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There are 3 kinds of ICOs:
1) SCAMS
There have always been a lot of scammers, hackers and thieves in the crypto space since day one. Think of Mount Gox. According to Business Insider:
If you don’t think that these thieves are trying to steal money through ICOs or from ICOs, you are kidding yourself. You just need to see the Bitcointalk forum dedicated to scams, or to participate in a Slack channel and you will see the never-ending phishing e-mails trying to lure you to their sites, in order to empty your wallet.
In addition to thieves and scammers, there are those who lie or exaggerate. Many users on Bitcointalk are pump and dumpers.
2) CRAP
Everyone is desperate to host an ICO to make money. Therefore, they are throwing anything and everything onto the blockchain, including the kitchen sink. They may not be intentionally trying to scam, but they think that they have a good enough idea for an ICO. But these will fail because the blockchain will not solve anything for them. Examples include ICOs that want to put 3D data (which would equate to hundreds of Terabytes of data) or 153 exabytes of medical data on a blockchain. This shows that they are clueless about the blockchain and have never run Bitcoin’s full node. Bitcoin’s blockchain is 120 GB and Ethereum’s blockhain is 200 GB and they are both having scaling problems.
They are also throwing any kind of business problem that they can make up, into the ICO. If they cannot make up the business problem, they will exaggerate about it. They will fail because the business problem doesn’t really exist, isn’t significant enough, cannot be solved by a blockchain or they do not really have the solution, though they try to make it sound like they do with lots of technical jargon.
One project cites this business problem:
This is a lie and not a business problem. You can buy one share of a REIT, and there are thousands of REITs to choose from, and you can sell it one minute later. If they start off their pitch with a lie, what else are they lying about?
Another project cites this business problem:
Therefore, the solution is to create more energy suppliers, especially nuclear power plants, which is the cheapest source of electricity. But the project does not propose this. They propose to enable consumers to sell their solar self-generated electricity directly to other consumers.
To do this, consumers should have BOTH solar panels and batteries. This is a TINY market. Though solar panels are growing, it is still a tiny percent of the market and solar generated electricity is still much more expensive than nuclear generated.
Consumers with solar panels do not have that much surplus electricity to sell anyways. They use most of what they generate. Tesla and Enphase hyped up their batteries for solar panel owners to store their surplus electricity. These batteries are NOT selling. Enphase spent over $100 million to develop their battery and partly because of the lack of battery sales, their stock has plummeted approximately 85%.
Of course, the project’s pitch looks impressive at first glance.
3) LEGITIMATE
There are only a few applications that make a lot of sense for the blockchain: transfer of value (currency), store of value, remittances (disrupt Western Union and bank wire transfers), smart contracts, gaming and gambling. These applications will disrupt their respective industries, because the blockchain will provide a lot of cost-savings or time-savings to the users. There might be other applications that make sense that I missed, but applications proposed by many ICOs do not make sense. Jesus Coin is an extreme example, but there are applications that fall across the spectrum from Jesus Coin to Bitcoin.
YOU CAN REDUCE THE RISK BY USING 3 FILTERS
1) The project’s idea should make sense, but do not base your investment decision purely on the idea. Watch:
“Ideas are like assholes - everyone has one, no one cares”
https://www.youtube.com/watch?v=PhJgrEackis
Entrepreneurs typically try to hide their ideas because they think they are the only ones that came up with the ideas. Venture Capitalists tell them to scream their ideas to the public and they’ll see that nobody will steal them. Ideas are a dime a dozen. There are probably 10 other people with the same idea that you have or that the ICO has. The most important factor to success is the ability to execute. This is why Venture Capitalists refuse to sign non-disclosure agreements and rarely invest in startups which haven’t built a prototype or product.
HAS THE ICO TEAM BUILT ANYTHING THAT WE CAN USE TODAY?
If not, take a pass. This is the best evidence that the team can execute. It takes way more skill, time, work and money to build an app than to create a one-page website and video. It shows:
Everything else is useless. Don’t be fooled by big teams, fancy pretentious titles, references, roadmap, video, fancy animations, escrow, blogs, Slack, Telegram, Twitter, Facebook, Reddit and white paper.
One project stacked their team with a dozen people and then lied about them. One member had the title of “Blockchain Expert”, but he worked in Inside Sales until 1.5 months prior. One member had the title “Blockchain Developer”, but he never developed a blockchain before.
Here is an example of a project team using fake photos and fake names: https://bitcointalk.org/index.php?topic=1949528.msg19485217#msg19485217
Don't rely on Github unless you can verify that they didn't copy the code from someone else and you can run it.
Several high profile projects raised millions of dollars and still have not produced an app. This number will grow and become more evident in the coming years.
Gnosis raised $12.5 million and their website says:
No app yet.
Qtum raised $15.6 million. I don't see anything produced on Qtum's website.
