Ethereum Proposes 'Guidelines' To Stop ICO-Related Fraud

Tyler Durden's picture

It looks like Ethereum’s developers and entrepreneurs have finally recognized the perils of being associated with the massively fraudulent ICO market.

ICOs have exploded since the beginning of the year as companies equipped with little more than a white paper sketching out some grandiose (and often highly improbable) killer app that somehow incorporates a monetized token trading on a blockchain much like bitcoin. So far, these offerings have raised more than $3 billion this year, and many of them are built on top of Ethereum’s platform, which enables the creation of decentralized “smart contracts” that can carry out higher level functions beyond simple transfers of value.

Last year, the collapse of the DAO - a kind of crowdfunded project meant to provide early stage financing to blockchain startups - sent the price of ethereum spiraling lower. Apparently, Ethereum’s top people are afraid the collapse of the ICO market might be even more damaging, CoinDesk repors.

"Grotesque" might not be the word you'd think ethereum developers would ascribe to today's ICO scene.

 

But that's exactly how some of the platform's ardent supporters described the current state of affairs. At Devcon3 in Cancun, Mexico, last week, developers were decidedly unenthusiastic when approached for thoughts about the new funding method, some going so far as to allege that many projects that use it to raise money are little more than "scams."

 

Even Fabian Vogelstellar, the developer behind the technology standard that helped make ethereum tokens so easy to launch, was keen to join the ranks of ICO critics, echoing remarks made by a colorful cast of commentators as diverse as MIT Media Lab Director Joi Ito and the "Wolf of Wall Street" Jordan Belfort.

 

"The problem right now is that too many people outside of the blockchain space focus on tokens and ICOs; frankly speaking, it's the least interesting part of ethereum." 

The tone of these remarks stands in stark contrast to the optimism about ICOs , which just earlier this year were being hailed as a groundbreaking tool for capable of revolutionizing how companies raise money.

Etherscan CEO and founder Matthew Tan went so far as to call ICOs ethereum's "killer app," a statement that aligns with the more than 10,000 token projects launched to date – 13 of which have eclipsed $100 million in total market value, according to Etherscan data.

 

It's an interesting take seeing how ICOs are typically touted as a means to circumvent traditional fundraising methods. But, du Rose's sentiments hint at a crucial criticism: that many ICOs are simply executing incorrectly. 

The criticism comes as regulators in US, China and many other major markets for cryptocurrencies have taken steps to curb or regulate the markets. The SEC has been slowly clarifying its stance toward ICOs since this summer, when it first declared - in a finding about the DAO fiasco - that ICOs are securities that must be registered with the SEC and subject to US securities laws.

To their credit, Ethereum developers have suggested some helpful “guidelines” of their own.

Here’s Jack du Rose, co-founder of ethereum startup Colony:

Ethereum developers largely believe that, at the very least, the individuals or company behind an ICO should have a prototype to prove their idea could theoretically work in practice. For instance, ethereum-based casino game platform FunFair launched an ICO over the summer, but only after releasing several prototypes.

 

And FunFair founder and CEO Jez San Obe had strong words about issuers that do it differently.

 

"You should have a product before you ICO, you should know how to run a company, you shouldn't have an anonymous team and you should release a prototype first," he told CoinDesk.

It’s something that, in conventional markets, should go without saying. But ICOs are anything but conventional. So Ethereum’s developers reminded investors and the companies doing the offering not to "risk other people's money on something, when there’s a reasonable likelihood we'd be prosecuted."

Issuing  a token before the product is not only foolish from a regulatory standpoint, but also "incompetent and greedy."

Du Rose also insisted that ICOs be reserved for companies building a product that is decentralized, like the ICO being used to finance it.

"For a token to be interesting ... it should be a totally decentralized protocol, not just glitter on top of a centralized company with its own revenue models," du Rose said.

 

In this way – although probably curiously for some – Giveth founder Griff Green pointed to The DAO as an ICO success story. Though its code had a bug that led to millions of dollars in ether being stolen from users, it was at least decentralized, said Green, who was the community organizer of the project.

