Down the cryptocurrency rabbit hole in search of adequate safeguards and room for innovation.
Since the inception of Bitcoin brought about decentralized digital currencies and distributed ledger technology in 2009 the community has been trying to solve the problems brought about by centralized authority and the inefficiencies of oligarchies in an attempt to minimize the impact abuse of power has on society as a whole.
Say Hello To The New Oligarchies
The inherent differences between decentralized systems and centralized ones are based on who actually has control not what underlying technology they use or who appears to have control. This is why ripple is criticized for being centralized while they also benefit from using the words blockchain, distributed ledger technology, and decentralization. By allowing users to have base assumptions about its purpose based solely on the connotations around the words used to describe their technology stack.
Every new innovation especially ones that better enable our liberty and amplify our means to communicate also enable bad actors to abuse the system. To see this in other industries just take a look at facebook, they’re a company that enabled people to communicate with one another with a lower level of friction than ever before but is built on top of a system that puts capitalism above benefiting the end user and society as a whole.
With cryptocurrency If we continue down this path the new status quo will ultimately form new and harder to stop or identify oligarchies, which will operate under the guise of being decentralized and empowering to individuals.
A bounty program is an incentive structure to reward early adopters and new users for creating content that promotes the discovery of a project. This is usually done through the creation of content such as articles, reviews, shares, explanatory videos, and any content that would spread awareness of the project. Participants are usually compensated with the new coin being created and sold to the public for a project or service that doesn’t exist yet or has yet to introduce the features promised by the founder and team.
The main ways people in this space do independent due diligence and research on potential investments all revolve around discovery of organic content on the project and content created through the bounty program. Currently that process looks as follows.
How do projects and founders abuse this, their total control of raised funds, and perceived loopholes in securities laws to give the illusion of something being a good investment without consequences?
Welcome to the Wild West
Digital currencies are undoubtedly revolutionary and transformative but they are also new forms of investments simply due to the expectation of profit by the majority of people participating in token sales regardless of disclosures given. Too many people are looking at digital currencies and trying to apply old language. Asking is this a security, commodity, or is it money? The answer is it can be all of these things depending on how they’re used and programmed and unlike the traditional asset classes of the past are not static from the moment of inception. New features can be added and enabled that make them act differently for different users. Though investments are things that have existed since the inception of wealth stores, capitalism, and society itself. To say these things don’t need regulations at least to a degree similar to ones applied to securities, commodities, and money is serving your own biases and not based in reality.
This argument seems to be made mostly by people who have a vested interest in keeping this space operating in a wild west of sorts where they can do as they please with a low barrier to entry. In practice systems like this incentivize corporations and people to operate in a way where ethics are often traded for profits.
A possible solution in sight? Enter the DAICO.
It would seem that there is still wisdom to come from within the industry itself that aims to solve this the same way bitcoin solved trust in financial systems back in 2009. The fact is both sides are right, too much regulation could stifle innovation but letting it continue as is will simply replace the existing system decentralization is trying to improve with a new system that suffers from the same problems of corruption. The concept for the DAICO was proposed by the creator of Ethereum Vitalik Buterin and it aims to thoughtfully balance these issues through what is essentially a means of self regulation. Instead of projects being able to raise money then immediately become the custodian of the contributions, contributors would have the ability to vote on when portions of the funds were released based on things like tangible accomplishments.
A DAICO contract is published by a single development team that wishes to raise funds for a project. The DAICO contract starts off in ‘contribution mode,’ specifying a mechanism by which anyone can contribute ETH to the contract, and get tokens in exchange. This could be a capped sale, an uncapped sale, a Dutch auction, an interactive coin offering, a KYC’d sale with dynamic per-person caps, or whatever other mechanism the team chooses. Once the contribution period ends, the ability to contribute ETH stops and the initial token balances are set; from there on the tokens can become tradeable.
This of course won’t solve the issues we’re facing as a new industry on it’s own though it looks like an excellent step forward to minimize the missteps teams and founders are able to make while we move the conversation of how to regulate the space forward in open dialog between governments and the community. With this the community will ultimately gain more power to disincentive unethical and dishonest behavior through their ability to revoke contributed funds to projects that breach trust. Using the same financial incentives these decentralized networks are employing to offer the innovations that keep participants who mine, stake, or otherwise participate in these networks honest in the first place. Remember the power of decentralization is supposed to be that we all have a say and bad actors get punished. If we had systems like this in place in the past then the 2008 financial crisis could have been avoided merely from the transparency and checks and balances it would allow us to have.
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