🎁 A guest post by Lex Sokolin
“What truly matters,” reads one ICO marketing website, “is that which is non-material, invisible, and unobservable”. Just buy a token for it.
“I would like to invite you to register,” reads a LinkedIn message, “membership gives you the Presales discount option, which is a 25% discount … Price is increasing every day, so the earlier you join the better.” And please use this referral name which triggers a payment in a multi-level marketing scheme.
And here’s my favorite: “Bitcoin for Pets: We will accomplish this by connecting an end to end IoT ecosystem powered by our Artificial Intelligence platform”. Right. For all the economic activity a cat manufactures with naps.
It isn’t supposed to be like this. The crypto-economy promises new openness, transparency, participation and fairness. But instead, we now have a white hot market of sharks flipping ICOs, manipulating unsophisticated investors, and skirting consumer protection. Not all, but too many.
ICOs have done an incredible feat. They have collapsed all asset classes – cash, equities, fixed income, derivatives, commodities – into one software wrapper. And they have put into the same structure non-securities, like insurance contracts, human attention, and fog computing units. But they also collapsed all investor types into the same pool. Long-term institutional holders of public stocks, short term speculators and day traders, early stage venture capital investors, sophisticated Crypto developers, and the average Kickstarter backer are now all riding the same wave of crypto volatility.
And what’s particularly damaging, in my personal view, is that the short-term speculators are forming the discourse about the future of technology. Look at the internet forums. Look at the Slack and Telegram channels. Listen in to the private conversations about pre-sale discounts. Instead of going long and illiquid – where entrepreneurs have to drag their idea to product-market fit before taking a market salary – early stage investors are popping ICOs to make 30% returns (and far more) in a week instead of building our utopian tech infrastructure.
By the end of the 16th century, after the Spanish flooded the European continent with gold from the colonies, the Spanish monarchy experienced three major bankruptcies. Too much bullion with no underlying economic activity. Overfunded whitepaper companies now see the relative inflation of assets like human capital versus the crypto they issued in their ICO. Developer-led companies looking to launch tokens are facing competition from a marketing glut of opportunistic projects, distributed by firms that charge several Bitcoins for aggressive distribution campaigns and running the ICO process. Instead of marketing, those Bitcoins should be going into development.
Regulation is stepping in across the world, from China, South Korea and Russia to the United States, United Kingdom and Europe -- and for good reason. A forest fire will be good for new growth.
If you don’t believe in human capacity to deal with the issues, perhaps regulatory automation is your solution. But beware even the thoughtful designs from Vitalik and other brilliant developers regarding fair ICO distribution mechanisms. Much of the ecosystem’s thinking is rooted in classical economics, which is flawed in its assumptions of rational actors and failure to acknowledge deep behavioral flaws in the human animal. Putting such utilitarian thinking into software and scaling it to millions of people creates the danger of building infrastructure with normative implications we want to avoid.
Just because we can build the most efficient honeypot that “incentivizes” (i.e., persuades, manipulates) investors using FOMO, loss aversion, and other behavioural biases, does not mean we should. Just because we can have software that functions like a multi-level marketing scheme, where insiders cash out and regular investors hodl the bag, does not mean we should. I hope that we as a community don’t go down this darker road, and in doing so build a future worth believing in.