 

He thinks about The DAO in a more abstract way, though, saying that, in the future, people will be able to launch their own cryptocurrency to push against the power of the banks.

 

"The power of creating currency is unfathomable. Banks are in a really good spot today. They have a lot of money and a lot of power. They can create money out of nothing. Instead, with ICOs, you can give that power to every person," Green said.

While regulators, investors and - increasingly - the general public believe the ICO space is fraught with bad actors, some crypto investors see this as the beginning of a learning process. ICOs could still revolutionize corporate fundraising, they believe, the market just needs to work out the kinks first.

"What I've seen is kind of unsurprising," said DappHub software engineer Andy Milenius. "People's first experience with an idea is allowed to be wrong."

As we've reported, two of the world's largest ICOs have already hit the rocks this year.

And we imagine those won't be the last...

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Schmuck Raker's picture

If the Fed, SEC, CME, BIS, IMF, OCC, CFTC and DOD all agree with the guidelines, I'm all for them.

IH8OBAMA's picture

This is all going to be regulated to hell.  It just blows my mind that these people think they are doing something that the government isn't going to shut down and probably prosecute many of these people for fraud in the end.

 

Hyjinx's picture

It's a free market.  If you're an idiot you'll get burned.  Simple premise.  Survival of the fittest.

E5's picture

you are a retard.  There is no free market.  There are those who have the guns and those that have them and are willing to use them.  I suppose you think a free market needs the ability to contract with force... who then evolve into what?

Manthong's picture

 

Crud…

All I wanted to do was launch my new Niger investment ICO……..

Silver Savior's picture

They only allow it because they want to get people comfortable using blockchain then they will force them onto their Network. I am just in crypto looking for gains to buy silver bars.

zorba THE GREEK's picture

Tom Styer needs to be arrested for trying to overthrow the U.S. government

wise_owl_says...'s picture

best comment today. silver is no BS.

tmosley's picture

All BTC holders need to beware a potential FLIPPENING REDUX over the next days and weeks. BCH is making a hard run with a lot of support from big names and merchants. If they are successful, BTC will likely lose a great deal of value while BCH will gain enormously. If you bought your BTC after August 1st, or sold your "free" BCH, you need to seriously consider buying some ASAP.

I can't predict who will win, there is a tremendous amount of FUD being spun and it is hard to seperate it from the truth. So hodl both and let the market decide if you don't have special insight.

Hyjinx's picture

It is an interesting time.  BCH does have a lot of claims and in practical terms the better Bitcoin.  Once they fix the EDA problem they will be a straight-up superior blockchain.  The big thing will be BCH being tradeable on Coinbase/GDAX probably in January when Coinbase has to cough up all the BCH they owe their BTC holders.  Price of BCH will most likely skyrocket in contrast to what many think will just be a big BCH dump.  BTC is in big trouble I think.  I just flipped BCH for a nice profit on this last run but if the price cools off I will buy to hedge.

Silver Savior's picture

Coinbase is always slow to the party. They only add shit after it ran up. I like Kraken but even that has very limited coins. 

natronic's picture

I bought an Antminer S9 yesterday and Bitmain wanted payment in BCH, I thought it was a little strange.

Silver Savior's picture

I just put $500 in Bitcoin a last week anticipating getting the fork coin that never happend so if I trade it now for bch I will be underwater unless Bitcoin goes back over $7000 like tomorrow. But then again I don't want to be a fool buying bch for over $900 either. Help! I feel like I am stuck up Ass Creek here.

Insatiant's picture

Long term, Ethereum of course.

nomofiat's picture

lol sfyl long term ofcourse.

Did you ever wonder how all these smart contracts running on ethereum are supposed to be safe when even the architect of the solidity scripting language can't write a secure smart contract on it?

