Is every Initial Coin Offering a Scam?

OK. Stop! Please, just stop! I get this question every day. More and more people asking about ICOs. I get it… I am an early Bitcoin user, I give blockchain presentations, I write a blog, and I work for a standards association. And so, this is my definitive response to a very pesky question.

Ron, in New York City reads this Blog. He asks this:

I work for an investment bank. Some banks, like Merrill Lynch, are hostile toward Bitcoin and other cryptocurrencies. Others, like Fidelity are dipping their toes in the water. And some, like Morgan Stanley speak with forxed tongue—condeming and hedging at the same time…

My employer is preparing to embrace Bitcoin with gusto. Once regulatory guidelines become clear and unified, we will offer crypto trading, options, futures and margin accounts. I am already working on customer literature and compliance training. We will also use crypto as money in all operations—to pay staff & consultants or purchase supplies & utilities We will even accept Bitcoin and Bitcoin Cash as payment from clients.

So, please tell me: Why does our in-house crypto expert constantly warn our managers and clients that ICOs are scams? How can she condem an emergent commodity? ICOs have sparked a massive new investment class. Are they really scams?

Listen up, Ron! Pay attention to your crypto expert. Follow her advice. With very few exceptions, ICOs are all scams, plain and simple.

Why are almost all ICOs scams?

Initial Coin Offerings are scams because of:

  • The way that they are promoted
  • What investors must do to profit
  • Their fundamental purpose: Dodge securities regulations, create MLM pyramids, or facilitate pump & dump. None are are sustainable, ethical or legitimate goals!

For those intent on using, investing in, or advising others on ICOs, this article explains how to discriminate a scam from a credible and functional instrument. Note the list of traits just below the red “Scam” button. If the ICO that you are evaluating exhibits even one of these characteristics, treat it like The Plague or the Mark of the Beast. It is most certainly a scam.

Note that ICOs are not Altcoins. There is a big difference. Altcoins are forked from Satoshi’s blockchain code. They are open source, license free, permissionless, with a transparent mining history going all the way back to the genesis block. The ownership of all pre-mined coins is known and auditable. There is absolutely no MLM aspect to an altcoin. If there is any central or authoritative component, it serves only to aid in quicker governance decisions or to overcome the energy overhead associated with Proof-of-Work. There is never another valid excuse for an authority, because authorities are chokepoints.

Many altcoins are legitimate projects designed to trade value, or serve as a functional component of an IOT (Internet-of-Things) process. This is also explained in the definitive guide to Why ICOs are almost all scams. Some of the IOT altcoins attract speculators and hoarders seeking to profit from trades. This is unfortunate, and it intereferes with the utility of the token (IOTA is a clear example). But, just as with Bitcoin, speculator interest doesn’t define a scam.

What about altcoins. Are they as toxic as ICOs?

Referring to my own definition, above, many altcoins—perhaps even most—are not scams. But, I am pretty picky on the altcoins that I recommend, because most of the clever features and functional improvements introduced by altcoins will be ripped and folded into Bitcoin. It is inevitable.

Apt metaphor for ICOs

After all, Bitcoin has an enormous lead, it has already achieved a two-sided network, and none of the altcoins are protected by patent, trade secrecy or opacity. By definition, they are free, transparent and without any licensing or proprietary features.

I was never burned by an ICO, but I have certainly consoled friends and colleageus who have been sucked into them. Unlike many columnists and consultants, I am not beholden to issuers. So, if your wondering what is an ICO? It is a puss-filled boil on your privates. You may quote me on that. The article linked above is honest, unbiased and definitive.

 

Booya! Hong Kong seeks Bitcoin ban

Hong Kong flagIn February, Hong Kong lawmakers called on authorities to ban Bitcoin after more than 25 investors were duped in a Bitcoin scam. Reuters reports that they may have been fleeced of [US] $387 million. That’s quite a scam—Bernie Madoff would be proud!

Coming from Hong Kong legislators, the request to ban a monetary instrument—rather than enhance security and education—is a bit surprising. After all, Hong Kong is a uniquely progressive society. Their dollar is not issued, printed or backed by the government (not the under the British mandate and not even under Chinese unification). Rather, it is issued and backed by 3 commercial banks, each one abiding by a strict reserve policy.

Ban, baby Ban

Effective tonight, stray cats may no longer mate without a permit from the population council

Stray cats must obtain a city permit before mating

I love government bans! —especially edicts that try to prevent feral cats from mating or water from seeking its own level! It arguably produces a best-case event for popularizing a new technology, film, web-site, trend or behavior.

