Want to issue a red-hot ICO? Rule No. 1 is do very little work

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Financial Post | Camila Russo and Olga Kharif  | Dec 20, 2017

The man known as Bitcoin Baba is, as you might have guessed, a true believer in the power of cryptocurrencies to change the world.

Two years ago, the 30-something Kiwi ditched his job in construction and went all in on bitcoin. Now he says he’s living the dream, travelling the world and evangelizing to would-be crypto-enthusiasts wherever he goes. (He got his nickname, a term of endearment that means “wise man” in Hindi, after putting up signs outside coffee shops and banks in India offering free bitcoin advice.)

But when it comes to the recent frenzy in initial coin offerings, even Bitcoin Baba struggles to see much more than a place to make a quick buck.

“You can listen to all the technologists explain why these projects work or don’t work and then you go onto the trading channels and people are just talking about the price action and sometimes there’s just no correlation,” he said one morning during a recent jaunt to Australia.

Like so many in the world of cryptos, he’s deeply fearful of having his virtual assets stolen by hackers and declined to give his real name. “There’s a massive bubble here that’s going to pop in an ugly way. That’s why I’m not an investor in alt-coins and ICOs, and only trade them depending on what the market’s doing.”

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The data support this view. Of the 30 biggest digital tokens sold in ICOs this year, the ones without a working product backing their projects did the best in their first month of trading, data compiled by Bloomberg show. And the ICOs with actual products that could be tested? Almost two-thirds of those declined.

The disparity has come to reflect the wildly speculative, topsy-turvy world of ICOs, which in recent weeks has increasingly drawn parallels to the go-go days of the dot-com bubble. This unregulated, crowd-funding model — where backers finance cryptocurrency startups — has taken off and pushed the nascent market toward US$4 billion in value.

And the boom is showing few signs of slowing even as U.S. regulators start to crack down on fraudulent fundraising schemes. This year alone, hundreds of ICO-backed blockchain projects have been created, as the popularity of just about anything crypto-related pushes bitcoin to one high after another. This week, bitcoin futures debuted on Wall Street, the clearest sign yet cryptos are moving into the mainstream.

Yet for every promising ICO, a host of others seem to offer little more than a solution looking for a problem. (One promises to revolutionize office sharing on the blockchain, while another ICO exists solely to allow users to buy other tokens. And exactly how many blockchain-based providers of cloud storage does the world really need?)

That’s not counting the duds or the marketing ploys where celebrity endorsements from Paris Hilton and outrageous names like Wu Tang Coin grab headlines. And it’s no small irony that in a market that appeals to people who lack faith in governments and banks, the president of Venezuela (a country facing an economic collapse and hyperinflation) has pitched a cryptocurrency backed by its oil, gas, gold and diamond reserves.

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Wide-eyed enthusiasts and greedy opportunists alike are jumping in, lured by the promise of groundbreaking technology or just skyrocketing prices, and making it harder than ever to tell whether this is a revolution, a bubble or both. But what’s clear is that regardless of where you are on the crypto spectrum, the hype has rarely been more divorced from reality.

It can be frustrating because “we are really big believers in, ‘Hey, you should at least have done as much work as you could have done on the project before trying to raise money,”‘ said Alex Xu, director of operations at 0x, which builds software that allows users to trade tokens on the Ethereum blockchain.

Only one in 10 digital tokens issued in ICOs is in use following their sales, according to Token Report. The rest, at least for now, are purely speculative instruments, only to be traded. CoinSchedule estimates at least two-thirds of ICO projects lack a working product or a prototype.

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The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding, alternative finance, fintech, P2P, ICO, and online investing stakeholders across the country. NCFA Canada provides education, research, industry stewardship, and networking opportunities to over 1600+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada.  For more information, please visit:  www.ncfacanada.org

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