Crowdfunding insurance - Bitcoin makes refunds possible!

[joshuad31]

Hello,

Can refunds using Bitcoin escrows solve the lemon problem in the crowdfunding space? That's the question I really would like to have answered with the help of the communities input. I really would like to hear your thoughts so that I can make active improvements to the paper I am writing.

George Akerlof in his seminal paper "The Market for Lemons: Quality Uncertainty and the Market Mechanism" once wrote:
"The cost of dishonesty, therefore, lies not only in the amount by which the purchaser is cheated; the cost also must include the loss incurred from driving legitimate business out of existence."

Crowdfunding although still a very popular way to fundraise support for ideas, products and causes has suffered from a growing trend of disappointing failures.  Have you ever wondered if the following might be true:

1. Legitimate business is being driven out of the crowdfunding marketplace because the average consumer cannot determine whether or not a project will be successful or will fail.
2. The past negative experiences of crowdfunding backers are leading to a situation where the market mechanics of fundraising will one day break down amidst the loss of trust between project backers and project creators.

I would be really interested to hear your thoughts in the comments below as to how failures in crowdfunding affect successful well intentioned project creators.  **Do you believe that what Akerlof described as the law of lemons is driving down the pledge amounts of legitimate crowdsales such that they cannot sufficiently fundraise to cover the costs of production?** 

Take a project like the coolest cooler.  They ran out of funds which lead to significant delays and an inability to ship the product.

1. Was this failure just incompetence on their part (it was a lemon) or was the project really a peach that simply couldn't appeal to consumers to pay the price of a peach because consumers had no way of discerning that coolest was actually a peach?
2. Are consumers simply averaging the prices of lemons and peaches in the crowdfunding marketplace making it harder and harder for project creators to set reasonable pledge levels?
3. How much does information asymmetry affect the prices we currently see on Kickstarter and other platforms?

**I really want to hear all of your comments below.**  And as always if you find this discussion engaging, interesting, worthwhile please upvote.  In addition if you can read and comment on the paper please do so, link provided below.  Lets get some interesting discussion about some of these issues going.

https://docs.google.com/document/d/1W-OF_34dQ4KgynjiBvvZZoexY4HGL13_O23XnC0frvE/edit?usp=sharing

Any really helpful or useful comments that become material for improving the paper will be included in publication and your contribution will be recognized.

[Patatas]

Can refunds using Bitcoin escrows solve the lemon problem in the crowdfunding space? That's the question I really would like to have answered with the help of the communities input. I really would like to hear your thoughts so that I can make active improvements to the paper I am writing.

As much I want to help you with the right comments,I couldn't seem to understand/correlate bitcoin scenario with the given example.I got a clear idea of what a lemon problem is but don't know how bitcoins can fit into the same paradigm.I've watched the video like 3 times with no success of linking bitcoins together.

[joshuad31]

Can refunds using Bitcoin escrows solve the lemon problem in the crowdfunding space? That's the question I really would like to have answered with the help of the communities input. I really would like to hear your thoughts so that I can make active improvements to the paper I am writing.

As much I want to help you with the right comments,I couldn't seem to understand/correlate bitcoin scenario with the given example.I got a clear idea of what a lemon problem is but don't know how bitcoins can fit into the same paradigm.I've watched the video like 3 times with no success of linking bitcoins together.

It is all clearly spelled out in the white paper:

https://docs.google.com/document/d/1W-OF_34dQ4KgynjiBvvZZoexY4HGL13_O23XnC0frvE/edit

Just skim the white paper and look for the pictures like these ones:

https://www.lucidchart.com/documents/view/f5bb0656-a88b-4f84-87b8-ec2fc2862a72

https://www.lucidchart.com/documents/view/9382a366-c336-485e-9139-9ff0831441bb

I think it will help you better understand how it works.