After raising $50 million, Cosmos's website is still pitching its white paper. Come on. What have they produced with that $50 million?
Augur had Vitalik Buterin on their team. After Satoshi Nakamoto, Vitalik is the most desirable person in the universe to have on an ICO team. After raising multiple millions and after two and a half years, all they’ve released is a simple beta that is barely usable.
Don’t be suckered by animations and videos. Satoshi didn’t have any of this and his coin was the most successful. Besides, the animations aren’t that impressive anymore, as I’m beginning to see the same animation on multiple websites. Some of these teams must be using the same graphic designer.
2) IS THE TEAM FROM A CORRUPT COUNTRY?
Check Transparency International's ranking.
If so, take a pass.
The number of ICOs from corrupt countries, especially those that were famous for sending out phishing scams for years, have exploded.
Yes, there are scams from countries that are not corrupt and successful projects from corrupt countries. What is important is the probability and if you are willing to take the extra risk.
3) “NEVER INVEST IN A BUSINESS THAT YOU DO NOT UNDERSTAND”
This is a quote from Warren Buffett. It is very applicable because many ICO teams try to impress the audience with technical jargon. Many investors are not tech savvy and are baffled or confused, but they invest because they think that the project team must have come up with a technological break-through.
Last word:
You need to be able to verify that the business problem exists, that the market size is truly as big as the ICO claims and that the solution is possible. Quite often, they exaggerate on most of these. You need to verify that a blockchain or a cryptocurrency actually is needed for the solution. Quite often, they’re not.
Do not rely solely on ICO listing or rating sites. They likely do not know about all of the ICOs. Not all ICOs are willing to pay to be listed. They have methodologies that you may not agree with. Some claim to be experts, but you are likely more of an expert in your own field, whether that is medical, law, engineering or finance, than they are. They will likely have biases, especially for ICOs originating from their country or region. Putin wants to increase the crypto industry in Russia. Is this why there has been an explosion of ICOs from Russia? Even Putin’s Advisor ran an ICO. If Russia took out Facebook ads to disrupt U.S. and European politics, who is to say that they will not pay off ICO listing and ratings sites to favor Russian ICOs?
1) SCAMS
There have always been a lot of scammers, hackers and thieves in the crypto space since day one. Think of Mount Gox. According to Business Insider:
Quote
“…one out of every 16-17 Bitcoins belongs to someone who stole it”
If you don’t think that these thieves are trying to steal money through ICOs or from ICOs, you are kidding yourself. You just need to see the Bitcointalk forum dedicated to scams, or to participate in a Slack channel and you will see the never-ending phishing e-mails trying to lure you to their sites, in order to empty your wallet.
In addition to thieves and scammers, there are those who lie or exaggerate. Many users on Bitcointalk are pump and dumpers.
2) CRAP
Everyone is desperate to host an ICO to make money. Therefore, they are throwing anything and everything onto the blockchain, including the kitchen sink. They may not be intentionally trying to scam, but they think that they have a good enough idea for an ICO. But these will fail because the blockchain will not solve anything for them. Examples include ICOs that want to put 3D data (which would equate to hundreds of Terabytes of data) or 153 exabytes of medical data on a blockchain. This shows that they are clueless about the blockchain and have never run Bitcoin’s full node. Bitcoin’s blockchain is 120 GB and Ethereum’s blockhain is 200 GB and they are both having scaling problems.
They are also throwing any kind of business problem that they can make up, into the ICO. If they cannot make up the business problem, they will exaggerate about it. They will fail because the business problem doesn’t really exist, isn’t significant enough, cannot be solved by a blockchain or they do not really have the solution, though they try to make it sound like they do with lots of technical jargon.
One project cites this business problem:
Quote
“You need large amounts of money to buy real estate and your money is tied down for an indefinite amount of time.”
This is a lie and not a business problem. You can buy one share of a REIT, and there are thousands of REITs to choose from, and you can sell it one minute later. If they start off their pitch with a lie, what else are they lying about?
Another project cites this business problem:
Quote
“A small number of large energy companies supply millions of customers who are price takers.”
Therefore, the solution is to create more energy suppliers, especially nuclear power plants, which is the cheapest source of electricity. But the project does not propose this. They propose to enable consumers to sell their solar self-generated electricity directly to other consumers.
To do this, consumers should have BOTH solar panels and batteries. This is a TINY market. Though solar panels are growing, it is still a tiny percent of the market and solar generated electricity is still much more expensive than nuclear generated.
Consumers with solar panels do not have that much surplus electricity to sell anyways. They use most of what they generate. Tesla and Enphase hyped up their batteries for solar panel owners to store their surplus electricity. These batteries are NOT selling. Enphase spent over $100 million to develop their battery and partly because of the lack of battery sales, their stock has plummeted approximately 85%.