Most ether devs are amateurs that are now coding money, what could possibly go wrong?

tmosley's picture

Honestly, looking at the fundamentals of the thing, it looks like you will want to move into BCH. Maybe not 100%, but do enough so that if it does flip, you get your money back. It's up over $1100 now, and again, there are big names backing it. If I were buying into BTC right now, I would be certain to buy the same number of coins of BCH as well. And come tomorrow, the same number of BCG too. Things are in flux. Lots of money to be made if you are right on a choice, but if you make a choice and you are wrong, you could lose big time (I don't think the current main chain is going to vanish in the event of a flip, but it will probably become more like Ethereum Classic, and will be jolted enough that they will get off their asses and fix their shit in a way that makes the coin better rather than a cludge).

Dame Ednas Possum's picture

"If you look at the fundamentals of the thing..." 

It's easier to look at the particles in a vacuum. 

 

tmosley's picture

Only for those who have an extreme emotional investment, like you.

manofthenorth's picture

It would seem that you are pretty emotionally invested if you can not see that Bitcoins future is limited.

It will likely be replaced by a superior technology such as a quantum entanglement type of super condensed coding DLS before it ever gains widespread acceptance and utility.

As a store of value it is shit. I have no interest in something that can round trip 50% in 2 weeks. Not a good store of value.

So far as a utility it is shit. Granted I live in a small town but there is not a single business where I live that accepts bitcoin.

So far as universal recognition it is shit. Not 1 person I know personally own a single bitcoin, that is true of most of the people on earth as well. Most people know absolutely nothing about it.

Nothing about it represents a sound choice of money.

It is a speculation play, pure and simple. It is great that you have made gains on your speculation.

Just remember that they are not real gains until you sell and walk out of the casino with your cash in hand.

I have no dog in this fight. Just an observer with no skin in the game. No emotion at all.

Best of luck.

ptolemy_newit's picture

BTC and the like are consumer goods,

The tech of a secure transaction counter and the only reason banks want it, is for the potential to launder valuable assets; REDUCE ALL THE SIGN AND STAMP BACK ROOM RESOURCES and eliminate 100 K jobs.

Now that Russia annouce 17 trillion calcs per second, is it possible to front fun most 1st block or anywhere in the chain. the code is only like 26 characters; so 17 trillion cals takes about 3 minutes.

its a utility and will be governed.

Sonny Brakes's picture

Correct me if I'm wrong, but aren't investors investing in crypto currency because they no longer trust the Federal Reserve fiat currency. Secondly, when you subtract the cost of the energy consumed to mine crypto isn't that the real value. What am I missing?

ptolemy_newit's picture

This is only a small piece of many small economies, however add to this oil for gold for any currency and yes; the reserve currency $USD is toast.

http://www.washingtonexaminer.com/11-pacific-rim-countries-say-they-informally-reached-trade-agreement-without-us/article/2640389

 

Will the USA flop around making a mess until it is pressured to war?

iamrefreshed's picture

Ask the kid bagging your groceries. I heard he made a mint in AOL.

nomofiat's picture

ach matey, this is just the exit pump. After they HF the difficulty adjustment and coinbase releases their bch to the customers it will be free fall time again.

tmosley's picture

Don't bet on it. Bitcoin businesses are pushing hard. When people hear that they are demanding BCH, that will be a clear market signal.

Highly suggest you keep at least the same number of BCH coins as you have BTC.

wise_owl_says...'s picture

BCH takes way longer to confirm than BTC. btw, they are both SLOW as a snail. litecoin is where it is at. confirms 10 times faster and much cheaper 100:1 price difference, 4:1 token availablity (i reiterate arcade 'token'). if BTC price drops, miners will begin to go offline. it will be weeks / months to get a confirmation. no longer practicle to buy cheap items with BTC. LTC fills that void.

tmosley's picture

Currently costs 13 cents to send a ten dollar transaction on LTC, roughly half of that of BCH, which is experiencing how much more traffic, exactly?

And the transfers on BCH are quick enough.