Thanks

Joshua

[freemanjackal]

humans are unpredictable, as long as crowdfunding relies in good will and possible benefits of the project, there will always be people who take advantage of this, take money for themselves. that is human nature 

[topesis]

Crowdfunding insurance, I like the term but the video doesn't directly apply to ICOs in the space, I will find time to read and digest your whitepaper. I think service like this can protect investors from project that default on their promises, Synereo is a good example here

[sidhujag]

Just make a time locked multisig contract wouldnt that help?
Btw i created a decentralized escrow service in syscoin that may be of interest as it has an api. Lots of the stuff you talk about in the wp is already possible with this technology. Identities which tie in an escrow are multisig compatible which makes it even better

[joshuad31]

Well if you are really interested there is another version of peerback that is only for app coins / new tokens:

Rep secure was token insurance:

https://docs.google.com/document/d/1VhCpw5u2o4nsZTLKX4WbFNgI45ETveCyeVycp4EXdoM/edit?usp=sharing

But it didn't work.  No one was interested.

Thanks

Joshua

[joshuad31]

humans are unpredictable, as long as crowdfunding relies in good will and possible benefits of the project, there will always be people who take advantage of this, take money for themselves. that is human nature 

Yes there will always be predatory crowdfunding project creators.  But do you really believe that the friends of the predators are willing to vouch for them and offer insurance to project backers.

this is peer to peer insurance in other words this is people who leverage their reputation to have their friends provide collateral for future refunds.  If you are a predator you don't have any friends.

Thanks

Joshua

[freemanjackal]

Yes there will always be predatory crowdfunding project creators.  But do you really believe that the friends of the predators are willing to vouch for them and offer insurance to project backers.

this is peer to peer insurance in other words this is people who leverage their reputation to have their friends provide collateral for future refunds.  If you are a predator you don't have any friends.

Thanks

Joshua

for that you need to be sure they are real people that could give a legit vouch, in that case, it is great to avoid all those scammers making crowdfunding campaigns

[sidhujag]

Well if you are really interested there is another version of peerback that is only for app coins / new tokens:

Rep secure was token insurance:

https://docs.google.com/document/d/1VhCpw5u2o4nsZTLKX4WbFNgI45ETveCyeVycp4EXdoM/edit?usp=sharing

But it didn't work.  No one was interested.

Thanks

Joshua

You can use btc payments in syscoin. Anyways all im saying is its totally possible with sys.. read the whitepaper.

whitepaper.syscoin.org

There is feedback and even witness signing capability with multisig aliases so you can use those as.building blocks.. once.you develop.a.solution investors.will come

[Kolder]

Yes there will always be predatory crowdfunding project creators.  But do you really believe that the friends of the predators are willing to vouch for them and offer insurance to project backers.

this is peer to peer insurance in other words this is people who leverage their reputation to have their friends provide collateral for future refunds.  If you are a predator you don't have any friends.

Thanks

Joshua

for that you need to be sure they are real people that could give a legit vouch, in that case, it is great to avoid all those scammers making crowdfunding campaigns

It is a good idea to get first a vouch before investing. But what if the person that giving a vouch is paid by the devs itself? I think the best way to make sure that investment is safe is to check the profile of the devs by your own research.

[memequiserle]

crowdfunding insurance i think is very dificult to run and work
in ico selling is high complexity , if safe ico selling i think is only escrow
but if still open crowdfunding insurance, who is in bitcointalk trusted can open service, i think only administrator is good open insurance service

[freemanjackal]

Yes there will always be predatory crowdfunding project creators.  But do you really believe that the friends of the predators are willing to vouch for them and offer insurance to project backers.

this is peer to peer insurance in other words this is people who leverage their reputation to have their friends provide collateral for future refunds.  If you are a predator you don't have any friends.

Thanks

Joshua

for that you need to be sure they are real people that could give a legit vouch, in that case, it is great to avoid all those scammers making crowdfunding campaigns

It is a good idea to get first a vouch before investing. But what if the person that giving a vouch is paid by the devs itself? I think the best way to make sure that investment is safe is to check the profile of the devs by your own research.

that can be an option but not a solution, cause good things can turned into bad at some moment, a developer can be very trustfull until he isnt, until he decides take to the other way

[joshuad31]

Yes there will always be predatory crowdfunding project creators.  But do you really believe that the friends of the predators are willing to vouch for them and offer insurance to project backers.

this is peer to peer insurance in other words this is people who leverage their reputation to have their friends provide collateral for future refunds.  If you are a predator you don't have any friends.

Thanks

Joshua

for that you need to be sure they are real people that could give a legit vouch, in that case, it is great to avoid all those scammers making crowdfunding campaigns

It is a good idea to get first a vouch before investing. But what if the person that giving a vouch is paid by the devs itself? I think the best way to make sure that investment is safe is to check the profile of the devs by your own research.

