ICOs and VCs
The Brave browser team concluded an ICO for their Basic Attention Token yesterday in about thirty seconds. This led to this tweet:
The Basic Attention Token (BAT) ICO just raised 30 million dollars in 24 seconds. VC’s didn’t even have time to put on a sweater vest.
— briantobal (@briantobal) May 31, 2017
Of course folks will see ICOs as the end of the hated VC era of startup funding. And there is some truth to that.
But I see it a bit differently:
- Brave was VC funded prior to doing their ICO. We talked to Brendan when he was doing his seed round. He’s a great entrepreneur and technologist and he has assembled a terrific team. Although we are not investors in the company, we are sympathetic to the cause they are addressing. VC has had role in the Brave story. It helped them launch a product and get to the point where they could do a highly anticipated ICO.
- USV has a number of portfolio companies that will do ICOs. I have mentioned Kin and Filecoin in a previous blog post. There will be others. Like Brave, it often makes sense for a company to raise VC to build the team and tech and get to a place where it can do an ICO.
- Not every company can do an ICO. Contrary to the hype machine working on ICOs right now, they are not simply a funding mechanism. They are about an entirely different business model. The token that you sell in your ICO is the atomic unit of your business model. You are selling some of it to raise capital but the main purpose of the token is to monetize your product or service.
- The investors who bought your token, like public market investors, may be gone tomorrow, next month, or next year, having moved on to the next big thing, leaving you with little to show for it other than the money you raised. VCs, at leas the best ones, are there for your company in good times and bad. There is a difference, trust me.
So, while ICOs represent a new and exciting way to build (and finance) a tech company, and are a legitimate disruptive threat to the venture capital business, they are not something I am nervous about and they are not something USV is nervous about. We are excited about them when they are the right thing for our portfolio companies and we are encouraging those companies to use this new approach. We are also investing in tokens, through token funds, and directly on or own.
Now I need to go put on my sweater vest.
Amen. That said, will the tokenmania be what eventually crashes the blockchain market? Possibly.
Carlota says yes, eventually
is she writing/passing comment on blockchain and ‘tokenmania’? it would be a tremendous contemporary validation of her work.
that’s quite an endorsement.
If not security will be the big issue IMO
is Solidity secure?
The D-wave + neuromorphic chip development the speed to equate the alternatives in any structure keeps niggling away at me and yes I’m out of my pay grade nevertheless the itch will not go away.
I wonder if blockchain apps will rely on code that is executed on the blockchain to get data about the real world, and if eventually it will become a way for hackavists to do DDOS attacks anonymously with the transactions being executed across the whole network.
I think ICO’s have a place in the startup world. Say you have a product with an enthusiastic and growing customer base. But maybe the VC’s don’t like the team or they’re growing but not quite fast enough? Or possibly the VC can’t see clear as to how they will ever become a unicorn.Why not let the customer base fund it then? I do have the concern that those funding ICO’s won’t realize that the majority of their investments will fail?
Why would any sane customer fund the startup via ICO’s? In the long run I think the people who invest in ICOs would want the same terms and results as VC’s do. However I would guess that usually the terms in ICO’s are always very good for the one doing the fundraiser and very shitty for the ones doing the investments. Don’t see the model that sustainable long-term.
$10 says you don’t own a sweater vest.And I love how you are posting at a decent hour for us night owl West Coasters.
I don’t. Wouldn’t ever wear one
Shoot, you answered before someone took the bet. And I would’ve accepted crypto.
Pepe Museum will probably make a card with you wearing a bright orange one now! Lol.
Now I need to go put on my sweater vest.I think more ironic for the tweet to say ‘before their Tesla has even warmed up’.  Get it? They don’t ‘warm up’.
just don’t make that a Wilson-wide bet! (see my other comment).yes it’s interesting how when the posts are done on europe am hours, things are quiet here until the US folks wake up.
I’m normally seeing this in reverse; things winding down at night and then a little uptick when our friends in other parts of the world start their day.
For other newbies to the topic, this TechCrunch article on ICOs from last week was helpful:https://techcrunch.com/2017…Also, this post from William on “The Ultimate List of ICO Resources: 18 Websites That Track Initial Cryptocurrency Offerings”http://startupmanagement.or…Although that was a whole two months ago!
Good reference links, thanks Dona!
Meanwhile, all hell is breaking loose on their Slack channel. Tons of people calling it a scam….
it’s a bad distribution of the tokens. how does it create a robust network?blood suckers.
..taken by their tokens
Entrepreneurs should think about point 4) that Fred list above. To get money is one thing, to deliver value is harder, and you will need (great) VCs and board people to support your business over long time.
Hey Fred, it ain’t you, it’s your wife!…It seems that even Gotham Gal is implicated in this sweater vest meme:http://www.businessinsider….:)
I don’t that that is a sweater vest. It is a vest, I will give you that
Interesting! I think it speaks to some resilience and curiosity in the USV team, that you have formed a clear opinion on something so new and potentially disruptive.
As I get more knowledgeable I get more unclear it seems.First step of understanding anything complex.
the deeper you go the darker it gets. the rabbit hole.
Can someone please explain how companies that do ICOs can have a stable business model based on tokens tied to an unstable cryptocurrency? Serious question, thanks.If I understand correctly, for this stuff to work, entrepreneurs need:1) A product people love2) A second product people love which is their token and Ethereum replacing dollars3) A stable priceIs that correct?