Not to say that LTC won't do well at some point, but it isn't making a run at the king right now, nor does it have a claim to the "bitcoin" name, despite being an early fork of it.

anarcode's picture

I wish they'd focus on solving the fallible Solidity problem instead of wasting time on this. If Solidity isnt' fixed, the money lost via smart contracts will dwarf the scammy ICOs.

Hyjinx's picture

Check out the NEM project.  It is Ethereum except with a much better implementation and full API so you can code contracts in any language you want.

tmosley's picture

Tell me more about NEM. For some reason I had it in my head that it was a bankster deal like Ripple.

Silver Savior's picture

If it's a bankster deal wouldn't it get a huge amount of money thrown at it? Why are people afraid of bankster deals? Sounds like where the money is at. 

tmosley's picture

>If it's a bankster deal wouldn't it get a huge amount of money thrown at it?

I don't actually know if it is, which is why I was asking. I just had that impression, nad don't remember where it came from or if it is credible.

>Why are people afraid of bankster deals?

Long term rational self interest. Let them control this new medium, and the new medium is at risk of dying. Or at least experiencing severe setbacks as it grows down a path that winds up being a dead end, and we have to backtrack over the course of months or years to find a viable path forward.

Sure you can make a quick buck, but at what cost? And when everyone else sees that, which they do, that quick buck disappears.

Gap Admirer's picture

ICO - Initial Coin Offering  - says it all. Write a little code, or now it is copy the open source code from GitHub, and poof(!), a "currency" is created.  Repeat thousands, if not tens of thousands of times.

"Currency."  LOL.

Silver Savior's picture

Yeah that's what I used to think at one time too. But the gains are all too real. Just gotta get on the right side of one of those something from nothings. 

Manipuflation's picture

You are better than that Silver Savior.  Don't fall for it.

Silver Savior's picture

Yeah you are right. Guess I am just looking for something for nothing as usual. Bullion is my friend.

Manipuflation's picture

You are OK Silver Savior.  It is is tempting on the surface, I agree, but not once you really look into it.

wise_owl_says...'s picture

that about sums it up. how many colors do central bank fiat come in? streets of heaven are paved in gold and silver, not paper skittle scrypt and digital CIA hackable tokens.

Joebloinvestor's picture

"Money out of nothing"

Might as well start accepting fame at the checkout register.

abyssinian's picture

Money out of nothing?  Let's see you make some.. since according to your retarded mind it was made out of nothing.. I think your brain has nothing... lol

red1chief's picture

"Money for nothing and your chicks for free"

Silver Savior's picture

Is Ethereum still worth buying? It was fun when it was $30-$40. I sold the few I had in the $200s. Not sure if I want to touch Lite Coin again. It does not do anything.

0valueleft's picture

Bought LTC on the 2nd for 51.5, sold it on the 9th for 65.80. I'll take that % in a weeks time all the time, it's something. Embrace the volatility with reasonable goals and discipline.  

Manipuflation's picture

Hackchain?  Cash out at least some of it.  I want to see what the IRS will do.  If hackchainers were converting to gold then the market should represent that fact.  Well?  I thought not.

TheytookERjobs's picture

Bugs, Scammy ico's, fud spreading shill community, dictator/arrogant peice of shit leader and a inflated manipulated market cap. So sad

tmosley's picture

>fud spreading shill community

That is what I really can't stand. All these traders talking shit trying to manipulate others so they can make money with zero regard to fundamentals.

BTC is like that too, despite its extraordinary expense and slowness. I don't like centralized nodes any more than the next guy, but it seems like a much better (temporary) alternative to centralized side chain transactions.

This is a process, and as the process goes on, the adults will continue to take over more and more of the market.

Jizz's picture

SEC enforcement is coming and and any “guidance papers” are just PR.

From the WSJ https://www.wsj.com/articles/sec-chief-fires-warning-shot-against-coin-o...

SEC Chairman Jay Clayton said so-called initial coin offerings in many cases looked like securities, raising the prospect the agency will take a more aggressive stance to this red-hot fundraising method.

“I have yet to see an ICO that doesn’t have a sufficient number of hallmarks of a security“