"Innovators who seek to revolutionize and disrupt an industry must tell investors the truth about what their technology can do today, not just what they hope it might do someday."
That quote, from the director of the SEC's San Francisco office, Jina Choi, referred to Theranos, the blood-test company and one-time Silicon Valley darling that the agency charged with fraud last week.
But you could be forgiven for thinking it was about the cryptocurrency space, given the frenzied fundraising through initial coin offerings (ICOs) for projects with little more than grand visions, a buggy prototype, zero users and plenty of speculators betting it can work.
To be sure, a cryptocurrency is not equity in a business (at least, it's not supposed to be), and an open-source project is not the same thing as a company. But the Theranos case, in which founder and CEO Elizabeth Holmes paid a $500,000 fine and was barred from serving as a public company executive or director for 10 years, offers several sobering lessons for the blockchain community.
Some of them may seem obvious, but they bear repeating. The first two apply to investors:
DYOR
For those who don't spend their days on crypto Twitter, that stands for "do your own research."
You know how Google Ventures figured out it didn't want to invest in Theranos? According to an investigative article published in Vanity Fair in 2016, Google's venture capital arm sent one of its associates to Walgreens, the pharmacy chain that had a partnership with the startup.
Supposedly, the "wellness centers" Theranos had set up in the stores were showcasing the company's technology, which it claimed could test for hundreds of diseases just by taking a tiny bit of blood from the fingertip. But, according to Nick Bilton's expose, "as the VC sat in a chair and had several large vials of blood drawn from his arm, far more than a pinprick, it became apparent that something was amiss with Theranos's promise."
It would later turn out that Theranos was using its vaunted Edison machine in only a sliver of the tests it sold to consumers.
What's the crypto equivalent of "just go down to Walgreens and see what's up?" Well, if a blockchain network is up and running, you can start by buying a tiny amount of a coin, downloading the software and playing around with it to see if the thing works as advertised.
Read the full story here:
https://www.coindesk.com/tough-tokens-theranos-fraud-holds-harsh-lessons-crypto/
