The ICO: The Perfect Vehicle for Scams, Scams and More Scams! A Possible Solution. By Michael Edward Naftaliev, writer, entrepreneur, and a business strategy consultant, based in Vienna, Austria
The ICO phenomenon has seen startup companies raise unprecedented amounts of money over the past several years. As an unregulated market, investors and developers have been able to join hands much more effectively than ever before. Many companies have great ideas, qualified teams, expertise, drive and passion. Others are taking advantage of the hype and quickly leaving investors high and dry. We take a look at 3 of these coins and investigate a theoretical and practical solution, which has been coined as the “interactive coin offering” or ICO 2.0.
BitConnect – After countless accusations from the cryptocurrency community of being a Ponzi scheme, the value of the BitConnect token plunged from over $400 USD to $3.67 USD (as of February 19th, 2018). BitConnect announced that it is shutting down operations after receiving cease and desist letters from the U.S. states of Texas and North Carolina. From the get-go, reputable figures expressed their concerns, but promises of incredible returns made the opportunity had for some to pass on.
Optioment – An Austrian investment startup, which utilized multi-level marketing to promote its “premier global investment product” stole 12,000 BTC from 10,000 investors. The website, which is no longer active, claimed that the company planned to pay out 2% interest per week on the principle. Interpol is currently attempting to locate the Danish and Latvian nationals who have been identified as operators.
OneCoin – Ruja Ignatova, CEO of OneCoin, was charged with duping investors, after police raided their office in Sofia, Bulgaria. The company claimed that its coin was being mined in several locations and offered investors educational material, which was later discovered to be plagiarized, about how to earn money with cryptocurrency. At the moment, it is impossible to trade OneCoins for any crypto or fiat currency on any exchange.
Vitalik Buterin, founder of Ethereum and Jason Teutsch, of the TrueBit Foundation published an academic paper in December of last year, introducing the idea of “interactive coin offerings”. The idea of the new crowdsale format is concisely explained by Buterin and Teutsch:
The corresponding crowdsale is interactive in the sense that potential buyers may enter and exit the crowdsale based on behaviors of other buyers and in doing so tend the valuation towards a market equilibrium. The protocol also allows su?cient time for informal, social interaction.
Members of the core-team of Ethearnal, who are based both in Bulgaria and Austria, learned from these unfortunate events and took them to heart. Based on the wrong-righting suggestions of Buterin and Teutsch, the team launched a crowdsale under the ICO 2.0 structure, building on some of the principles outlined in the aforementioned paper. Ethearnal, a decentralized freelancing platform focused on providing honest business interactions while decreasing fees and building reputation, has put this concept into code. Ethearnal’s ERT token is based on a smart contract that locks money away from the development team and only releases this money based on objectives met and a voting process, giving power back to the investor. If the community decides that the development team has not delivered, they receive their Ethereum donations back at full value. Only 10% of the raised money is available to the team after completion of the ICO.
If startups wish to ensure that the line of communication between developers and investors remains direct, as it is in the ICO community, it is of utmost importance that special attention is paid to the crowdsale format proposed by Buterin and Teutsch. At no time in history has it been possible to receive funding at these amounts and at such a rapid pace, and this phenomenon should be appreciated by those asking for money. It is great to see developers taking these ideas seriously and implementing them using audited code and smart contracts. After all, code is law in our brave new world.