Buying tokens, which can be exchanged for a service at an unknown ratio (price), amounts to financing a new fast food chain by buying a million tokens for $1,000, where the tokens can be used to purchase hamburgers once the chain opens. The problem is that you have no idea if those million tokens — once the chain is up and running — will buy a thousand hamburgers or three.
So there’s a dichotomy here. Either your tokens remain low in value, and the end product of the business will be cheap (as it’s priced in these tokens) and you make no money as an investor, or the token price will increase and the end product will be expensive (but you’ll be able to sell your tokens for a profit).
In the end it’s a useless proposition: either token holders will be able to buy cheap hamburgers if the token price is low (thus causing a loss to the issuer/hamburger producer) or they will sell their expensive tokens for dollars and use dollars to buy their hamburgers elsewhere.
It’s launching an airline by pre-selling miles. Sure, you might have 1,000,000 miles and Platinum status on that new airline, the boarding passes are on the blockchain, but the airline gets to control the mile redemption rates and status privileges for that Platinum level.
Except, of course, that the majority of ICOs today are not organized by airlines (as in, businesses with known market prospects), but by random groups of people with sketchy plans, many not even incorporated (as the saying goes "some even have a homepage".)
If that’s the case, then where does Telegram state what and how much one token can be redeemed for?
An airline “mile” is redeemable in something physical (being flown a mile), but I haven’t seen any information on what I can redeem a Telegram ICO token for (although I may have missed that).
Unless Telegram explicitly allows people to redeem their tokens for some specific quantity of a service, then it does indeed amount to selling a service at an unspecified price.
> the end product of the business will be cheap (as it’s priced in these tokens)
Essentially every one of these services creates a distributed market and almost none of them make the mistake of somehow deciding the price of the service in tokens in a way that wouldn't cause the market to adjust to reflect the value of the token (and ironically the only one I can come up with that makes this mistake was the WhopperCoin ;P). If the value of the token doubles then the cost in tokens of using the service should quickly drop by half. This is an annoying volatility but the service absolutely doesn't become more expensive or cheaper based on the value of the token. This isn't "one token buys one hamburger", this is simply "you can buy and sell hamburgers with tokens".
But as a consumer, why would I place my trust, and store my value in your shallow liquidity token when I prefer to just hold dollars?
Certainly the company ICO'ing benefits from the infusion of money selling their token, but what is the value prop for all these different tokens for consumers? (read: not speculators or investors)
Also, if the tokens trade for fiat on an exchange, then they certainly would be volatile as far as what value they can be exchanged for. How can you ensure the service doesn't become more expensive?
As a consumer you likely wouldn't -- you'd buy the tokens as needed and liquidate them immediately. As an investor you might for the same reason you would invest in any other enterprise. If you believe that the application is likely to become popular, then more people will be needing the token that powers it, thus the price of that token (against other assets) will go up.
Most ICOs don't have much value prop, but Telegram has a lot of network effect lock-in that they can use to force people to use their token for any services that ride on the Telegram network. And according to the leaked white paper, they're planning to offer every imaginable service similar to WeChat.
> once the chain is up and running — will buy a thousand hamburgers or three
Like almost all dichotomies, it's a false dichotomy.
Most ICOs end up going up by 2x, but having the 1000x you described are very rare, plus ICOs going down in price are also not as frequent. Most ICOs stay in their price range.
Thanks, that was a good read. And raises a lot of questions in my mind.
They are going to use PoS mechanism. So, I had to look at the token distribution scheme. 4% by the team and 52% by "Ton Reserve", which I think is not explained. With only 44% held in hands of non-Ton people, is this even decentralized?
If it's proof of stake and the majority is held in a single hand and the proof of stake required isn't a supermajority... then it's basically a database under the control of one entity.
ICOs aren't decentralized. They are tokens sold by an entity that premine them and generally control most aspects of the project. There might be exceptions, but I can't think of any.
So are you saying when Ethereum did ICO it was not decentralised? And you do realise this will have its own blockchain and only reason there needs to be a blockchain is "decentralisation".
Not the parent, but I suppose it's safe to assume that VCs populate most large deals in tech. He also said 'per the SEC filing', so his source could be that.