Not exactly. Part of the model is the price of a token increasing at a rate that keeps the company “funded”. Many Bitcoin and Ethereum founders have been successful due to the network effects of each respective token outpacing their burn rate.All these token sales are extremely well funded now and have time to execute. Eventually the market will catch up to them if they do not produce and there is no true usage of their token outside of speculation.
But wouldn’t the financial incentive be more to just sell out the tokens and run away? Also that would be legal, technically, since you can just say that the project failed for whatever reason. It is quite different to traditional VC investments where you have lots of legal contracts. Here you just have loads of essentially anonymous investors, which don’t give that much pressure to actually do the legwork with the project. This brave browser might work a bit better since there are also VC’s involved.
Correct, which is why the current environment attracts so many scammers. I guess it depends if you’re building something to make money or make a dent in the universe 🙂
“if you’re building something to make money or make a dent in the universe”Personally I have been involved with Bitcoin and cryptocurrencies for a quite long time, and I always get very, very sceptical when someone touts out loud ideological motives in this space. I think the financial incentives are worth digging out always, whatever the project is. And with ICO model it looks like the biggest incentive is to market & develop the fundraiser – getting to the point of actual paying customer doesn’t bring much rewards on top of that.
Absolutely. You need money to build something great. These ICO’s are allowing hundreds and soon thousands of experiments to be ran. I would say that the rewards (reputation, legacy and financial) of building something long lasting is greater than a quick 15-30 million for some of the people building things.It’s hard not to draw the parallels to 95-99. Out of that wreckage came Google, Amazon, Ebay, Yahoo, PayPal etc. It also fostered the cycle of entrepreneurs for the second wave after 2000. Many mistakes made, many lessons learned and many great companies built.It’s not often we get this kind of permissionless experimentation happen.
You say “the price of a token.” – Is the token price always tied to the underlying currency (ETH)? – Has there been a token whose price is fixed to dollars? – Can there be technically?- Would the community reject it?
– Is the token price always tied to the underlying currency (ETG)?Joel Monegro explains this well in http://www.usv.com/blog/fat…. TLDR – the market cap of the protocol always grows faster than the combined value of the applications built on top, since the success of the application layer drives further speculation at the protocol layer.On top of that, some tokens are more fragile to Ethereum’s volatility. In my opinion that is tied to the amount in circulation and the underlying fundamentals of the token. in other words whether people are actually using it or not.There are several attempts at stable coins. As I’m sure you know many applications are impossible with Ethereum’s volatility. Some projects using pegged tokens are Gnosis, Maker, Digix, and Stabl.
So it’s theorized that it will only be successful with continued speculation..
I think it’s more like speculation fuels the creation of something useful which leads to more speculation which leads to more useful things being built.
they need a product full stop. haven’t seen too many of those yet.
The paradox at the heart of cryptocurrency is that it started as fundamentally anti-establishment/subversive but in order to become successful as currency it has to become mainstream. Money isn’t money if others don’t believe it is money.The ability to control a nation’s money supply is one of the most powerful tools a government has via the central bank.The government can simply demand that all taxes need to be paid in sovereign money. That ensures crypto cannot replace sovereign money completely. Meanwhile – there is no mechanism for stability for cryptocurrency exchange rates, look at BTC’s volatility just the last week (or…the last 5 years). Something that volatile cannot be a mainstream currency. Some level of governance/centralization is needed for the currency to be stabilized which is antithetical to the idea of cryptocurrency as of now.Even with ICO mania, crypto is still very much at the fringe for the world at large. The crypto “bubble” today is not just the price, the “bubble” is the fringe world of money it still lives in.
Helpful insight.I have been watching this paradox play out from a different angle doing some consulting for a cryptocurrency community. How do you create the infrastructure needed for sustainability while honoring the values that this movement is based on — which defy many of the norms of “organizations.” It requires thinking at a whole new level.
Crypto currencies don’t have sovereign’s implicit too-big-to-fail guarantees, which makes them more volatile and a lot cheaper to operate. The long term cost of sovereign stability is incredibly huge.About bitcoin, I could swear that last week’s bitcoin dive has a Fred factor. :)Fred re-runs at 02:26, the power of words.https://www.bloomberg.com/n…
Having a business working in cryptocurrency environment nowadays is very much excepted to work like any other business. Various bitcoin exchanges and services have been running for years now, and they generate stable revenues & profit.However I very much doubt that many of these projects that run ICOs will result to a good businesses. This kind of sketchy investments have been available for crypto holders since the early days of bitcoin, and I think quite rarely they’ve worked out in the long run. However of course it might be “different this time”. Old time bitcoiners probably remember GBLSE: https://en.bitcoin.it/wiki/…
it’ll all get solved in time. the more i think about it, the more i think there’s an opportunity for someone to build an company around reducing volatility of existing coin holdings.when all the kinks are ironed out this will be something that almost literally saves the world.
Some kind of “specialist” for the offering and after like the NYSE had/has. Responsible for the orderly trading of the company.
