One of this year’s leading contenders for the CryptoTulip of the Year is “ICO” technology. This post-Nakamotoan technology continues to develop, even in the face of disaster after disaster, not to mention global failure of unprecedented magnitude.
Of course, and “Initial Coin Offering” was originally modelled after an “Initial Public Offering” of stock—except without the pesky regulations. At base, it amounts to “send me money, and I’ll send you a token”. Ideally, the token will be worth something in the future, though it is not always clear just what the token could be used for. And roughly 50% of the time, the tokens are never worth anything.
Surprisingly enough, this opaque and immutable blockchain technology has led to serious problems for the punters. In the very possible event that the ICO takes the money and runs, there is no way to complain, let alone get your money back. (The code is the law.) And even honest ICOs have had disastrous bugs that cause massive losses of funds, with no way to fix things.
One of the biggest problems with ICOs has been their fundamental design. A key pillar of Nakamotoan trustless trust is that the blockchain is immutable. Noone can change history and steal your stuff. “Smart contracts” extend this principle to immutable executable code, which is both unchangeable (and therefore, unfixable) and makes immutable actions (and therefore, accidents cannot be repaired).
In several splashy cases, these codes had bugs in them that resulted in disastrous losses. (Indeed, Ethereum was awarded CryptoTulip of the Year for 2017, largely on the basis of these impressive failures.) These bugs and the illegitimate results could not be fixed, at least not without rewriting history in a radially anti-Nakamotoan way. (Again, see the 2017 CyptoTulip Award.)
Responding to these entirely forseeable challenges, the “godfather” of ICOs is now proposing a new variant: Reversible ICOs . (He apparently does not see the irony in the acronym RICO, more familiar in the wider world as the US Racketeer Influenced and Corrupt Organizations Act, used to bring down mobsters.)
Fabian Vogelsteller, early developer and said “godfather” of ICOs, has proposed a new executable contract that lets investors return their tokens for a refund at any time. This is not exactly a breathtaking innovation in the real world, but it is revolutionary for cryptocurrencies.
Actually, it is not so much revolutionary as reactionary. One of the key goals of Bitcoin was to eliminate the cost and inconvenience (to vendors) of cancelled payments. For that matter, these refunds are essentially rewriting history, which kind of defeats the purpose of using a blockchain in the first place.
As far as I can tell, these “reversibles” make the IPO more of a credit instrument. The “purchaser” is making an unsecured, no interest loan that might be convertible to something else in the future. No points awarded for inventing “debt“.
Furthermore, in order to make this work, the ICO issuer will have to maintain reserves of fiat cash or other assets, to be able to redeem cash outs. This is a good thing, if not at all Nakamotoan.
ICOs will also be subject to “bank runs”, if everybody decides to exit at once. Say, in the event that a catastrophic bug in the software destroys confidence in the enterprise. In the real world, enterprises generally maintain adequate reserves only when forced to by regulation. So it isn’t clear how prudent unregulated RICOs will actually be.
So these RICOs are essentially recreating many of the features of conventional, “centralized”, finance, atop the inefficient, unregulated, and bug ridden “decentralized” blockchain infrastructure.
Clearly, with the RICO proposal, ICO technology has reached a new level of irrationality. It is certainly a leading candidate for the CryptoTulip of the Year in 2018.
- Rachel Rose O’Leary (2018) The Godfather of Ethereum ICOs Wants to Let Investors Take Their Money Back. Coindesk, https://www.coindesk.com/ethereums-token-standard-creator-wants-to-make-icos-reversible/