Is cryptocurrency technology heading down a path to disaster?
This summer Bitcoin is dominated by the ongoing crisis of “governance”, which is leading to fork after fork. It is increasingly evident that Nakamotoan “decentralized” and “consensus” based decision making is less than optimal for something serious like digital money.
The Bitcoin “community” (and we must use the term loosely) is, as Alyssa Hertig trenchantly says, a “Culture of Infighting”.
This has also been a year of multiplying “Initial Coin Offerings”, ICOs. Aided by an ever more automated process, practically anyone can whip up their own tokens, have a quick online auction, and pick up a quick mill or more. Cool!
(And I do mean “quick”. ICOs are infamous for their opaque online auctions that last a few minutes and are sucked up by big players.)
If this sounds like selling unregistered securities (on unregulated markets), the US Securities and Exchange Commission agrees. The SEC Guidance is pretty simple: if it looks like a security, then it is covered by US laws. Period.
Has this dampened enthusiasm? Not much, though it has been a boon for lawyers as people try to thread the needle to avoid regulation, yet still cash in.
As Avtar Sehra comments, the world of ICOs is now exploring various “workarounds” that resemble the “creative” business models of Pachinko parlors. These efforts basically try “to execute undercover securities issuances”.
It’s questionable how well this will work. The SEC tends to be pretty unforgiving of such shenanigans.
And Sehra makes the important point that pouring effort into this penny ante quick money stuff is neglecting the real opportunities that may exist to use this technology within the legal framework.
These workarounds “may be limiting the vision and creativity required to see the true scale of what ICOs and digital tokens could represent; blinding many in the industry to possible risks if they take the wrong path.”
Honestly, it seems to me that cryptocurrency technology is charging down the wrong path, ignoring warning signs and shoving aside the grown ups.
- Alyssa Hertig, Bitcoin’s Battle Over Segwit2x Has Begun Coindesk.August 30 2017, https://www.coindesk.com/bitcoins-battle-segwit2x-begun/
- Avtar Sehra, The New Pachinko? Exploring the Economics of Initial Coin Offerings Coindesk.August 20 2017, https://www.coindesk.com/the-new-pachinko-exploring-the-economics-of-initial-coin-offerings/
- US Securities and Exchange Commission, SEC Issues Investigative Report Concluding DAO Tokens, a Digital Asset, Were Securities. 2017: Washington, DC. https://www.sec.gov/news/press-release/2017-131