.Of course, that would require conformance to certain exchange rules pertaining to governance.JLMwww.themusingsofthebigredca…
There is always benefits to the Wild West stage of finance. There’re scams too but Greenspan always looked at them as a healthy part of the cycle (until 08). In the 1870 ‘s 80’s, in the Western territories, to open a bank you had to show the Gov. 10k in cash. No one had 10k but they would stuff 1k in a suitcase and go in and out 10x. The Gov would then say ” you boys looks good to go”. We shall see with this stuff
Wonder what you make of ICOs and tokens. As I said elsewhere, I feel like it is a giant pyramid scheme with several smart people playing ball just for the heck of it. Fundamental intrinsic value is highly questionable.
They need a product that is ENGAGING and that drives engagement…and they need to tightly integrate their coin economy/ecosystem into that engagement.It’s been mentioned a few times already, but the best way to think about these early days of coins is primarily as a replacement to advertising as the business model.Instead of trying to profit by stealing a little bit of attention/engagement to show ads and ‘sell stuff’…you use coins to reward ‘wanted’ behavior and charge for ‘desired’ features…if you get engagement right, the demand grows (and then by association so do the value of the coins behind those ‘transactions’).
OK but in non-crypto world, the share price of a company is not the same as the value of dollars people exchange for the company’s goods and services.With tokens, they seem to be the same. What’s the sound economic view behind that actually working? (Not coming at this with a judgement in mind, but sincere curiosity.)
The share price of the company and the token price are still two completely different things.The ‘ah-ha’ thing here is that INSTEAD of giving up equity, you can do an ICO to raise money (think Kickstarter vs. VC).If the ICO thing works out, then it *may* turn out that the value of the coins is worth more than the value of the stock…but both things still actually exist (and generally the companies doing ICO’s will keep some amount of coins themselves that I guess ‘technically’ belong to the shareholders and hence are on the balance sheet for the company which drives the stock price).But the general idea is that instead of dealing with stock and ownership, you dig directly into the economy of the service…and therefore it’s also *way* more liquid (meaning you can sell your coins at any point you feel like vs. having vesting, lockout periods, trigger events, etc. etc. etc.)
The problem is that ‘money raised’ is worth nothing because it’s only attached to demand.
The money raised is worth the money raised…if the demand doesn’t follow, then it will run out (and be hard to get more)…but at the start, part of the ICO is that it, itself, drives the initial demand and sets the initial value.
That sounds very recursive to me – both the first phrase, and the last part starting with “but at the start” 🙂
part of the idea is that by selling the promise of a rapidly appreciating currency, you get developers and investors on board and can build that part of the network. personally i think that is a bit backwards, and that you should build the community first and then add the money to strengthen the ties and scale the network, but that is at least the theory. part of the issue is that a lot of this stuff is money/investor driven rather than product/community driven.
The ones ‘doing it right’ are building the product from the ground up with the revenue/coin model in mind…and so I think it’s actually sane (but difficult) to start there.If Twitter were built today, it’s very likely they would have designed the product from scratch with a currency strongly tied to likes, retweets, and overall reach. Users would have gotten rewarded for posting stuff that goes viral, and users would pay for the ability to extend their reach a bit (as well as a few other features)…you can imagine that ecosystem being *very* strong in today’s version of Twitter and continuing to grow.Had they done that approach from the start, they would never have had the need to shut down the 3rd party ecosystem (it would have only improved/extended the power of the coin)…and they would not have needed to try to figure out how to make advertising work within the platform (something they are still kinda struggling with)…and the early users (and ICO buyers) that really helped the service take off would mostly all now be *insanely* wealthy because of the value of the coins they earned (assuming they didn’t use them all already).The shareholders would prob. have profited about the same because the coins they held would also still have a lot of value (plus the company itself could still tech. explore many of the other business and revenue opps. that exist outside of the coin ecosystem).Side note: Actually, outside of the technical challenges of a legacy system there is a strong argument that could be made that they should *still* do this.
i’ve always thought it would be better to have the economy going first without any kind of dependency on existing currencies. a community currency is freely distributed, and it is the only currency accepted within the community’s marketplace. vendors who receive the currnecy are free to buy from other vendors. as stability develops here, than you have a foundation for expanding to commerce requiring currency trades.
In utopia I agree…but where you and I live, it’s better to get to the money as early as possible 🙂
Thanks, very useful “making it real” example!
I like this description, but it gets back to my one question about all cryptocurrencies: what economic activity that people will pay for is being done? once all these users got twittercoins, where would the revenue for the ecosystem come from? I agree it does seem like an alternative to advertisting, but where would $2 billion or so that twitter generated come from if not advertisers? They are paying for eye balls (the advertisers are). Who would be paying if they had a crypto coin instead?
End of day it would *still* be advertisers and users…attention is true value of Twitter (IMHO), and that directly speaks to advertisers…but the way you go about that slightly changes with a coin approach vs. a display ads approach.Other systems might have something different (filecoin for example is all about paying for storage space, and getting paid for providing storage space).So it still really depends on what ‘problem’ your service is designed to address and where the ‘real’ value sits in the minds of your users…gotta get that right before anyone is really going to pay for anything ‘usage’ based…
Exactly! The question is: what is the source of economic value? Other than storage and compute, I have not seen any good answers yet. That alone is not good enough to drive intrinsic value at scale so we get back to advertising which is what this was supposed to solve in the first place.If users are paid tokens for participation it also creates perverse incentives that muddle the waters. Is someone liking something because she really likes it, or is it because she wants tokens?Tokens have potential, but pardon me for feeling that it resembles some type of a pyramid scheme where people are buying hot “stuff” hoping it increases in value (“of course, it has to, right, when there is such strong demand”), but the “stuff” has very questionable intrinsic value that no one really wants to talk about. The crash is a question of when not if.Business when stripped of its fundamentals and its core simplicity can become a giant mirage sucking money in while making people think it is multiplying it faster than anything else. At the end, it might spit out nothing but crap so the onus is all on the token buyers! You have no protection and if the business gets liquidated, it is the debt and equity holders who get paid first, not the token holders!