Sure, Bitcoin will be exploited by criminals — perhaps even at 5% of the rate that crooks exploit cash, checks or credit cards. I wonder if Hong Kong has banned those instruments?

Bitcoin is based on an elegant technology that is sometimes difficult to explain. But the results are easily understood. Whether you believe Bitcoin to be a currency, a threat to national sovereignty or a tool for criminals, it is simply a very inexpensive, efficient, quick and secure method of moving value from one party to another. That’s really all there is to it.

Bitcoin-08Of course, Bitcoin is new and it is decentralized. This means that there are a few things to be learned before common practices (and banking-analogous practices) can be made simple and safe for everyone. The Cryptocurrency Standards Association is working on it and so are a great many other programmers & organizations. Don’t bet against it! Bitcoin and the blockchain are one of those new-paradigm technologies that adds value, spreads quickly and is resistant to edict. In the beginning, Ebay, Google AdWords and hyperlinks seemed too difficult to be useful to the masses. It’s no different with Bitcoin. Adoption, tools, safety protocols and utter simplicity will make it a no brainer.

More importantly, Bitcoin does not present a threat to governments or nations, even if it begins to replace currency. (Many scholars think that this won’t happen). Governments can still tax citizens, float bonds, audit transactions, wage war and arrest bad guys — just as they did before and during the era of treasuries and central banks.

A major benefit of Bitcoin (at the very least) will add TENS of Billions of dollars to the economy. And not just supply-side dollars, but real skills and labor. That’s because Bitcoin saves 2~4% on most financial transactions. No fee for credit cards, wire transfers, checks and even commercial letters of credit. That’s why SWIFT is evaluating a switch to Bitcoin and it is why IBM is exploring the blockchain to move commercial funds all over the globe.

It doesn’t stop there. As Bitcoin adoption grows (even if only for debit transactions), a series of reactions will gradually follow. Peek with me into the future landscape of Bitcoin adoption. It’s easy to imagine. The vision is positive…What do you think?

• Related: Ellery’s articles about Bitcoin
Ellery is a founding member of CRYPSA, the Cryptocurrency Standards Association

Hertz acquires Dollar: What about the liability?

I avoid using this soap box for personal vendettas. A Wild Duck has a broad venue but spats over shady business practices aren’t covered. Tonight, I am outvoted. My co-editor wants me to run this story. Hey, this wound is fresh! Who am I to disagree?

Every once in a while, one encounters a vendor with business practices so out-of-whack, that it just begs to be exposed. Here’s one that hasn’t fully played out. If it is resolved before next week, I will update this Op Ed. But after experiencing this scam, I have doubts that a culture of deception can be corrected by a Blog posting…

Does Hertz care what lies under the covers?         Does Dollar know about ‘Rent a Terstappen’?

Let’s start with statements of fact: I travel. And I hate renting cars.

Until recently, the cost of renting a car was rarely what was agreed in advance. Online reservations are especially problematic, because franchisees fail to report local fees or policies to the franchiser, agency or internet marketing affiliates.

But years ago, I developed a method to overcome the problem, and it has worked splendidly. I first applied ‘Ellery’s Rule’ planning a trip to Florida. I called the rental agency directly and presented my discount codes. I was quoted an excellent weekly rate. (I think that it was Avis, but I am not certain).

Just in case, a desk clerk were to add up the numbers differently than the friendly telephone agent, I asked the agent to add a statement to the Memo section of the contract. She added these words:

The customer has been promised the rate as calculated in this estimate. He is not to be charged a different amount if the car is returned in good condition and with a full tank of gas.

To ensure that the statement exuded authority, I asked her to cite the name of a regional or department manager.

When I got to Florida, the reservation contract was already printed and waiting at the airline terminal rental desk. I pointed out the statement in the Memo section and the local clerk brushed it off with a chuckle. “Don’t you worry”, he said. “The rate is correct. You won’t be cheated.”

But when I returned the car, there was an extra $11 tacked onto the contract. “What’s this?!” I asked to a new face at the desk. “Oh, that’s the Florida drug tax” a friendly woman exclaimed, as if reading from a script. “Every customer must pay it. It’s the law. We have no control over state taxes.”

