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Author Topic: 3 kinds of ICOs — Protect yourself  (Read 13566 times)
indrakusumaindra
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October 10, 2017, 03:20:00 PM
 #61

yeah legitimate and crap ico is everywhere but im sure there is plenty ico that had a bright project. i mean there do a great ico that strungle in the middle of fake ico. for sure we need a universal regulation for cryptocurrency, not just an internal regulation from country to country.

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Even in the event that an attacker gains more than 50% of the network's computational power, only transactions sent by the attacker could be reversed or double-spent. The network would not be destroyed.
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October 10, 2017, 03:32:02 PM
 #62

Minerva gives tokens to platforms that accept Minerva’s OWL token. But they never explain where the money comes from? How will Minerva continue giving their token away forever? Business model makes no sense.

Blockv.io’s homepage says:

Quote
“These smart objects, called vAtoms (Virtual Atoms) combine code with multimedia elements and are dynamic, compelling digital goods that make a cryptocurrency come alive as an asset…”

This is similar to what ARToken and Datum want to do: put TONS of data onto the blockchain. This shows that they are clueless about the blockchain. At 120 GB, Bitcoin’s blockchain is already causing scaling problems.

Blockv.io’s token allocation shows that they are among the greediest teams around. Only 35% will be go to buyers. Developers and company will keep 65%. Unbelievable. Not only is this an extreme example of greed, there is no decentralization. Their team can overpower and control the blockchain whenever they want.

Only crazy investors will risk to fund an ICO which the devs holds the majority of the supply. Even the devs has a valid reason to get the 65% but still they are just using the money of investors to run the project. So it is basically unfair. I salute you for exposing ICO's flaws simce nowadays there are so many crap ICO showing.

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October 10, 2017, 04:38:02 PM
 #63

DOVU says people will pay for car data. Who will? What value are they going to get when they can already get tons of data from a fleet of test cars. Let’s say there are, why wouldn’t they pay with BTC, ETH, USD, EUR or any other existing currency?

Request Network sounds like a me-too. Bitpay and other companies already enable online payment.

Hedge is another me-too. There are already many investment funds, and they all suffer the same problem as exchanges or DAO. By doing the taboo, centralizing, you are putting your money in a honey pot, which can be stolen by hackers or employees.
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October 10, 2017, 04:55:34 PM
 #64

I bookmarked your thread, it is very legitimate. Unfortunately, many millions of dollars that could be used to invest in currently traded coins are being dumped into this ICO hysteria. I 100% agree that there better be a damn product in existence before running an ICO! No product = no good.

The ICO hysteria will not last long as the SEC gets it claws clamped down. I don't think they can disassemble ICOs from the past, but future ICOs will be soon extinct before too long.

There are many other more legitimate ways to raise funds for projects, such as the dev fee. But the ICO is one thing that is far too shady IMO.
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October 10, 2017, 05:03:58 PM
 #65

ICO will always be controversial! Especially now with hundreds of them with all kind of promises! Yet, there are still very good ones out there, one just have to look for them.
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October 10, 2017, 06:05:09 PM
Last edit: October 10, 2017, 06:19:47 PM by jlp
 #66

Someone private messaged me and asked me for a review of:

ModulTrade
https://bitcointalk.org/index.php?topic=2240518.0

If this is executed well, it has potential. However, there are several projects trying to do something similar. Their video didn’t say anything special or different than what other projects are trying to do. This idea is old and has been around for a while. The key to success will be execution.

They have a “prototype” but it’s really a demo (only on the client computer), because it doesn’t execute any transactions. A demo is far easier to build than a prototype. With 11 people on their team, they should’ve been able to build 5 prototypes by now. Nevertheless, a demo is better than nothing.

With 8 advisors, they have 19 people on their team. Most of them probably do not do much. They’re stacking their team to fool you.

They have lots of competitors, but their white paper does not compare them. This is misleading. Even the existing way of doing international trade is a competitor. They should’ve provided side by side comparisons to competitors and explain why each of their features/functions are superior.

