Blockchain Afternoon #7 What's an ICO and how to approach it?

This is— I've had this presentation before. I modified it slightly to reflect my changed opinions on it. Who here knows what an ICO is already? Oh, interesting. Would somebody like to give me their explanation? Initial coin offering.

Sorry? Yes.

Yes, like I was saying, initial Lambo— no, wait a minute. Initial coin offering, yeah, that is correct. So how does this differ from an IPO, which is what?

Just remember to use the microphone closer. You can hear it much louder than people here can. Because the speakers are here.

All right, I'll try to remember. So the closest comparison, of course, for funding purposes is a company going public. So that's an IPO. And the main difference between ICOs and IPOs is that the other one is heavily regulated while the other one is nearly not regulated at all. But regulation is coming, and the lack of regulation maybe has led to this kind of like a Wild West type of ICO here, ICO there, and to try a lot of get-rich-quick schemes, which is all, of course, pans out perfectly with game theory because such a thing is possible, it is taken advantage of, and then there will be a lot of, a lot of scammy projects that just try to take advantage of people wanting to get rich quick, maybe take their money. There's been a lot of exit scams, and that's why these projects will be, in my opinion, heavily regulated, probably starting this year. And also one big reason why, why the regulators are coming after ICOs is because they can. It's an important thing to keep in mind, most of these ICOs are centralized, so they're actually companies that can be shut down by regulation, whereas decentralized protocols that we're going to talk about later are resilient to that because there's no central office. For example, there's no office and CEO of Bitcoin that you can throw into jail. So that's definitely a strength of decentralized organization. But yeah, like somebody here said, it's kind of like a crowdfunding method, and I would say it is the future crowdfunding method and a way for companies to, so to speak, go public, hopefully with a little bit less friction and more inclusion. So this way, owning shares, for example, in any company in the future should become more accessible. Hopefully the regulation will back this up as well, but at least in ideal world. So what it allows for everyday people to do is become a VC. So that means venture capitalist, essentially, based on their own levels of comfort they are feeling comfortable investing. For example, it's not so easy to invest €10 on some company via IPO. Probably won't be worth the trouble. But if you invest €10 worth of Ethereum in an ICO project, Then that's, that is much more doable and it can be done. And there's no really upper limit unless there's one that is set, which normally is a good idea because if you don't set a limit for how many tokens or coins are distributed in an ICO per person, then you might end up with more centralization because somebody might scoop up most of the tokens. And I think this happened with BAT, for example, because that was like an online advertisement token that of course there was a huge interest in advertising companies to scoop up some of that token just in case. So it led to a kind of a centralized, uh, centralization problem, which I, I do believe they solved now, but just an example. So of course it creates a lot of excitement. It's a whole new way to raise money for everybody. Basically anybody can read an article and if you have any knowledge in coding, basic knowledge, you can pretty much put up your own ICO rather quickly. And some ICOs and some projects don't even have a white paper, which is normally what is used to outline the idea and flesh out some of the technicalities. And some projects don't even have that and they can raise tens of millions of dollars worth of cryptocurrency, which is very interesting. And of course it lures a lot of people who are only after the quick money. That's certainly something to take into account while you assess a project, because a lot of them can be useless. I mean, that's the best-case scenario, that they are useless. But they can also be even harmful. There's been flat-out scams that their only purpose was to generate as much money from the people as possible and then just shut down the website and go on a vacation. This has happened many occasions, many projects. And of course, one reason why I don't maybe hear of some all of the projects is because people probably don't want to let other people know that they, they were investors in this kind of thing. So be careful, do your research. And I would like to share— I already talked about regulation— I, I would like to share my method of assessing projects. It's, it's a very fast one because there's thousands of different projects. And, um, well, I, I like, I like this method. You might have your own. But hopefully this method can be useful for you as well. So I call it PTS. The P comes from purpose. So I would first assess if the project— what is the purpose of the project? Why does this project exist? And more often than not, you will see this buzzword salad which includes hits like blockchain, decentralized, blah blah blah, whatever, in blockchain, bananas on blockchain, and you know, like Datecoin and stuff like that, like Tinder on blockchain. There's certainly a lot of things that we can copy on the blockchain. We can put all things on the blockchain apparently, but that is not the case of course. I'll talk about the technical implications of that later. But the purpose— here's some examples that I've gathered of different projects that have purpose. Bitcoin obviously has the purpose of storage of value. And it also works as the liquidity pool of the other projects because everything is still, mostly all the assets are still traded against Bitcoin. So of course, and it has inspired all these other projects, that's why they are called normally altcoins in, in opposed to Bitcoin. So very clear use case there. Steem is another interesting one. It's a social media token. So what it tries to do is to be a forum and social media that rewards the content creators, so the users. rather than the advertisers. So there's no advertisements and the system works on, based on investors' belief in the system that it will be the next Facebook or the next Reddit or whatever. Regardless of the opinion, it's an interesting thing and certainly has a real-life use case if you think about how popular social media is nowadays. Well, Ethereum, I'm sure most people here know Ethereum. Who knows Ethereum? All right, who doesn't know Ethereum? I don't— nobody? All right, so that pretty much sums it up. It's the second, I would say, second best-known cryptocurrency. And how it differs from Bitcoin is that it's a smart contract platform. And basically, I think it's more accurate to say that it's an ICO platform because it allows these other projects