They’re not actually crypto-currencies…or innovative…at all..
Stupidity…A true story…
I was approached the other day by a guy who came up with the “genius” idea of creating an asset-backed cryptocurrency…and he wanted me to be on his “advisory board”.
The following was his pitch (roughly paraphrased). My responses are in italic.
“Hi Aleks. My name’s 💩💩💩💩 and we’ve built a cryptocurrency that’s actually backed by assets. So we’re going to raise an ICO, and buy stocks, bonds and other assets with that, then trade them, make money & build the value of the crypto”
ummm…..ok — so you’re creating a form of investment fund right?
“yeah..but a cryptocurrency version, that’s actually backed by something”
right..so why is that a cryptocurrency & not just a fund?
“Well, we want to do it as an ICO so everyone can participate”
Do you have a fund license or a financial services license?
“No — I thought you didn’t need that as a cryptocurrency”
ok…so (1), you don’t have a cryptocurrency. You have a tokenised asset. (2) It’s 100% most definitely going to be a security once passed through the howie or any other securities test, and it’s definitely going to need licensing.
“What’s the howie test?”
I proceed to explain the howie test, etc
“So how do we get around that?”
Get a license
“What if our whitepaper just says it’s backed by nothing and then we use the funds to just buy assets anyway?”
You’re a moron 🤦🏽♂️🤦🏽♂️🤦🏽♂️
…phone call ends.
I’ve had a problem with “asset backed crypto’s” since the beginning. The fact that they’re trying to solve the (supposed) problem crypto’s have with nothing backing them just shows how little anyone that’s creating these understands about the technology.
Cryptocurrencies are native digital assets, that are founded on some form of cryptoeconomic model that incorporates incentives & disincentives to create consensus amongst non-related participants in a network.
THAT is what cryptocurrencies are backed by!
Security, Scarcity, Incentives, Dis-incentives, Consensus, Utility, Network Effects, Anti-censorship, Decentralization, Ledger Immutability.
These are the attributes of true cryptocurrencies that are built on open, decentralised consesus protocols using blockchain technology.
Money is a great use case for a technology that contains those attributes.
There is your value. That’s why it DOES NOT need to be “backed” by anything.
Cryptocurrencies VS Tokenised Assets
These asset backed crypto’s are actually tokenised assets that are, or are claiming to one day be built atop a blockchain-based network, perhaps Ethereum, Neo or similar.
Most of them are really not cryptocurrencies in the true sense of the term, nor are they even blockchain projects. They just use the Ethereum network to automate the process of raising capital via an ICO — which is in most cases a circumvention of the traditional model of raising capital , often occuring as a result of an idea that could not be funded via a traditional model where the investment crowd is a little more savvy & sophisticated.
Tokenised assets are a very different product to true cryptocurrencies.
They do have a use-case (liquidity and access), but at a fundamental level, they are no different to running a traditional investment-style business model — which I generally don’t have a problem with, except when I see an industry I am proud of drowning in bullshit ICOs claiming to have solved the crypto problem by “backing our token with a real world asset”.
I’m sorry. That’s just a ridiculous attempt by people who have ZERO innovative flair trying to ride the crypto wave.
There is basically no reason to build a crypto currency that is asset backed. It’s useless. A tokenised asset is different story, but it’s not a crypto & should therefore not exhibit the network effects adoption & appreciation of something like a Bitcoin or Monero, for example.
BTC and XMR are crypto currencies. They’re natively digital, and natively scarce. They don’t need to be pegged to or backed by something.
Real innovation occurs when you create something new.
Peter Thiel, founder of Paypal & one of the most respected & visionary investors, libertarians & true contrarians — who knows how to spot innovation — talks about innvation in his book “Zero to One”.
Echoing Heraclitus, who said that you can only step into the same river once, Thiel says that each moment in business happens only once, and as an extension, so does real innovation.
“Zero to One”, means creating solutions where there were none before.
The next Bill Gates will not build an operating system. The next Larry Page or Sergey Brin won’t make a search engine. And the next Mark Zuckerberg won’t create a social network. If you are copying these guys, you aren’t learning from them.
To Thiel there are two types of innovation. If you take something that exists and improve upon it you go from 1 to n. However, if we create something new on the other hand, we go from “0 to 1.”
This an excellent mental model for what’s happening in the Crypto / Blockchain space at the moment.
Bitcoin was “0 to 1”. Nothing like it existed before, and in reality, just about everything after it has been a “1 to n” of it, except maybe the concept behind Ethereum & a turing-complete virtual machine.
If you apply that mental model to these asset backed crypto’s, you’ll see how it’s just a bunch of random get-rich-quick people trying to apply current models of thinking to a new & inovative technology.
It’s the same as trying to build a better “cart” for a horse & buggy VS creating the automobile, or what you see with the taxi companies building an “app” to make catching a taxi easier in a bid to compete with Uber.
THEY MISS THE ENTIRE POINT!
When you hear people with “genius” ideas of asset backed cryptos, just know you’re dealing with someone that lacks imagination, and really doesn’t understand innovation.
And if you’re reading this, and want to be involved in the space, invest in the space, help build the space or just plain talk about what’s going on, you need to really do your research on what the premise is behind blockchains and more importantly decentralised consensus networks & protocols, because that’s the forefront of innovation — and I’m sure you, like me, want to be a part of the next “internet”, not “intranet” 😉
For a little start on the research front, have a quick read of these:
Not much innovation…but plenty of stupidity..hackernoon.com
Not sure if this is possible, but lets try shall we…hackernoon.com
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