A few weeks ago, I've written an article about the current hype surrounding all crypto assets. Since then, so many things have happened in the crypto space that if I were to summarise only the most significant events — this article would feel longer than my university textbooks. And truth be told, there are already many people doing a great job tracking current events in this space, so I will leave it to them. (If you haven't done so already, I would suggest to sign up for Token Economy curated by Stefano and Yannick)
But I do feel the need to voice my concerns regarding a bunch of completely useless coins, ICOs and irrationalities of the crypto space. That being said, before I dive into it want to disclose that I'm a huge advocate of crypto assets and I will be forever grateful that I could experience this era first-hand.
Part 1. | Just when I thought I've seen it all..
body[data-twttr-rendered="true"] {background-color: transparent;}.twitter-tweet {margin: auto !important;}
Just when I thought I've seen it all - I found https://t.co/wJwBct2bnI. What's next? #crypto #blockchain #cryptocurrency 🎉 Blog coming soon
function notifyResize(height) {height = height ? height : document.documentElement.offsetHeight; var resized = false; if (window.donkey && donkey.resize) {donkey.resize(height); resized = true;}if (parent && parent._resizeIframe) {var obj = {iframe: window.frameElement, height: height}; parent._resizeIframe(obj); resized = true;}if (window.location && window.location.hash === "#amp=1" && window.parent && window.parent.postMessage) {window.parent.postMessage({sentinel: "amp", type: "embed-size", height: height}, "*");}if (window.webkit && window.webkit.messageHandlers && window.webkit.messageHandlers.resize) {window.webkit.messageHandlers.resize.postMessage(height); resized = true;}return resized;}twttr.events.bind('rendered', function (event) {notifyResize();}); twttr.events.bind('resize', function (event) {notifyResize();});if (parent && parent._resizeIframe) {var maxWidth = parseInt(window.frameElement.getAttribute("width")); if ( 500 < maxWidth) {window.frameElement.setAttribute("width", "500");}}
Let me start with a rhetorical question. Can someone explain to me why the hell do we need: Golf Coin, PokeCoin, LePen Coin, PizzaCoin, GanjaCoin, Theresa May Coin, Macron Coin, Truck Coin, Nicolas Cage Coin, Trump Coin, Fuck Token, Putin Coin, Dope Coin, or Panda Coin?
And trust me, here I'm just scratching the surface. Nowadays, there are over 1000 different crypto assets and good 95% don't have a valid use case and never will. If I were to call out all of those — this article would turn to a very entertaining, but maybe also slightly sad 'Encyclopedia of Fast Money Schemes'.
What really bothers me though isn't so much those wannabe-funny coins, but “founders” who put up a fancy landing page to raise serious money for a product they will never build.
Part 2. | Call me old-fashioned, but …
I believe raising external capital is a serious thing. In the “pre-ICO world” you actually had to build a product, show traction, and prove your business model can scale. Then, you had to look the investor in the eye and convince him/her that you have a compelling case. And if all went well, you would report frequently on your progress.
You couldn't hide behind a laptop, landing page and a white paper. And most investors certainly wouldn't give you ten, twenty or eighty million dollars to build your MVP. (unless you had some really serious track record)
That being said, I do think ICOs are a nice financial experiment. (from a VC perspective) Mainly due to two reasons:1. ICOs enable anyone to invest in early stage startups (regardless of their worth or location)2. ICOs offer much better liquidity to investors than a typical VC fund
Now both of those points are highly debatable, as some ICOs are simply impossible to get into, and as this extreme liquidity also leads to extreme volatility. But one way or the other — I do believe ICOs might impact venture capital and early stage investing. Maybe not directly (as some sort of regulation is necessary and already on its way), but ICOs will continue to trigger heated discussions and maybe also some interesting progress in the two areas outlined above.
However, what I find really troublesome about ICOs is the following:
SOME THEORETICAL ISSUES
1. No Accountability — I think there is nothing wrong with failing. But if you give a young founder millions of dollars without any strings attached, I cannot see how this won't go wrong. The most beautiful part of every startup is the part where you hustle for every dollar and every customer. It's typically also the part where lifestyle founders give up, and real entrepreneurs continue to hustle or pivot until they get it right.
2. The missing WHY — One of the most important questions (for me) is why have you decided to launch your startup. There is no best answer to this question. Some founders feel the urge to change something, some saw an opportunity to make money, some start by coincidence. But the start = you build a product people use / are willing to pay for. The start cannot and shouldn't be raising capital, same as you cannot start your business with an IPO.
SOME PRACTICAL ISSUES
- ICO Terms — Some (not all) ICOs have some very sketchy terms, especially when it comes to sale-cap, vesting period for founders, and use of funds.
- (currently) ICOs are not a sustainable funding model — Founders have to raise all their funding at once (connected to point 2 in the section above), as there is very limited possibility for follow on funding.
- Fighting Whales — Any large buyer has the power to control the market. Now, what if your main competitor decides to play with your token price.
- FOMO — There is no deep rational analysis going on. Every token sale so far was driven mainly by hype and early-speculation.
Part 3. | Early Investing vs. Early Speculation
I feel there is one part to the 'ICOs disrupting Venture Capital — story' that some people tend to ignore. And that is — investing in ICOs is a pure speculation, it's nothing like a VC investment, and it's also very different from a Kickstarter campaign. The people who invest won't be there when your product fails to attract users or when your co-founder decides to quit. Truth be told, they will be the first to dump your token when the price drops. And in comparison to Kickstarter, typical ICO backers don't even care about the product too much. The vast majority of them will never use it anyway. And I feel that's by far the biggest problem.
I feel most ICOs are like a theme party that most attendees don't understand. But hey, the tickets are now four times the price…so it better be a good one
Conclusion
- I think ICOs like the ones we have seen in the past few months are not sustainable and will fail to attract as much capital. Partially also due to the recent developments in BTC and ETH price.
- ICOs should be reserved only to companies that are truly building a protocol, or companies that are creating value through open networks.
- Crypto-trading became a cake-walk for whales and hedge funds who are fully exploiting the space with sophisticated strategies.
What bothers me most though is that blockchain can (and still might) change the world we live in. And I fear that the current get-rich hype and greed is casting a shadow on some truly amazing technological progress.
If some of my thoughts resonate with you, please 🙏 heart this article or leave me a comment. In case you don't like it, perhaps you might be interested in creating your own Token in one minute 🤑
Thanks for reading.
Written by Dominik Vacikar.
Views are my own and don’t reflect the views of my employer.
Feel free to contact me at;[email protected]