to be easily put up, and then you— they use Ethereum as the gas basically to run those networks, and they are all recorded in the Ethereum blockchain. So that's most, most projects are tokens. They're not— this is one differentiation between coin-only projects and then token projects. So coin has normally their own blockchain, whereas the tokens are part of tokens in another blockchain. Monero is the most well well-known privacy coin. So it has that function. If you need completely confidential transactions, which people will, in my opinion, always need, that's at the moment, I think, the go-to option. There are several other ones, of course, that are competing ones. I've listed NX Solar here, which is my project. That's here because it's tokenizing real-life assets, in this case, solar power plants and the ownerships and investing. goes to the blockchain via tokenization. So that's something I'm gonna talk about later. I think that's in the future, all the ownerships will be recorded in blockchain. I mentioned Ethlend as well. They are here to talk. And the reason why I mentioned it, because it's rare for a project at this early, early stage to have a functioning working product, which Ethlend does. And they do peer-to-peer cryptocurrency lending. So, and it's a Finnish project as well. And Stani is here today to talk about the project as well. And yeah, I suggest you check it out. It's very, very interesting. Of course, it's still in development, but at least they have a working product, which is way more than you can say from 90-95% of ICOs. And of course, this, they had their ICO last year already. So, and Golem is here mentioned because they do something kind of unique also. They are sharing computing power to use the power of mass computing, cloud computing, to solve some complex problems like, let's say, DNA analysis or 3D rendering and stuff like that that normally takes a lot of computing power. So Golem allows you to rent out your idle computing power to participate in the cloud network and get paid in Golem. Clear use case. Walton is here also, also mentioned. That's a supply chain token for tracking the supply chain from From the beginning to the end. And also I think there's like this masternode system that rewards the users as well. A clear use case. There's others as well. So if the token doesn't have a clear purpose, then if the purpose is just to use some buzzwords to try to lure you in into some venture that really does— it sounds like a nice idea but really doesn't have any use case. which is, I would say, majority of the projects. So you probably want to think, is this just an idea that somebody came up with that it would be neat to have? Are we creating a solution for a non-existing problem? Would be the question. And if the answer is yes, then I would just move on to the next project. I won't even go to the next steps, which are— the T stands for team. So of course, every project is comprised of the team. I've listed community here first because I think the community is the most important team member, because that way you will recruit new members. We've done this with 2 projects and we've organically grown because people want to work in the project, not because we are hiring or paying huge amounts of money. You get word of mouth because when people become believers in the project, it spreads like a virus. That's essentially what you want from a project. Really good idea and a team that is committed. Their attitude is more important than their education, how many master's degrees they have or doctorates. It doesn't matter. What matters is their vision and their conviction to realize that vision. And that's also rare. And once you get into touch with the team, you will quickly realize if they are in it for actually changing some things, making things better, or for a quick buck. So that's something to check, the attitude. And also leadership goes with attitude. We'll talk about that a little bit later, what it means to work in a flat organization and what it means to lead by example. The times of hierarchical ways to organize a company, I think, are behind us already. And then there's marketing. You can't forget marketing. No matter how good your product— project is, you do need marketing, even though I wrote here A good project doesn't need a marketing budget. But you still need to let people know that you exist. Because otherwise, no matter what kind of project you have, you won't get anywhere. Because you do need, actually, people to do the heavy lifting and put in the work and the hours. So I would say there's a difference between marketing. If they only have— like some projects, they only have a huge marketing budget. They have a huge amount of partnerships and advisors. Well, that normally means that they had a huge marketing budget. And mostly they are comprised of maybe marketers, and they're just basically trying to make a good-looking project that inspires people to invest rather than having an actual working product. So yeah, be aware of really good-looking things, and especially if somebody's promising returns, because nobody can promise you what happens tomorrow. If somebody says that they guarantee you some profit, 100% scam every time. So marketing done right. And if those 2 checks are crossed, then I go into assessing the sustainability. Does this project thrive under competition or will it be replaced easily by a competitor, for example? What kind of network effects has it accumulated? Like for example, Bitcoin has huge network effect because so many people use Bitcoin already. So that means automatically each Bitcoin is more valuable because of the network effects. And same applies to other projects as well. Once they reach the critical mass, they become infinitely more useful, and that way they can really explode. But that means that they have to have a really good idea and a really good team. Then there's also adoption. Like, if it's a neat idea but nobody's gonna use it, also it's not gonna work. Future-proof, what kind of updates need to be done? Is it plausible? How did the project come up with the funding plan? Is there gonna be a treasury? Is it transparent? Are they going to raise a vast amount of money and then have no plans what to do with that? And also future-proofing, like what kind of computers and algorithms are developed at a later time? Maybe quantum computing can break some algorithm that they are using. Are the development teams up to date? Are they following the industry all the time? Will they be able to release an update in a timely manner. And of course, security is one thing, and we're gonna talk about those consensus algorithms in a while, which is the basis of keeping any blockchain secure. You need to have some kind of consensus algorithm that helps the nodes to come to agreement. So that's the briefest explanation I can give you about ICOs, and I will take your questions now. Just one question. Yes, the chat box is here.