle yet. [But] I think the thing that is interesting is that Bitcoin Core has substantially more brain fire power than any of the other networks.”

ETH Challenges & Bullish on Bitcoin Despite Drawbacks

Albert Wegner shared his view on the state of Bitcoin, Ethereum, and of course, ICOs, which he acknowledges are likely slowing down, at least for now:

So where are we today? At least temporarily there seems to be a slow down in ICOs. This could turn out to just be a lull before more activity resumes but it could also be a welcome return to more sanity (if the latter, there is likely going to be an over correction).

As most ICO tokens are built on top of Ethereum, he sees challenges ahead and believes progress needs to be made to scale Ethereum:

In either case Ethereum faces a strong headwind not only from this change in sentiment but also from relatively costly and slow on chain computation. The bull case for Ethereum is that sometime in 2018 we will see a couple of Ethereum based projects launch successfully and get broad adoption *AND* progress is made on Ethereum scaling (either directly or through projects such as Raiden or Plasma). The bear case is that at least one, or possibly both of these don’t happen.

And on Bitcoin, he is cautiously bullish and ok with Bitcoin’s “drawbacks”:

Oddly I think that Bitcoin continues to be misunderstood by many people in the cryptocurrency space who want it to be more than it has to be for it to succeed. It is one of those cases where the more you know, the more you are likely to overthink it. Yes, Bitcoin has all sorts of drawbacks as a blockchain, but it is the one cryptocurrency with a widely understood use case: censorship resistant store of wealth

Further Evaluating the Classification of Bitcoin as Currency

Apparently, Aswath Damodaran faced a lot of backlash for his post classifying bitcoin as currency. His views haven’t changed:

The crux of the disagreements though lay in my classifying Bitcoin as a currency, not as an asset or as a commodity. Since this classification is central to how you should think about investing versus trading, and value versus price, and goes well beyond Bitcoin, I decided to dig deeper into the classification and provide even more ammunition for those who disagree with me to tell me how wrong I am.

On why it’s not an asset:

One reason that people are uncomfortable drawing the line between currency, commodity and asset is that the line can sometimes shift quickly. Take the US dollar, for instance. Its primary purpose is to serve as a medium of exchange and as a store of value, and it is thus a currency. However, you can lend US dollars to a business or individual and generate interest income. That is true, but it is not the currency that is then the asset, but the loan that you make with it, or the bond that is denominated in it. Building further, if I create a bank that takes in deposits in dollars (and pays an interest rate on them) and lends out those dollars as loans, I have a business and that business is an asset.

On why it’s not a commodity:

The essence of a currency is that its primary uses are as a medium of exchange or as a store of value. The key to a commodity is that it is an input into a process that has a utilitarian function. Oil and coal are clearly commodities, since they derive their value from the fact that they can be used to produce energy.

He ends with a thought similar to what we’ve written recently:

I think it is also time for us to separate arguments about block chains/smart contracts from arguments about crypto currencies, since you can have one without the other, and to differentiate between crypto currencies, rather than defend them or abandon them all, as a bundle. To me, Bitcoin, Ethereum, Ripple and  ICOs are different enough from each other, not only in structure but also in terms of end game, that they need to be assessed independently

Moving Beyond ICOs

Like many crypto-enthusiasts recently, we’ve gotten a bit caught up in the ICO craze. After publishing a few ICO analysis reports, we noticed the posts were driving a lot more organic traffic that we’d ever had, that people were actually leaving comments. Naturally, that lead us to publishing more ICO reports. In fact, we’ve published over 30 of them. However, it’s time to stop.

The purpose of the reports was to present information in a standardized way. Every token crowdsale is run and presented differently, making it quite difficult to compare. Even leaving the nature of the project out of the discussion, there are so many variations in the method tokens are sold, bonuses, token allocation, usage, etc. that it becomes prohibitively difficult to compare without doing a lot of work. Something as simple as how much money projects are looking to raise is obscured. And determining the value of your specific contribution is often even more difficult with closed private sales at enormous discounts on tokens that are likely to be dumped onto the market post-ICO.

With that in mind, our reports are not sufficient. Though we stopped trying to rate each ICO a while ago, even gathering the information has become too cumbersome and there others doing a much better job of it. As we often cite in our reports, some of our favorite sites for in-depth, single-project analysis include CrushCrypto, Hacked (subscription), Picolo Research (release delayed for all but Astronaut.capital clients), ICO Alert, and ICO Rating (look for the in-depth reports, not the ratings). There are others we’re overlooking at the moment.

None of these allow for comparing multiple ICOs using standardized info, but that’s not necessarily a problem. For one, the ICO landscape is changing so fast that comparing a project from 3 months ago to a new one coming us is virtually meaningless. Second, there are others much closer to what we envisioned originally. TokenData tracks over 140 ICOs currently and TokenReport has comprehensive data on over 700 projects (albeit at $225 per month).

Without a comprehensive solution, it would seem like a good niche too fill. However, the time investment is no longer worth the effort, given the extremely high valuations and waning returns of late. Our bandwith is limited, and it’s simply not worth trying to find the needle in the oversized haystack, especially when the risk/reward ratio is as terrible as it appears now. While we aren’t completely foregoing looking at particular projects in depths, we’ll rely on others to call our attention to it.

