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 forked tongue—condemning 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 condemn an emergent commodity? ICOs have sparked a massive new investment class. Are they really scams?
Listen up, Ron! Heed your crypto expert. Follow her advice. With very few exceptions, ICOs are all scams, plain and simple. They are not like Bitcoin or Ethereum.
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 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 and few are functional tokens . 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 no MLM aspect to an altcoin and they can serve as a functional, general purpose currency. 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 choke points.
Functional tokens are legitimate blockchain instruments designed to trade value, or serve as a component of an IOT (Internet-of-Things) process. This is explained in the definitive guide to Why ICOs are almost all scams. Of course, some IOT altcoins attract speculators and hoarders seeking to profit from trades. This is unfortunate, and it interferes with the utility of the token (IOTA is an example). But, just as with Bitcoin, speculator interest doesn’t define a scam. The list of traits linked above make it 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.
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 colleagues 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.