Of course, the project’s pitch looks impressive at first glance.
3) LEGITIMATE
There are only a few applications that make a lot of sense for the blockchain: transfer of value (currency), store of value, remittances (disrupt Western Union and bank wire transfers), smart contracts, gaming and gambling. These applications will disrupt their respective industries, because the blockchain will provide a lot of cost-savings or time-savings to the users. There might be other applications that make sense that I missed, but applications proposed by many ICOs do not make sense. Jesus Coin is an extreme example, but there are applications that fall across the spectrum from Jesus Coin to Bitcoin.
YOU CAN REDUCE THE RISK BY USING 3 FILTERS
1) The project’s idea should make sense, but do not base your investment decision purely on the idea. Watch:
“Ideas are like assholes - everyone has one, no one cares”
https://www.youtube.com/watch?v=PhJgrEackis
Entrepreneurs typically try to hide their ideas because they think they are the only ones that came up with the ideas. Venture Capitalists tell them to scream their ideas to the public and they’ll see that nobody will steal them. Ideas are a dime a dozen. There are probably 10 other people with the same idea that you have or that the ICO has. The most important factor to success is the ability to execute. This is why Venture Capitalists refuse to sign non-disclosure agreements and rarely invest in startups which haven’t built a prototype or product.
HAS THE ICO TEAM BUILT ANYTHING THAT WE CAN USE TODAY?
If not, take a pass. This is the best evidence that the team can execute. It takes way more skill, time, work and money to build an app than to create a one-page website and video. It shows:
- The team has proven that they can develop.
- It is less likely that the team will invest so much and not follow through.
Everything else is useless. Don’t be fooled by big teams, fancy pretentious titles, references, roadmap, video, fancy animations, escrow, blogs, Slack, Telegram, Twitter, Facebook, Reddit and white paper.
One project stacked their team with a dozen people and then lied about them. One member had the title of “Blockchain Expert”, but he worked in Inside Sales until 1.5 months prior. One member had the title “Blockchain Developer”, but he never developed a blockchain before.
Here is an example of a project team using fake photos and fake names: https://bitcointalk.org/index.php?topic=1949528.msg19485217#msg19485217
Don't rely on Github unless you can verify that they didn't copy the code from someone else and you can run it.
Several high profile projects raised millions of dollars and still have not produced an app. This number will grow and become more evident in the coming years.
Gnosis raised $12.5 million and their website says:
Quote
“The Hunch Game is nearly ready and can be launched in the first half of 2017 as an example Gnosis app.”
No app yet.
Qtum raised $15.6 million. I don't see anything produced on Qtum's website.
After raising $50 million, Cosmos's website is still pitching its white paper. Come on. What have they produced with that $50 million?
Augur had Vitalik Buterin on their team. After Satoshi Nakamoto, Vitalik is the most desirable person in the universe to have on an ICO team. After raising multiple millions and after two and a half years, all they’ve released is a simple beta that is barely usable.
Don’t be suckered by animations and videos. Satoshi didn’t have any of this and his coin was the most successful. Besides, the animations aren’t that impressive anymore, as I’m beginning to see the same animation on multiple websites. Some of these teams must be using the same graphic designer.
2) IS THE TEAM FROM A CORRUPT COUNTRY?
Check Transparency International's ranking.
If so, take a pass.
The number of ICOs from corrupt countries, especially those that were famous for sending out phishing scams for years, have exploded.
Yes, there are scams from countries that are not corrupt and successful projects from corrupt countries. What is important is the probability and if you are willing to take the extra risk.
3) “NEVER INVEST IN A BUSINESS THAT YOU DO NOT UNDERSTAND”
This is a quote from Warren Buffett. It is very applicable because many ICO teams try to impress the audience with technical jargon. Many investors are not tech savvy and are baffled or confused, but they invest because they think that the project team must have come up with a technological break-through.
Last word:
You need to be able to verify that the business problem exists, that the market size is truly as big as the ICO claims and that the solution is possible. Quite often, they exaggerate on most of these. You need to verify that a blockchain or a cryptocurrency actually is needed for the solution. Quite often, they’re not.
Do not rely solely on ICO listing or rating sites. They likely do not know about all of the ICOs. Not all ICOs are willing to pay to be listed. They have methodologies that you may not agree with. Some claim to be experts, but you are likely more of an expert in your own field, whether that is medical, law, engineering or finance, than they are. They will likely have biases, especially for ICOs originating from their country or region. Putin wants to increase the crypto industry in Russia. Is this why there has been an explosion of ICOs from Russia? Even Putin’s Advisor ran an ICO. If Russia took out Facebook ads to disrupt U.S. and European politics, who is to say that they will not pay off ICO listing and ratings sites to favor Russian ICOs?
A fucking fantastic thread. I have bookmarked it.
Thanks a lot man!