Our initial interest in crypto currencies had nothing to do with ICOs. Like most, we were first drawn to Bitcoin and the possibility of a decentralized currency and a finite number of tokens that could be exchanged with anyone in the world nearly instantly. Over the past year, we’ve gotten more interested in the bigger possibilities created by Ethereum and token sales. Beyond funding, there opportunities for new business models, new business structures, automation, anonymity, etc. that will bring more meaningful, macro changes. That’s where our interest lies and where we’ll be focusing here.

If you feel we’ve underestimated the value of our ICO reports, and you’d like us to continue, let us know in a comment. 

3 Keys to Optimal Token Sales

Albert Wegner with thoughts on Optimal Token Sales:

Though he goes into much more detail, the basics are:

  1. Keep initial sale small.
  2. Hold one or more subsequent sales of increasing size
  3. When the protocol is ready, hold a final sale and/or distribution that gets all but a small fraction of the initially available tokens out for use.

Some of his ideas are quite similar to what Vitalik described previously (which he also cites). Before getting to the right way to hold a token sale, he lays out the two extremes in token sales with the right way somewhere in the middle:

The most potential for trouble are token sales which are one-time, large (possibly even uncapped) and take place when minimal specification / technical work has been done. In these the risk of outright abuse is highest (eg team starts paying themselves above market salaries, lavish perks), as well as the risk of nothing of use ever shipping is highest also

Conversely, the least problematic and the best incentives for the operation of a protocol would come from a highly distributed “helicopter drop” of a token that can immediately be used in a fully functioning protocol. The team makes no money here so there is zero potential for abuse, there is no technical risk (by assumption) and the recipients have a windfall so they will have no issue selling or using the token.

“99%+ of the ICOs out there are scams”

From Pierre Entremont early this month, ICOs: You’re scammy and you know it:

99%+ of the ICOs out there are scams. It has the very unfortunate side effect to make good teams/projects look dubious by association, so it has to stop.

I spent a lot of time thinking about what defines legitimate players. I feel the framework is now robust enough to be shared.

First three parts are definitions of what are Decentralized Networks (I), Tokens (II) and ICOs (III). Once these concepts clearly defined, identifying legitimate players is pretty straightforward.

He’s not the only one that things many ICOs are scams, though the 99% figure seems high. While most projects may not succeed, it seems ridiculous that 99% of projects are out to purposefully deceive investors/token holders. Entremont lays out his questions to ask for determining if a particular ICO is legitimate:

  • Is this organization really building a Network, or is it just a traditional company looking for easy and unregulated money?
  • Is there value to Decentralize this Network ? Some things work very well in a centralized way, plus decentralization is still an early and very costly/underperforming technology, it’s not a good idea to decentralize everything
  • Is the value of the Infrastructure the Organization says it will build correlated to the amount and Tokens % they are asking ? (example: Asking €x00m and x0% of the Tokens to “build a new currency for Africa” by cloning Bitcoin is questionable)

Most certainly don’t pass those questions and are using token sales primarily as a fundraising method .That doesn’t necessarily make it a scam, in my opinion, but they aren’t capturing the full technological potential presented by tokens and blockchains.

Thursday Links

  1. Guide to launching an initial coin offering – by Chris McCann. Given the relative newness of ICOs, he acknowledges it’s an evolving process:

    Given the blockchain industry is relatively new, there isn’t a whole lot of information on the topic (from a project’s perspective), and with each new ICO, teams are learning best practices on what to do and what not to do. Below is a guide of all of the information we collected about the ICO process, with input from people who experienced the process first hand…We will update this post with changes as we collect them.

  2. Brett Winton on How to Value a Cryptoasset. This is a precursor to Chris Burninske’s post, which we mentioned last week. Definitely still worth a read.

    At the simplest level, the network’s value is determined by the value of tokens that get held aside in user wallets to facilitate the network’s transaction flow.

  3. Lawrence Lundy on Convergence and the larger scale implications of blockchain:

    This means we constantly underestimate the pace of change and as software eats more industries, improvements compound as traditionally human-centric industries like healthcare, logistics and agriculture digitise. As these industries come online and capture, process and automate data; ownership of this data will define the state, market and nation over the next half a century. Blockchains are therefore one of the most significant technological innovations since The Internet and fundamental to Web 3.0.

    The development of blockchains is a good example, as exceptionally talented developers push the boundaries of cryptography with zero-knowledge proofs and smart contracts but fail to see the implications on broader governance structures and political philosophies.

  4. CB Insights’ published Blockchain Investment Trends In Review with lots of analysis and data on the amount being raised both via VC and token sales.

    The steady decline of early-stage equity deals may indicate that blockchain, like other emerging technologies, is undergoing the evolution from creation, to crowding, to consolidation.

    However, according to CB Insights data, blockchain’s consolidation may be tight, with blockchain companies failing at a higher rate than tech startups in other areas. Of 103 blockchain companies that received initial seed or angel funding in 2013 – 2014, only 28% managed to raise additional funding, and just one company made it to Series D: Japan-based cryptocurrency exchange, bitFlyer, with a small $1.8M round.

    In comparison, of 1,098 tech companies we tracked that raised seed rounds in the US in 2008 – 2010, 46% raised a second round of funding. An additional 14% went on to raise a fourth round of funding, versus blockchain’s 2%.