I don’t know why, I just can’t get over how much buying power these coins will amass if they succeed in convincing enough people that their coin is a real currency.Part of the issue I have is I have a hard time visualizing and understanding that if Twitter created a coin from the base, kept 90% of the coin (like Kik is doing with Kin?) and made a platform successful enough where people adopted a coin as a legitimate currency, how much buying power does Twitter then have? How is it distributed? Can they only dump the currency they have based on what others are still willing to pay for it?These companies/platforms and investors have obviously done all of these calculations – and I imagine the buying power they’d gain is ridiculously huge, so once the koolaid is drank then the risk-reward proposition is likely too juicy to not – that they believe in the technology and potential funding/profit mechanism; if all of these companies have done the calculations, it’s interesting that you don’t see this information anywhere?I didn’t read Kik’s Kin whitepaper (?) or was it Blockstack having whitepapers – perhaps it outlines just how much buying power they hope to be allocated?Perhaps if understood it better then I’d jump on board and could move all of my platform plans to using a coin, maybe even on Blockstack, however I don’t like the Ponzi scheme structure – it’s really fucking strange that it’s connected to the technology and how it’s the future funding and profit mechanism for the companies/investors.The cryptocurrency technology is exciting, that’s why I have such cognitive dissonance going on.At the moment, I’d prefer to create my own cryptocurrency that eliminates the Ponzi scheme structure possibility – where the funding mechanism would still be any global currency, and people will pay for the service – even through the micro-transactions of the coin held, however it wouldn’t let the creator/founder (me in this case if I did this) to unfairly gain “40%” buying power simply because they/I created a successful platform. I mentioned it before – imagine Facebook did this and they’re the one who owns the other 90% of the coin.
Absolutely takes awhile to ‘get’ and even after you do, it still ‘feels’ odd and a bit like a ponzi scheme (because some will be)…but here’s how I break it down:The ownership is the only thing tied to the blockchain tech. – it’s how people know/can prove that they are actually getting ‘something’.The value itself is still tied to the company and the service…it’s on them (and their actual users) to generate, grow, and maintain that. Some companies will be great at it and end up with massive buying power/value in their coins…many will not. If *you* as a reg. person pick the right ones, you will go along for a great ride too (same old story really).Many of these systems are being built or tied into an existing blockchain approach/coin (like Ethereum)…that’s mostly just so that ‘real’ value can come baked in (but also helps jumpstart some of the tech. challenges related to ownership/blockchain).Not sure that helps any…but that’s sort of how I break it out…
Can we not all agree that it’s all on a foundation of a Ponzi scheme, even though there is technically more value than the non-cryptocurrency Ponzi schemes? The pundits here who have a lot of skin in the game completely don’t want to talk about or acknowledge the gambling and Ponzi scheme side to things; these people are smarter than to not see recognize this.I appreciate your descriptions, I think it only reenforces my current understanding however.I like going back to my example of email. Does it make any sense that the early adopters of email, if you decide to start using email before others, that the value of using email for you increases? Currency is a transactional layer, like email is, and shouldn’t act like a stock.Another example I like to go to: if you’re paid $100 for work today, and in 1 year that work is now valued at $1000 – just because of demand – that makes no logical sense, none at all.Is it inaccurate to describe the current state of cryptocurrencies as a massive international circlejerk?
hrm…I don’t know. Most things in the real world either appreciate or depreciate in value.If you are spending your time on work that earns you the same amount as it did last year, then you are destined to be in the same basic spot you were in last year…*everything* you do should be all about appreciation in some way or another (and I don’t mean just money, but hopefully you are getting more and more value out life as you age!)
With UBI coming it will be the quality of life you cultivate for yourself – the culture among your family, friends, and city – and world. The majority of people will be close or near the UBI line. That’s called richness I believe – being rich in life. The less friction, the less inflammation/inflation there is – the more stable things are in an economy, the more stable people’s lives can become; that’s great and better than our current system not only for mental health, however also for innovation and productivity.
eventually things will evolve in a way that reconciles your concerns. these economies that don’t effectively distribute coins won’t get the traction going, they are trying to jumpstart the economy in the wrong way. if the economics are allowed to play out naturally, the ones that seek a normal distribution that creates a large middle class will end up being the most successful — and will likely create the strongest and most stable currency, in turn creating enormous wealth for all the participants on the platform.
I’m not as optimistic as you seem.The cryptocurrencies and investors in them who have positioned themselves to be in the top 1% – are heavily incentivized, putting tons of money in – and likely incentivized to put even more money into their efforts. I’m not as optimistic thatI do like the idea with Blockstack that they mention they can switch to a different cryptocurrency, but these platforms are in control of that – and they’re likely not going to be aligned financially unless forced in some way. I’m not sure what event would force them.
same reason why google and apple let third party apps on phones: the more apps they offer the more they can satisfy end users and keep them engaged, in addition to getting a way to take a cut off each app. now the game has simply changed whereby they need token usage and circulation to create a strong economy with lock-in so that users are not tempted to switch to another currency network. this impetus will be so strong that we’ll start seeing these token companies competing on who can give out the biggest hand outs. eventually it will get to things like free housing, food, energy, basic income, etc.
