Former Wall Street risk analyst, avid Bitcoiner and ICO-detractor Tone Vays telecast his compelling “Inevitable ICO Bubble” talk to a crowd at the Seattle Bitcoin Meet Up last Thursday, during which he extended an olive branch to the creators of the contentious Bitcoin ‘fork,’ Bitcoin Cash.
The contentious “hard fork” (code copy) of the Bitcoin blockchain that created ‘Bitcoin Cash’ last summer touched off a civil war off words across crypto channels.
Bitcoin Cash creator and zealous early Bitcoin supporter Roger Ver went from ‘Bitcoin Jesus’ to ‘Bitcoin Judas’ overnight as both camps launched associated meme wars and forum firestorms in defence of their preferred coin.
Ver claims that ‘Bitcoin Core’ developers diverged from Bitcoin creator Satoshi Nakamoto’s original vision of “a peer-to-peer electronic cash system” and worsened network slowness when they implemented policy decisions that Ver says rendered Bitcoin more a ‘store of value’ than an viable option for retail payments.
Libertarian Ver believes that retail use, particularly in Dark Net marketplaces, is what propelled Bitcoin from an obscure nerd’s toy and joke into the global autonomous ‘value transfer’ network that it is today.
‘Bitcoin Core’ developers counter that scaling Bitcoin to support retail payments is more complex than Bitcoin Cash’s solution of bigger-sized underlying data blocks. They have been working on “off chain” scaling solutions like The Lightning Network.
Widespread acrimony, including the persistent use of the term ‘BCash’ by regular Bitcoin supporters (something that drives Ver to distraction), accusations that Bitcoin Cash network is controlled by Ver, as well as claims of sabotage and censorship have made the notion of peaceful coexistence between the two coin ‘communities’ seem like a a pipe dream.
Turns out, though, that the lack of integrity found in most ICOs (initial coin offerings), including million dollar fundraises by companies with no prototype, makes the creation of Bitcoin Cash look quite conscionable.
“Do you think that there ever could be an honest ICO…if they had a product…?” the host of the meet up asked Tone Vays.
“Yes,” said Vays. “I give one example…(and) this is not a recommendation to buy the ICO- I think it’s an absolute terrible investment…(but) it doesn’t mean that its not legit. Kina like Litecoin. I think Litecoin is a terrible investment. I think Litecoin is pretty much useless. Same with Monero- but they’re not scams…”
To Vays, most ICOs are scams because their creators essentially “print money” for themselves by offering, “unlicensed, unregistered securities to unqualified investors.”
[clickToTweet tweet=”To Vays, most #ICOs are scams because their creators essentially ‘print money’ for themselves by offering, ‘unlicensed, unregistered securities to unqualified investors.'” quote=”To Vays, most #ICOs are scams because their creators essentially ‘print money’ for themselves by offering, ‘unlicensed, unregistered securities to unqualified investors.'”]
ICO issuers have so far gotten away with selling their appreciable and depreciable tokens by claiming they will someday allow holders to use the services of a future network, ‘decentralized storage’ or ‘self-sovereign’ ID, say.
But critics have pointed out that ‘the decentralization of everything,’ meaning, very little private or government involvement in most industries, is a ridiculous and improbable pipe dream.
They also call private blockchains unnecessary and recommend standard databases and process ammendments.
Unfortunately, it can takes a fair amount of technical knowledge to realize what is really needed, and investors are pouring money in based on ICO-enriched hype, liberal and uncritical use of buzzwords and fantastic claims.
A recent academic study of ICOs found that 56% of ICO projects disappear within four months of their multimillion dollars fundraises.
“So I know of one ICO, at least this is what their white paper said (although) I heard that they didn’t actually do what the white paper said and its a little more scammier than that. But I’m gonna go off what the white paper said, and that’s ‘BCash.'”
“BCash is the only ICO that I have seen in the hundreds of ICO that I have looked at…that passes my smell test.”