Ok I think this product is fundamentally being misunderstood.  It works like this

1. Backers pledge funds
2. Backers pay a premium for insurance
3. Insurance is provided by someone who knows the project creator and needs to put up the ENTIRE VALUE of the collateral amt. for the future refund in advance.
4. Insurer places collateral bond into multisig.
5. If scammer doesn't ship a product then backer gets refund
6. Insurer looses their bond

So this moves the risk of scams from the backers to the insurers for the price of a premium.

Insurers need to realize that they should only put down collateral if they believe a project will succeed.  Otherwise their collateral is lost.  This shifts the due diligence from the backer to the insurer (refund seller).

So if you want to do your due diligence you will get paid for doing it.  That payment is called a premium.

Its all there in the paper.

Thanks

Joshua

[joshuad31]

crowdfunding insurance i think is very dificult to run and work
in ico selling is high complexity , if safe ico selling i think is only escrow
but if still open crowdfunding insurance, who is in bitcointalk trusted can open service, i think only administrator is good open insurance service

Well why not read the white paper.  The solution has been peer reviewed by a few people and so far I haven't found a single rebuttal for why it wouldn't work

I have heard however that there may not be an incentive for insurers to participate but that is wrong because of the following:

1. Insurers can make money if they can evaluate and manage risk.
2. There is no competing investment types where you invest bitcoin and then get a your bitcoin back + a fiat premium for locking your bitcoin for a period of time.

In any real market its simply a matter of finding the right price for the service.  If you read the paper and are not convinced then I will genuinely be surprised.

Thanks

Joshua

[joshuad31]

humans are unpredictable, as long as crowdfunding relies in good will and possible benefits of the project, there will always be people who take advantage of this, take money for themselves. that is human nature 

But in every market where insurance, warranties, guaranties, regulation has come in there has been less opportunity for fraud.  How is crowdfunding the exception?  Someone won the Nobel prize for their analysis of the mechanism which we currently see operating in crowdfunding markets today:

https://en.wikipedia.org/wiki/The_Market_for_Lemons

So no I disagree if you change the incentives you change peoples actions and that is what Peerback could potentially do.

[freemanjackal]

crowdfunding insurance i think is very dificult to run and work
in ico selling is high complexity , if safe ico selling i think is only escrow
but if still open crowdfunding insurance, who is in bitcointalk trusted can open service, i think only administrator is good open insurance service

Well why not read the white paper.  The solution has been peer reviewed by a few people and so far I haven't found a single rebuttal for why it wouldn't work

I have heard however that there may not be an incentive for insurers to participate but that is wrong because of the following:

1. Insurers can make money if they can evaluate and manage risk.
2. There is no competing investment types where you invest bitcoin and then get a your bitcoin back + a fiat premium for locking your bitcoin for a period of time.

In any real market its simply a matter of finding the right price for the service.  If you read the paper and are not convinced then I will genuinely be surprised.

Thanks

Joshua

ok , the success of this scheme depends that a friend or a known of the project developer want to act like a vouch with those conditions, there must be some incentive for the voucher

[joshuad31]

crowdfunding insurance i think is very dificult to run and work
in ico selling is high complexity , if safe ico selling i think is only escrow
but if still open crowdfunding insurance, who is in bitcointalk trusted can open service, i think only administrator is good open insurance service

Well why not read the white paper.  The solution has been peer reviewed by a few people and so far I haven't found a single rebuttal for why it wouldn't work

I have heard however that there may not be an incentive for insurers to participate but that is wrong because of the following:

1. Insurers can make money if they can evaluate and manage risk.
2. There is no competing investment types where you invest bitcoin and then get a your bitcoin back + a fiat premium for locking your bitcoin for a period of time.

In any real market its simply a matter of finding the right price for the service.  If you read the paper and are not convinced then I will genuinely be surprised.

Thanks

Joshua

ok , the success of this scheme depends that a friend or a known of the project developer want to act like a vouch with those conditions, there must be some incentive for the voucher

You "vouch" with your money.  You put down a collateral deposit that is 100% equal to the future refund amount.  In exchange you can collect an insurance premium.