Monetizing and intermediating attention could surely led the way to some form of basic income, but it all depends on having fair middlemen, as always has been. Up to now we mostly accept mediocre apps or services as payment for our attention and content. (and privacy!)
The ‘revenue share’ that is gained from the cryptocurrency creator is going to be much greater than 30% … and are you arguing that Apple and Google’s phone ecosystem is best for consumers/people? Apple’s success drove Google to create Android, however if we had Universal Basic Income – there’d be a hoard of people who’d want to be social and work on something important/value, and Android would have been created anyway – perhaps even faster than Google did it if there is good leadership and vision on any of the forks.Once again I am not as optimistic as you that the creators of a cryptocurrency who have gained huge buying power will use that to give people free housing, etc. Like why don’t we have the same now with competition existing? I don’t buy that it will happen through cryptocurrency competition; I still don’t agree that it’s fair that they can simply amass buying power through increase in demand/adoption.If we simply raised taxes (same thing cryptocurrencies do, except the tax rate goes up the higher the adoption/value) then we could provide free housing to everyone, food, energy etc – exactly, a guaranteed/universal basic income – which shouldn’t be dictated or organized by non-elected people IMHO. With the government there is at least a process, when it is a working democracy.I agree a private company, if they have integrity and a practice of non-violence – and have very solid holistic thinking, then they could do all this well. I think Apple and Tesla could be candidates for this, however very few have the leadership of a passionate founder, with vision, and more important the capital in the bank to fund the initial test; Apple has the cash in the bank, I’m confident Elon can create providing well-above par value on an exponential basis, and will have lots of/enough profit and capital to work with.
Re: “the early users and ICO buyers would mostly all now be “insanely” wealthy because of the value of the coins they earned”..Are you assuming the exchange rate with sovereign money is sustained ? Or are you saying that does not matter ?
At the volume that people engage with Twitter, the value of a given coin would be quite high…even if it’s only within app, that would certainly drive some type of real-world market for buying/selling those coins (and that would likely continue to grow in value as long as the engagement is there)…make sense?
Get that. Within the ecosystem it has value.A long time back I once joked that the killer app for Bitcoin is Bitcoin.But what you just described is a more limiting view than what I think I have heard about the token and cryptocurrency space.Do you think this is what people are thinking when they are “investing” into ICOs?
I think what people are currently thing is “HOLY SHIT, I’M GONNA BE RICH” and just buying whatever they can without thinking (hence bubble with HARSH pop around the corner).Long term, if people think about the real value that a coin can/does add to an ecosystem and how it properly powers/incentivizes a community…then they can figure out a proper investment/value amount and timing that works for them…
This seems like brilliant insight, Kevin.
*seems* and *are* are two different things…but I’ll take what I can get. Thanks! :-)FULL DISCLOSURE: I am not an expert in/around this space, just an interested and enthusiastic observer…so as always, take my opinions with a grain of salt…
“Seems” was short for “seems to me” — more as self-abasement since I sometimes feel like I am treading water in a river in the midst of these discussions. But I do get paid to recognize brilliance. 🙂
as i’ve written above (or is that now below?) disqus should have a pre sale of tokens to existing users, and allocate based on the number of comments written, and then launch a public capped ICO.tokens as API keys is a killer analogy for Twitter to mull over.
Users would have gotten rewarded for posting stuff that goes viralI am not sure I agree with that. The way I look at it if the reward isn’t meaty enough having a reward acts as a deterrent to the desired behavior. Because people put a value on their wasted time.Do you think you would make better or more comments if you were paid for doing so? What amount would it take? I say that most certainly unless you are someone with no money the amount is going to make you feel stupid for doing so. Ok maybe not everyone (after all many people get a thrill out of clipping coupons) but enough people to have a downside.And if comment upvotes actually meant something how would that change what you wrote?Lastly and this is obvious any system that rewards things that large group of people like is most certainly going to create the wrong type of content.
This system makes sense if users can buy “points” (powered by a cryptocurrency) and then assign their points to actions (upvotes, favorites, retweets). Each user in the system has a wallet so whether they opt-in or not, they’re earning these points.Points can then be sent to crypto exchanges for trading and withdrawal.I’m working on this now.Appreciate the discussion.
I have had the opportunity to observe Dash and see this attention to the community as part of their success and growth. What was interesting to me was that when querying people involved with the infrastructure there was a strong sense of mission — coming from a very diverse global team. I don’t know enough about the other cryptocurrencies to know how unique this is.
Re “coins is primarily as a replacement to advertising as the business model,” so coins not clicks?What are the implications for funnel metrics then…
It shifts from a funnel into a wheel…you aren’t trying to siphon attention for value, you are directly tying value into engagement (as engagement grows the exhaust kicked out is the increase in the coin value).