They plan to use Ethereum as the production blockchain. I question the viability of this. Ethereum is already getting bogged down with just ICOs. Wait until several projects get some traction in production usage. Ethereum might grind to a halt. ModulTrade’s white paper explains that this will not be an issue and they can get around this. But this is an additional risk that you’ll be taking because it’s unlikely that you’ll be able to verify ModulTrade’s numbers.

Only 40% of tokens are sold to buyers and they’re keeping 38% of the tokens, which is too greedy and centralized.

They started their idea in October 2016. Startups at Y Combinator with only 2 people on the team, build their prototypes in 6 months.

The CEO and several team members are from Russia. Not all Russian ICOs are bad, but you’ll be taking an additional risk.

On their Bitcointalk announcement, they say:

Quote
“While the number of MTRc is limited the increase of trades pushes the demand for MTRc and its valuation”

This means that they are selling a security and will be on regulators’ lists. Maybe ModulTrade doesn’t care about regulators because Russia does not have extradition agreements with other countries, but what happens if regulators ban their token in Europe or North America?

As a side note, countries without extradition agreements make teams feel more invulnerable. Therefore, they are more likely to lie and cheat investors from other countries, because there is little to no recourse from the other countries' governments.
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October 10, 2017, 07:32:10 PM
Last edit: October 10, 2017, 07:51:49 PM by jlp
 #67

Someone private messaged me and asked me for a review of:

Winding Tree
https://bitcointalk.org/index.php?topic=1946065.0

They stacked their team with 6 people and 3 advisors. They should’ve been able to create 3 prototypes by now, but I do not see any.

Their white paper states:

Quote
“Individual travel companies are notoriously out of date in terms of technological adoption: travel companies still rely on fax machines and phones as main communication methods, while others struggle to connect to data sources to power their sales efforts.”

That’s likely a lie. Every hotel I’ve stayed at, even small ones in 3rd world countries, use computers.

Then it states:

Quote
“Five companies in the travel industry control the most of the travel market. The two largest OTAs (Online Travel Agencies), Priceline Group and Expedia Inc.,control 95% of OTA market in the U.S. Amadeus, Sabre, and Travelport, the top three GDSs (Global Distribution Systems), have 99% combined market share”

Is Winding Tree trying make us believe that travel companies communicate with the Online Travel Agencies by using fax?

Winding Tree gives a good explanation of the problem with the OTA space and the lack of competition. This sounds like a serious business problem that should be solved. I agree that there needs to be more competitors in the OTA space. But for Winding Tree to be a serious competitor is questionable. They’ll need to raise a ton of money and do more than just create a new token.

The challenge is similar to internet search and advertising. Google controls the market and makes tons of money. There needs to be more competition. But an ICO is not going to be able to compete against Google just because it creates a new token.

In order to compete against these OTAs and GDSs, you need huge CENTRALIZED systems that can store and process PETABYTES or EXABYTES of photos and other data. Ethereum’s blockchain can barely handle 200 GB because it is decentralized. Then Winding Tree would need to spend a thousand person-years of programming to build a system that has enough features and functions to compete. Then Winding Tree would need a massive budget and outbound corporate sales staff to get hotels and airlines to sign up with them. Then Winding Tree would need a massive budget, marketing staff and inside sales and support staff to market their service to consumers.

It would seem that none of their team members had worked for large companies to manage very large databases.

There have been many competitors. Does Hotels.com still run their commercials? Obviously, they haven’t succeeded.

Creating a new crypto currency does not make you a competitor to Expedia. These OTAs can start accepting Bitcoin or Ethereum if they wanted to.

This is a massive project and Winding Tree's white paper only has 6 pages on the business aspects. Any other startup in this space should have 100 pages minimally. To take on Priceline or Expedia with a 6 page explanation, is a joke.