Many ICO’s raise funds through initial coin offering’s because they could not attract VCs if they tried. Roger Ver is an experienced VC, and the Bitcoin Cash fundraise, according to Vays, was 90% VC-backed.
“Here was the initial plan,” Vays told the meet up:
- ‘We are raising a hundred million dollars for a round of VC funding.’
- ‘We’re a professional VC, we invest money in companies.’
- ‘This $100 million dollars we’re going to invest in blockchain companies.’
Bitcoin Cash didn’t seek speculative money from the general public, says Vays:
“They raised $90 million dollars from qualified investors, rich people -the legitimate way- and the other $10 million dollars they used regulation S and some other regulations…They said, ‘Hey, we wanna open up this VC round to people in third world countries, so here’s what we’re gonna do. We’re gonna allow the world to invest in our round…then we’re gonna invest that money in speculative companies in the blockchain space.”
“That’s a kind of a legit thing, because all that ICO does, it does two things…First, it allows people to invest in very small increments with a VC. And second, it allows you not to be locked in with the VC investing, cuz that ICO is openly traded on exchanges, so you don’t have to sit on this investment, with the VC, for years. You can sell it after a couple of months…”
Outsized -sometimes multi-thousand percentile- run ups on “digital assets” in 2017, “assets” attached to zero or little real world value (reserves of company talent or property, existing products or revenue streams, etc.) to Vays, indicate a bubble:
“So, obviously, if the VC is performing well, what should be the value of the ICO token. Well, the underlying dollar, plus or minus the return on that dollar…plus…the ease of transfer should give it a little bit of a premium. So my best guess, let’s say…a good VC can beat the S&P 500…so let’s say…the token’s been around for a year-and-a-half or two years, then that token should’ve made maybe 20% if the money was properly invested, plus…maybe 5-10% because it’s liquid. So that token should be worth $1.30 right now, but it’s not, it’s worth over $2…Clearly it’s overpriced.”
Any technologically legit ICO with substantial VC-backing is a more reliable product, and offers several means of exit for retail investors:
“But that is the most legitimate case of using an ICO that I can think of because the money wasn’t used to fund some dream. The money has an underlying base, an underlying value…if someone wants to cash in this token, they can always call up the company and say, ‘Hey, give me my money back, take this token,’ and if the token is ever trading below its par value, the company is like, “OMG free money, we can always buy it back ourselves. We know how much this fund is returning.”
Integrity of launch supports integrity of product, says Vays, who has always called ‘utility tokens’ securities:
“So if you’re building something with that kind of mentality, sure, but don’t give me some kind of nonsense that you need this token to use the product (in most cases, the associated blockchain or ‘decentralized network’). If that was the case, we’d all be paying Amazon stock to buy things on Amazon.”
There is no good reason why a smart contract hovering on a particular network needs to be paid for exclusively with that network’s native currency, which is also a tradable asset on exchanges. That’s just bad business, says Vays:
“The idea that you have to use Ethereum to fund a smart contract is silly. You should use any currency you like.”
Ultimately, the only use case for a cryptocurrency, says Vays, is on a truly autonomous (decentralized) network with no central governing body that can be persecuted by a malicious state actor:
“The only reason why we have Bitcoin is for two reasons. One: Bitcoin itself incentivizes (participation on the the Bitcoin network). And because it’s decentralized money, it has to move on its own network.”
Any other token, such as a loyalty token, can easily run on a database.
“If these scammy ICOs suck all the value out of people’s pockets and the economy, the next bubble…could potentially make the ’08 bubble…look like an appetizer.”
“The bubble you should be worried about to take out America is not the US currency bubble. It’s not the dollar. It’s not the US bond bubble. It’s not the US debt. Potentially it could be the ICO bubble, and the complete annihilation of all…hundred years of laws that…kept money with the middle class, while all these scammers come in and suck all that money out and just destroy it.”