I believe it’s a wheel without the right axle and the right hub. What I can see right now are the spokes of the wheel …
The crazy value of BitCoin and Ether are certainly driving hype and excitement for this approach…seems so much like a ‘get rich quick scheme’ (and many early versions will be).Before I would buy any of these coins with real money (or even any of my real time/engagement)…I would need to *really* believe in the value that the marketplace they are bootstrapping.As an example, if you think there’s a real marketplace opp. for storage (ie. that storage should be cheaper than it already is, and that it can be solved with a distributed system that pays people a little bit each for unused hard drive space) then filecoin is worth getting into.IMHO, each ‘new’ system in this space still needs to be properly evaluated before you buy in too much…that is unless you are just the gambling type and want to take a flyer on cashing in big on this early hype! 🙂
So then paying people a little bit each for unused hard drive space would be comparable to us having extra wi-fi network capacity and letting folks use some of it for a charge.The “shared wi-fi” model. So the business model is not new per se.Only the hashing of the deep links across distributed machines is the really new [email protected]:disqus — Andy Rubin’s Playground VC recently led a Series C $60 million investment in Branch, a deep linking startup. I’ve been thinking about how blockchain changes the landscape for startups like that.
that was just one example…I would still consider the model ‘new’ though because it’s revenue tied to increasing user engagement…and we really haven’t seen that before (display advertising was the closest thing that I know of, and it really works directly against increasing engagement)
No, that is mostly wrong! 🙂 1, it does not seem that crypto companies need a product other than 2, a currency. 3, is actually wrong it turns out, stable prices == death for an altcoin, as volatility is what attracts interest.
These are pragmatic questions. But the environment currently is not that pragmatic, but rather more optimistic and forgiving. So, it makes it difficult to answer them. The premise is that speculation helps to fund these projects. What remains to be seen is the brutal consequences of not delivering on promises. Eventually, there will be more sensible correlations between valuations and value. Until then, the plot keeps unraveling 😉
why do you think I avoid bitcoin stuff, I don’t get it…
Yes, basically every business under this model needs their own Federal Reserve. So much for ‘distributed systems’.
Exactly, the crowd gets too excited and don’t fully appreciate the work that goes into building great companies. Similar to points in the debate here: https://twitter.com/_shelk/…
are you overlooking the delegate proof of stake model here? those early ICO investors can include the committed node operators securing the network AND forging their token rewards (as a long term revenue stream). they’re not here today and gone tomorrow. they are the technical backbone of the project, and self selecting recruits to the team.
Forget VCs,- anyone can invest in these ICOs when they become publicly tradable on the cryptocurrency exchanges. That usually happens days to weeks after the ICO is raised.
link to more detail pls
Well, you can start by getting an account on kraken, poloniex or coinbase, then trade the ones that are available.
Kraken is probably the best place to start. Poloniex has a mixed reputation (but massive volume) and its troll box is a mind warping distortion field.
VCs will always be needed. Commerce is a people relationships process and has been for 30,000+ years.This idea of Satoshi’s: “The code is the law” and Nick Szabo’s “”Dry Code” (logic and bits) of computers resolving and eradicating the flaws of “Wet Code” (the subjectivity of law and human analogy)” may find itself on the wrong side of history, as I noted two years ago.March 31, 2017: “Scientists at the Department of Computer and Information Science at the University of Pennsylvania conducted research on how to encode classical legal and philosophical definitions of fairness into machine learning (see 1,2,3). They found that it is extremely difficult to create systems that fully satisfy multiple definitions of fairness at once. There’s a trade-off between measures of fairness, and the relative importance of each measure must be balanced.Replace the word ‘fairness’ with ‘justice,’ ‘liberty’ or ‘non-partisanship,’ and we start to see the challenge. Technologists may be unconsciously codifying existing biases by using data-sets that demonstrate those biases, or could be creating new biases through simple ignorance of their potential existence. Technologists should consciously remove these biases and encode laws, policies, and virtues, (shortened for our purposes to ‘values’), into machine learning systems. These values can be mathematized, but there will always be tradeoffs among different values that will have real-world impacts on people and society.The same Univeristy of Pennsylvania scientists found there can be a cost to fairness in machine learning. The penalty to a machine learning training rate from encoding fairness can be mild to significant depending on the complexity of the model. The cost of encoding virtues (and the benefits) must be balanced against the potentially lower costs of systems that are optimized without regard to values or bias. For a machine learning system that delivers ads for clothing, encoding values may not be worth the cost. But for a system that determines eligibility for food stamps or advises on criminal sentences, the cost of bias is severe and likely worth the expense of encoding values.”https://medium.com/artifici…—–As I’ve observed, Satoshi’s vision didn’t future-proof for Quantum Computing, for troubleshooting data biases in AI that are needed for NLU nor for more holistic and representative economic modeling.The mathematics of logic and bits isn’t adequate for the machines to arrive at any type of language understanding in social contracts, values exchange and transaction agreements.My vision is much cooler and more coherent than Satoshi’s.
What I meant is that- anyone can also participate.
:*). I was discussing crowd-sourcing, tokens and ICOs with my mum yesterday. She said, “So it’s great because every dollar adds up to investment for someone.”Then I said, “Yes but not every dollar is of equal value. A quantity is not the same as a quality.”I’m all for technology supporting decision-making. I’m mindful, though, that the maths underpinning the economics of Blockchain, smart contracts and AI are numbers quantification that don’t map to values qualification.Take something simple like the up-vote (1) and down-vote (0). The reasons WHY someone clicks on up-vote can vary: to indicate they read the comment, they like the comment, they like the commenter, etc. Yet the machine has no way of working out that WHY.Knowing the WHY matters.