Guess what? I snapped back. I don’t want any drugs. I don’t think that she got the wit or charm of my dry sarcasm, but after a few phone calls, I certainly didn’t pay the Florida drug tax. Of course, she was right. It is a state law and payment is ascribed to the renter. But Avis paid it from the proceeds that I had agreed to pay. That’s because I had a written contract that specified the cost after all taxes, fees and even drugs. It is inclusive, en toto, complete! You get the picture.

For years, my little system worked like a charm. If at first, a rental agent refuses to add the memo (effectively stating that their estimate is truthful), I threaten to cancel the reservation. They always get authority to add the Memo. It never fails. And so for these past years, I have been quietly smug when overhearing another traveler talk about unexpected fees added at the car rental desk.

I was smug, that is, until this past week. With Rent a Terstappen, I got hoodwinked!

Tactics of deception: Germany’s Dollar car rental franchise

I traveled to Frankfurt Germany last week and rented a car from the local Dollar franchise. I got a good rate from HotWire.com, a popular web travel site. For a simple booking, it’s difficult to get a live agent on the phone, and so I booked my rental online, realizing that I might get stuck with a Frankfurt “drug tax”–or perhaps in this case, a wiener-schnitzel tax. But I was woefully unprepared for what happened. I was socked with an enormous fee and an even more absurd justification. It doubled the amount quoted in Hotwire’s  good faith disclosure!

Dollar franchisee       Rent a Terstappen
Desk clerk                 Beatrice Lindholm-Dagci
HotWire itinerary       4523744713
Contract offer            $151.87 *
Customer charge      $315.38 (?!)

* Revised from original offer of $182.24 for 6 days

Dear readers: You won’t believe the pretense on which Rent a Terstappen doubled my rental contract cost. Even with the separation of 6,000 kilometers and 6 days since my return, I still can’t believe the loony reason that Ms. Lnidholm-Dagci told me (at first, with a straight face). More shocking, I sensed that she didn’t believe it either. She whispered for me to visit Dollar competitors at nearby rental counters. Clearly, she gets push-back from more than a few outraged customers.

Well, this customer won’t stand for it. I landed during the busiest travel week in Germany. Even with staggered school vacations, everyone is on holiday during the 3rd week of August. Five other rental companies offered to match the rate that I was promised (without a farcical add-on), but none had vehicles anywhere near the airport. They were fully booked no matter what I paid. The folks at Hertz and Sixt (a European car rental outfit) sympathized with my plight. One even offered me a personal ride into the city. She has dealt with other disgruntled Dollar-booked clients.

  • Does Dollar Rental know of the massive deception foisted on their clients by Rent a Terstappen? (the local Dollar franchisee at the Frankfurt airport).
  • Does Rent a Terstappen force desk agents to pretend they don’t see what agents at every other rental counter already see? Beatrice Lindholm-Dagci recognizes the deception she is forced to perpetrate. She must hoodwink customers and then blame the fiasco on HotWire or other referring agents.
  • Does Hertz know that the reporting chain at Dollar is either deceptive or egregiously deficient? (My travel department will talk with Hertz if this is not settled by the end of this week.)

Oh yes! I forgot to tell you the reason for the doubling of my rental charge: Ms. Linholm-Dagci explained to me that I must use a Gold branded MasterCard to complete the transaction, because she had no way of verifying insurance coverage for any other form of payment. I had with me a Platinum American Express, a Platinum Visa Card and a Business Premium MasterCard. All of them carried rental insurance. I offered her a $1500 deposit, which she processed! I also offered proof of my insurance coverage through Liberty Mutual with a very clear stipulation of full vehicle replacement value, even when driving in a foreign country.

She didn’t care. It had to be a Gold MasterCard. Not Premium, Not American Express Platinum, Not Chrome, Not Visa, Not the 7 other cards whose logos that they display at the counter. Only a Gold MasterCard.

Next week, I will add Hubert Terstappen’s phone numbers to this story. Perhaps Wild Ducks can persuade him to rethink his business model.

Late Thursday Update:

A representative at HotMail has seen my rant and has launched an investigation. I understand that HotWire may compensate me for the difference between what I was promised and what was stated in their good faith estimate.

HotWire is a good company. They want to do the right thing. But I don’t really consider their payoff to be a proper solution. What about future visitors to Frankfurt who don’t know about the policy/scam? (Take your pick. It’s a toss up!) I have asked HotWire to reassess Dollar representation or at least get the corporate franchiser involved. Craft an ethical solution to the Rent a Terstappen practices. I am fortunate to be working with individuals at HotWire and Dollar who are both understanding and empowered.