The right solution is for the government to break up the OTAs and GDSs into multiple smaller companies, similar to what the U.S. did to AT&T a few decades ago, in order to increase competition.

Winding Tree is a very high risk project.
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October 10, 2017, 07:53:32 PM
 #68

Your post is GOLD. Thank you for sharing this, I think this should be put on top of this section.
I agree with all of your points, except the one about "Corrupted Country". In my opinion, it means nothing. A good project can be done even if the main developers are from Venezuela, for example, or Angola. There are many good project done in Russia, even if this country seems quite corrupted. You have to separate individuals from government. The government could be corrupted and yet a single developed could be the most serious and reliable person on Earth.

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October 10, 2017, 08:12:07 PM
 #69

This is an excellent analysis of ICOs and is definitely an eye opener for me. Thanks!!
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October 10, 2017, 08:13:27 PM
 #70

This is very extensive and descriptive post. I believe it will be very useful for beginners. I've just introduced crypto world to my little brother, he will like to read this.
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October 10, 2017, 08:27:19 PM
 #71

This is a very good way to distinguish between ICOs. Thank you for having posted this useful guide. I will forward it to all my crypto friends.
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Buy The F*cking Dip


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October 10, 2017, 08:33:29 PM
 #72

This is a very well-thought post that should be read by newbies who are just starting their crypto journey especially when they are entering their first ICO. Many people think that ICOs will just make you more money once you get in early but that's not the case most of the time. I've known different person who lost numerous amounts of BTC by just joining and investing in scam ICOs. You laid out the most important things that should be considered before joining an ICO. This should be pinned at the top of this section.  Wink
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October 10, 2017, 10:16:55 PM
Last edit: October 10, 2017, 10:49:46 PM by jlp
 #73

Your post is GOLD. Thank you for sharing this, I think this should be put on top of this section.
I agree with all of your points, except the one about "Corrupted Country". In my opinion, it means nothing. A good project can be done even if the main developers are from Venezuela, for example, or Angola. There are many good project done in Russia, even if this country seems quite corrupted. You have to separate individuals from government. The government could be corrupted and yet a single developed could be the most serious and reliable person on Earth.

As mentioned in my OP:

Quote
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.

In non corrupt countries, people grow up with lots of regulations and enforcement. Though there are exceptions, the people feel that the way to get ahead is based largely on merit. In corrupt countries, there is less regulation, less enforcement and more people trying to find ways to get ahead by working around the system. In fact, they see that the most successful people in their country, usually in their government, are those who get ahead by lying, cheating or working around the system, instead of based on merit. If you do not think this is a risk, you may be right. I may be wrong.

ModulTrade
https://bitcointalk.org/index.php?topic=2240518.0

Quote
“While the number of MTRc is limited the increase of trades pushes the demand for MTRc and its valuation”

This means that they are selling a security and will be on regulators’ lists. Maybe ModulTrade doesn’t care about regulators because Russia does not have extradition agreements with other countries, but what happens if regulators ban their token in Europe or North America? Will you suffer a loss?

Countries without extradition agreements make teams feel more invulnerable. Therefore, they are more likely to lie and cheat investors from other countries, because there is little to no recourse from the other countries' governments.

I watched a video of a conference. ConsenSys was warning about selling securities. Waves’ CEO, who is from Russia, debated this and shrugged it off. Is he less concerned because the chances of him getting punished is minimal?

Russia wants to boost the crypto industry in their country. Putin's advisor ran an ICO. Is the Russian government funding Russian teams to help them maximize the money that they raise on ICOs? If so, you should be aware of this risk. Though there are exceptions, in the far majority of time, when a government tries to pick and choose companies, it’s not a good idea. The U.S. government forced taxpayers to give $535 million to Solyndra. It looked great at first and then it went bankrupt. Governments are not educated nor skilled to be Venture Capitalists, investors or stock pickers. Their money is often spent on policies to further their political or social goals.