FRED:Brave blog entry. Brave response to what could eventually be a Kodak moment.
#3 all day, every day!
If anyone enjoying this post has not yet read the book on Georges Doriot (related: http://avc.com/2017/04/from…, well, get thee to a Kindle or a hardcover book and enjoy the ride. America’s pioneer VC was first and foremost a champion of entrepreneurs. Early on he took care of his people by relentlessly innovating on combat boots and procuring warm sweaters for the backs of WWII soldiers. So sweater vests are intrinsic to … just kidding.
.I served in Korea in the early 1970s and wore a lot of the cold weather clothing which came out of the WWII Quartermaster Corps including Mickey Mouse boots (inflatable boots for soldiers standing around in the same position for days at a time), warm socks, the greatest sweaters with long sleeves, roll up cuffs, big shoulders, and a neck line which folded up to cover the back of your neck, and layers including skivvies, long johns, cotton fatigues, wool pants with liners, field pants, fatigue tops, wool shirts, field jackets with liners, parkas with liners.I remember being warm in -40F overnight temperatures and it taking ten minutes to strip to go to the bathroom.Funny thing is we didn’t get the same cold weather clothing in Germany which was not quite as cold as Korea.There is nothing as uncomfortable as being freezing at 2 in the morning and knowing it won’t get warmer until the sun comes out.JLMwww.themusingsofthebigredca…
Any thoughts on how to make these offerings more distributed and owned by actual users vs speculators? Over 50% of BAT was picked up by a handful of buyers. ICOs are interesting in theory because of the effects of tribes/users owning a piece of a network, but this last example was a failure in that respect.
Key is good VC. Otherwise, commodity money is commodity money. How one defines good VC is subjective though.
To be controversial: ICOs are the wrong way to do bitcoin. Let’s say you introduce a new altcoin with some desirable feature. Someone is going to clone that with no premine. Repeat this recursively, and you get a market full of infinite altcoins implementing every possible feature that can live on a p2p network. This is starting to happen already. You can say, great, the more the merrier! And maybe so, but how do you capture venture-like returns in such an environment? The economics of pump-n-dump right now are obscuring what I think will become a very, very hard market dynamic in coming years.
.If the ICO is to be the alternative to VC, then one has to focus on something which comes with VC: enormous risk of failure.VCs acknowledge failure rates far in excess of half of all such investments.ICOs are going to experience higher failure rates.Why?A VC is investing in a going concern with a product. A VC conducts due diligence. A VC is experienced in the process and has the benefit of time — time to do the job right. Plus, VCs own sweater vests which keep them warm even when underwriting the coolest deals imaginable.An ICO is a promise to develop a product and is, therefore, even earlier in the life cycle of developing a going concern.When these ICOs fail, they will be flop sweat, bad to the bone failures which will destroy the entire investment.It is probably a misdemeanor to even call such a “gamble” an investment. It is not underwritten, does not conform to any recognizable investment product, is sponsored by folks who have no track records of raising money and being good stewards of OPM.Prediction: This will go Tulip before it’s done and there will be people who will say: “WTF were we thinking about? How could we have been this reckless?”Two last points:1. There is a shortage of adult governance without a board of directors looking out for their financial interests.2. There is still no killer app. These crypto-currencies are vying to get into the starting blocks to run a race that nobody has figured out yet.Tulips ahead.JLMwww.themusingsofthebigredca…
At this point it seems the killer app is the tokens themselves ? #notbeingfacetious.(Strike that, actually I would not know if I was being facetious. I am clueless).Like….the killer app of Bitcoin is Bitcoin ?
.The killer app of tulips was tulips.This is going to get nuts.JLMwww.themusingsofthebigredca…
I would always say that I would rather have someone’s advice, experience and connections rather than their money. Fred made this point here but it probably isn’t strong enough:The investors who bought your token, like public market investors, may be gone tomorrow, next month, or next year, having moved on to the next big thing, leaving you with little to show for it other than the money you raised. VCs, at leas the best ones, are there for your company in good times and bad. There is a difference, trust me.
I thought it was just folks in the business end of the defense contractors that cling to their sweater vests…WRT to the VC industry, it probably won’t go away. ICOs will take their place alongside other funding vehicles. I guess I’m one of those folks that rails against VC all the time. HHere’s the real point. Its about the power relationship, not the implementation mechanisms of funding. In VC there are a very few people that make funding decisions about huge sums of money that can affect a large number of potential entrepreneurs. Like all spigots, there is pressure on that relationship. That pressure causes these other funding vehicles to become attractive. If you really want to “fix” the VC industry, work on changing the nature of that relationship.
“Now I need to go put on my sweater vest.”https://cdn.meme.am/cache/i…
I don’t understand what the ICO’s actually represent. So a company issues tokens, people buy them with crypto based on value staked by company, and the only way to get liquidity is through the secondary market? Do the tokens represent any equity? I doubt this companies do a traditional public IPO but what if they are purchased by another company? Can the company issue more tokens to itself or insiders without consideration of the current holders (or even notify them before insiders sell those new ones)? When many of the companies fail (not all obviously) will these tokens continue to live on the ETH blockchain? If they represent ownership of the company do they get any spot on the cap structure or any claim during the wind down? For all the pitfalls of our securities regulatory systems, the ICO world is going to need either self imposed or governmental regulations to protect investors and punish the new age snake oil salesmen.
will Disqus be having an ICO?
