Ethereum Q&A: Ether, ICOs, and securities

Ethereum Q&A: Ether, ICOs, and securities


Rodney asks, “Ethereum pre-sale: ICO or not?
Do you consider the Ethereum pre-sale [to
be] an ICO?
If so, why? If not, why not?
This topic has been hot recently due to the recent
SEC announcements about ICOs being securities.
I’m curious to here Andreas’ thoughts on this
situation too.”
I think Ethereum probably has one of the best arguments
as to its role as a utility token rather than a security.
Keep in mind: unlike many of the other fundraisers
that have happened with various startups,
Ethereum isn’t really a startup.
It’s not a company.
There is no company and there are no shares,
equity, or registration.
There is a foundation, but that foundation
is a Swiss non-profit.
You certainly don’t get shares in that foundation,
nor in future profits.
Ethereum also has a specific role as a platform, and that
platform has been the platform for all the other ICOs.
The token ether is a token that is meant to
be used to pay for gas.
That’s the argument for Ethereum.
The idea is that ether is how you control
the use of resources on the Ethereum platform,
for other applications including ICOs.
Ether pays for the network fees, the gas for
running smart contracts, for doing transactions
on the Ethereum platform.
I think ether as a utility token, and Ethereum
as a utility platform, is probably a fairly
well-developed and robust argument.
I don’t really see Ethereum’s pre-sale as
an ICO.
I think it is the most credible utility token
out there, in terms of it being a utility
token rather than a security.
I’m not commenting on the value of it, its
use as a currency, or as a speculative instrument.
That’s not my answer here.
But simply comparing it between a security
or utility token, I think the argument is
quite robust for it being a utility token.
[AUDIENCE] I would like to come back to the
intersection of the traditional financial
industry and the digital currency ecosystem.
[ANDREAS] Yes, please.
[AUDIENCE] It seems that the initial coin
offerings happening now are the first instance
where these two worlds have to co-exist…
[ANDREAS] Correct.
[AUDIENCE] … where we see some businesses
that cannot access normal financing, getting
[financing through] digital currency.
What is your perspective on this trend?
What is your view?
[ANDREAS] Who here has heard of the term “ICO”?
An ICO is basically the idea of creating a
digital token that represents perhaps shares
or something else that can be bought online
through these digital currency platforms.
It’s a play of words on “IPO” (initial public
offering), except that it’s often not registered,
not legal, completely global, completely open to all investors, bypasses the regulations around funding.
This is causing a few minor headaches —
or major headaches, if you work for the SEC.
What’s happening with the ICO space is that
it’s [exposed] this entire gap between organic
and angel investing, venture capital and stock markets.
It bridges all of that with this new model
that allows any company anywhere to raise
funds from any investor anywhere.
Connecting everyone in this massive new market.
That has created an enormous surge of excitement,
an enormous surge of money.
I think the latest estimates are well into $40 – 50 billion
raised in the last year through these mechanisms.
It’s drawing all kinds of sharks, worms, and snake-oil
salespeople who are taking horrible advantage.
Here’s something that most people find hard
to reconcile in their minds: this idea that,
of the current batch of ICOs, 99.99% are either
outright scams or indistinguishable from outright
scams, will fail miserably and return nothing;
simultaneously, ICOs are the most radical
and impactful development in fundraising of
the last 100 years.
They will fundamentally transform fundraising
worldwide.
They will break down enormous barriers.
They will create enormous liquidity and flexibility.
They will make this an international market
that fundamentally undermines
the Palo Alto venture capitalists right up the road here.
It’s a very interesting space, but there will be a lot of
tears and burnt investors who will lose a lot of money.
But that doesn’t change the fact that, in
that process, these types of offerings mature.
What people fail to understand is that ICOs
do not simply represent shares.
These tokens are a hybrid thing that is simultaneously
a share, a product reward, a loyalty point,
an access token for a product or service (for
example, storage or other computing resources),
a market index that represents the companies
that are playing in a space, or a technology basket fund.
All of these characteristics are in a single
token that can play all of these roles.
This is not just simply, ‘Let’s do a new form of share,
bypass the SEC, and create this orgy of funding.’
Although, at first glance,
that’s exactly what it looks like.
It is a very interesting technology that creates
a completely new thing, this tokenisation
and monetisation of resources.
It’s very big and it’s not just a free-for-all
that it looks like right now.
By the way, I haven’t invested in any of those.
When I look at these ICOs, what do I look
at?
The same things I did when I was doing due-diligence
for venture capital firms.
Team? Plan? Market? Timing? Product?
All those things.
I look at all these ICOs and I see:
no, no, no, no, and hell no!
Then I walk away.
Be very careful.
Don’t go playing into these markets,
thinking you’re going to get rich quick.
These are ‘get poor quick’ schemes.
You will lose your money.
As they say: what does it take to make
$1 million in this space?
Start with $2 million [and trade for a day].

29 comments

  1. a utility token can be a security. also, a token isn't a share, it's just a company's currency. as a token holder i'm entitled to nothing 🙁

  2. Andreas will regret having stated this opinion in the future. Ethereum is completely useless, except to host ICO tokens, which are only revolutionary if you want to dump on your investors in the most efficient way possible.

  3. I think your kind of missing the point on this one Andreas. ethereum is not a security like oranges aren't securities in the Howey case. But the presales of ether was an investment contract which is a security. That's why the SEC specifically said there comment didn't concern the presale. They can still go after the ethereum foundation and fournders, for the presales of ethers (~70% of total amount of ether in circulation today)

  4. Great Video Andreas! as always! Privacy-coins are getting popularity did you see Gemini adding top 5 privacy-coins? like Dash, Monero included and soon DeepOnion I guess!

  5. What does it take to make a million dollars in this (ICO) space?
    Start with 2 Million.

    LOL!

    These are some awesome shirt memes Andreas! You are so funny. I love it.

  6. I learned a lot about ICO in this video, thanks for sharing but I am curious to hear your thoughts about non ico projects, I've been hearing lots of developments about non ico coins like deeponion and nano. I'm interested to learn the pros and cons of non ico's. Thumbs up to your channel.

  7. He doesnt know shit how to find good icos and only looked at the shit ones. Or just bluffing being the btc maximalist we know.

  8. Right now the ICO space looks like the land of OZ Yet I am stuck in Kansas. I don’t know any Glenda the witch is to guide me through the maze that is the yellow brick road of the 99.9% failures so I’m just going to enjoy the view from here for a while.

  9. This clip couldn't be more contradictory. On the first segment Andreas explains why he thinks ETH it's not a security because etherium is not a company and what they sell it's not a share. However, On the 2nd clip he states that ICOs / digital tokens are shares. I'm sorry Andreas, thumbs down on this.

  10. Personally I never thought that the SEC's decision would have a huge impact on the market but I'm not sure. All I hope is that coins that have a very strong use case aren't affected surely because they're considered something, for example privacy coins.

Add a Comment

Your email address will not be published. Required fields are marked *