In the extreme cases when the government tries to centrally manage the economy, they create socialism, or communism which is the extreme form of socialism. Every government that centrally manages their economy have always made their economies poorer in the long run. Think of Cuba, Venezuela, when Russia was communist, when China was communist, etc. The people who are best at picking which business will succeed or fail, are those in the free market.
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October 10, 2017, 10:27:09 PM
 #74

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:

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.

Swarm Fund 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?

Energi 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.

There is no guarantee that any business will not fail. But, when the ICO team has a prototype/product, they have proven that they can develop. That significantly reduces your risk. With many ICOs, you have no idea if they can build anything. You cannot trust the information on the profile of many ICOs. Just because they can hire somebody to make a video, it does not mean they can write thousands of lines of complicated code. It's like you giving money to someone to fix your car, simply because he says he can fix cars but have never fixed one before.

Y Combinator is one of the biggest startup incubators in the world. They provide a small amount of funding (approx. $25k to 50k) to startups, which usually consists of 2 founders each. Then they build prototypes or products. Then the startups give pitches to angel investors or Venture Capitalists. If prototypes or products are unnecessary, then why do they waste so much time and money before pitching to angels and VCs?

Almost all incubators have startups that consist of usually only 2 founders, that are building prototypes and products. ICOs are stacking their team with a dozen people and they still cannot build anything. With 12 people, they should've built 6 prototypes/products by now. This shows that they are simply stacking their teams with useless people, in order to impress you or sucker you in.

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?

i will Keep thi in my mind but how to understand if an ICO scam or not?

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October 10, 2017, 10:29:02 PM
 #75

Good information here. A nuance: investing in an ICO is not the same as investing in a company. Typically, coin holders do not have the same legal rights and protections as shareholders. Coins may go up and down in value independently of the performance in the company, which means that some investors invest in the coin itself, and its prospects for increasing in value.
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October 10, 2017, 11:56:06 PM
 #76

Good information here. A nuance: investing in an ICO is not the same as investing in a company. Typically, coin holders do not have the same legal rights and protections as shareholders. Coins may go up and down in value independently of the performance in the company, which means that some investors invest in the coin itself, and its prospects for increasing in value.

Good point.

In the long run, I think that coins will be tied to fundamentals. As an example, if Ethereum does not solve its scaling problem, ETH will not continue going up in value and might even decline. Right now, there are many tokens that serve no function. The whole purpose of buying Gnosis tokens was that Gnosis will eventually create prediction markets. If Gnosis never releases any software so that Gnosis tokens can be put into use, I cannot see how the Gnosis token will maintain value.

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October 11, 2017, 12:08:52 AM
 #77

Good information here. A nuance: investing in an ICO is not the same as investing in a company. Typically, coin holders do not have the same legal rights and protections as shareholders. Coins may go up and down in value independently of the performance in the company, which means that some investors invest in the coin itself, and its prospects for increasing in value.


best example is Ripple. The company thrives, ILP and Ripple Connect are growing in acceptance.
XRP is not.
OriginalBankster
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October 11, 2017, 12:13:04 AM
 #78

very good input from OP.
But i can't help to think that you are a little biased. There are some good projects, altough i agree that 98% are not substantial.
But you're assumption of Kyber was wrong, i cleared that already up and Reuqest Network and Bitpay are fundamentally different.
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October 11, 2017, 12:56:37 AM
 #79

Everyone congratulating the OP for a great post. Lol


Sorry to burst the bubble but you know all ICOs will soon very very likely be banned globally. They all breach basic securities law. You cannot advertise the sale of a security. It's on the books in international law. Dump all the tokens you have they are soon to become worthless.

A very well written thread by the OP.

BTW, not all ICOs are considered securities, and thus not all ICOs will fall under securities regulations.
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October 11, 2017, 01:58:19 AM
 #80

Thank you everyone should know what you write here, I totally agree with all your writing.
Today ICO is like a marathon race, they make it collect money then lost. just leave the junk coin.
this is a disaster for investors.

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