YES!!! [email protected]:disqus @girishmehta:disqus @mattamyers:disqus — Naturally, AVC community would invest before @fredwilson:disqus can put his non-existent sweater vest on. LOL.And I think if they do the reward matrix according to length of comments and word counts then either sigmaalgebra, @JLM:disqus or I would have an advantage. If it’s up votes then Jim’s wit or @ccrystle:disqus and @donnawhite:disqus ‘s heart would win the pay-outs first.
and i think the number of comments made before any ICO announcement should be the community metric used to set the allocation of dokens…naturally ;). perhaps they can be allocated in a pre sale at a nominal price, say 10 cents for each doken. then a public ICO is launched with a cap.
I’m in!Heart? Thanks. So interesting to see how one is perceived. But I’ll take that. 🙂
Part of the problem with Blockchain is … it has no heart or art in how Satoshi and the subsequent brigade have built it.Most folks can’t relate to it. It’s not human-centric. It’s computer code centric.So it will need all the heart it can get from consultants like you.
The problem right now is that people aren’t investing, they’re just gambling. VC is like an organic monarchy and ICO is democracy. In democracy people tends to make bad decisions (see Trump), many people will just lost money, and the best VCs will continue to make better decisions that give better results.
But of course, the best “amateur investors” now have a chance to enrich too.
I see potential for BAT, despite a few reservations after reading what is a good white paper. Digital advertising needs change, despite the Sisyphean nature of the task. So I wish Brave the best.But the ICO was not executed well. Most tokens in the hands of 100 people, is likely not what Brave wanted. It’s not what the base wanted. I was critical of Brave yesterday, too. Then again, they made $30 million in just a few seconds, so… we’ll see.What should’ve been a day of celebration for Brave, instead was a day of damage control. Is this what crypto and blockchain culture will be?Spending millions on something like BAT – sans Zuck or the Google Bros playing a game of poker with it – is akin to investing millions in a speculative penny stock.
Fred, thanks for taking up this topic. It’s certainly one that’s worth being discussed.At the end of the day, VCs talk a lot about scalability – but the VC model itself is not scalable. It requires people/humans to do the work, evaluate and invest.Maybe it is time for disruption.This reminds me of the time, when the main brokerage houses were making a killing on the trades, then came discount brokers, and now we have Robinhood.So maybe we can compare it with AngelList first stage and now ICOs as the second stage.ICOs or IT(oken)Os provide a means to allowing the public (not just accredited investors) to participate in the funding, like crowdfunding. The only difference is the quantification allows me to trade/exchange the token, rent it out.I’m not sure why you’re comparing an ICO to a VC, when it should be compared to a public market listing, where only activist investors could buy up a large enough stake to make some changes.And granted with a token there is probably no recourse to a court. But maybe people want to profit when the markets and bank deposits are providing meagre / dismal returns.Exciting times, indeed.
These “tokens” will be the vehicle for a next wave of innovative business models and an entire ecosystem of services/goods to go along with it.Micro-transactions are a simple example: e.g., kik is going to sell “feature/content” tokens, i.e., a token that will allow the holder access to certain features/content on kik. Why is kik using Ethereum/ICO/tokens to do this? The Ethereum network is essentially offering them a free service to manage the tokens & accounts, plus the token holders will bear the cost of the individual transactions themselves. So, kik gets no-cost, no-risk micro-transactions, plus they can pre-sell. The kik tokens also become part of a token ecosystem, with exchanges, etc, where they can gain a lot of market insights from the use of their tokens, exchanges of their tokens, etc. It’s rather brilliant of kik, and I’d expect others to follow, especially struggling consumer services in search of a better model (e.g., Twitter?).And it’s just the beginning…
Sorry, what is an ICO?(might be nice to have that in the article)
Answering my own question, it’s an “Initial Coin Offering” – https://tokenmarket.net/ico…
>VCs, at leas the best ones, are there for your company in good times and bad.Hey Fred, found a misspelling for `least`. Great article
Just a note, the term “ICO” is discouraged by some on the argument that it gives a misleading impression of the sale being an initial public offering, and a crowd sale or token sale is recommended instead as the best nomenclature.I agree completely about VC complementing token sales. They each have their own comparative advantage, and together will result in a larger market than either would be able to create on its own. Token sales may significantly increase VC, by the mechanism of creating a larger economy that has more demand for VC. Jevons Paradox comes to mind.
Are ICOs currently legal? I have a friend who wants me to help him ICO his company, but as I dig into the legal matters, there seems to be an issue about tokens being considered a securities contract in the vast majority of legitimate cases (basically anything that isn’t purely a store of present value). The current alternative I’m looking at is doing a Reg A+ filing that is assisted by an ICO for bookkeeping matters.
Great read. I like that you point out that companies need to stop doing ICOs just to raise money, it’s more about a business model where ownership, control and governance is done through a product or a service.
Planning to raise a lot of dough with your IBO ?
Your new packaging looks great. Glad that I criticized and commented on the early packaging and hope that added to your re-design!
lol well done — this is on the hirshfield level of punniness!
It’s much kneaded
may I too, do u have rare?