With that said, Telegram's founder, Pavel Durov, is a Russian entrepreneur and of the $850m from 81 investors, an entire $300m was invested by a well-known oligarch in the country, Roman Abramovich.
Presumably they will use the tokens in the app for payments and a way to run decentralized applications (so paying for computation, storage, etc.) What's being sold is the potential for the token price to appreciate in value. It's definitely a worse deal for investors than an IPO as there is no equity being sold.
Apologies if I ask stupid questions, but can someone explain me the relationhsip between the tokens created in ICO and ethereum (or bitcoin)?
I mean, are these new tokens completely indpendent (economical) entities with no connection to the value of other cryptocurrencies, or do they somehow derive value from ethereum?
To put this in practical terms, if I want to raise money via an ICO and promise that you can use a token in one year's time to buy USD100 worth of gadgets from me, is that doable without anyone taking any risk on the fluctuation of value of cryptocurrencies?
The new tokens are completely independent of other tokens. Buying at ICO, you’re acquiring tokens that you hope will have value once the system is up and running.
I’m sure you could do that somehow, but I don’t believe anyone has done it.
Here is where I go confused. New tokens are supposed to be completely independent from ethereum economically, but at the same time they are somehow ethereum contracts. Would that not mean that someone needs at some point own ethereum and take the market risk?
Yes, to transact tokens that run on top of Ethereum you have to pay transaction fees in ETH, which AFAIK means you need to buy at least a small amount of ETH. There are some recent proposals that would allow fees to be paid in other tokens, so I guess if those go through then you could use tokens without ever touching ETH.
> It's definitely a worse deal for investors than an IPO as there is no equity being sold.
If you pay $100,000 for 100 shares of Google I guess you're technically getting equity, but what exactly is the advantage of that?
Sure, your broker has a digital ledger that records your ownership, but is that fundamentally different from digital entries in any other ledger just because there's equity?
Whether you buy Google shares or Telegram tokens, the only reason you're buying is because you expect the price to go up in the future.
Well, with shares you are more or less guaranteed that they will increase in value, if the company does well.
With tokens this is not clear, as it would be possible for Telegram to do insanely well, but the tokens not being very popular/being used for some unimportant feature.
Thw tokens not being used is what gets me. Is telegram incentiveized at all to use the tokens? Sure they own a lot of them, but so what? They already got the cash and they can just use it to do business like normal and make money that way. Why try and get people to use tokens to do business when they can just have them use fiat to buy things? The transaction of the tokens is taxable just like any sort of barter exchange, so it's a lot more complicated to work with than fiat. I just don't get it. It might work for a business that is locked out of the banking system, but otherwise, why bother?
Are there any ICOs that have tokens that are valuable based on anything other than their speculative value? Do any even have a dividend or are useful for anything besides trading on exchanges? Most tokens seem to have a big spike and then slowly grind down in value over time. It just seems to me like a "make your own speculative bubble" industry.
The U.S. government has a set of laws that govern what “shares” in a US-listed company mean. If Google’s management tries to completely nullify what equity ownership means, the US government will go and take it back. They will freeze the founders assets. They will ground the company aircraft. They will send scary men with big guns to make arrests of people indicted by a grand jury. Those things are pretty hard to get away from, short of fleeing to Venezuela or something.
What analogous threat of violence is behind the value of Telegram tokens?
Fraud is fraud whether it is in equity shares or ico magic money. Granted, equities are much better monitored and regulated, but if they steal from investors through the ico, they will likely face similar enforcement.
It’s only fraud if the promises of the contract have been broken. Nowhere in their whitepaper they equate a token with a right to receive dividend or to claim a share of the company’s assets in the event of a sale.
> Whether you buy Google shares or Telegram tokens, the only reason you're buying is because you expect the price to go up in the future.
I am not arguing the equity angle. I kind of agree with you on that, especially because you used Google as an example.
But, I am getting a bit tired of people making it sound like IPO and ICOs are the same. They are not. Google or any other company have to be in operation for year(s) and show consistent revenue, if not profits and even talk about their future plans on how they will use the money before people "expect their prices to go up.
ICOs on the other hand rely simply on paper. No one knows whether they will deliver on their promises and expect price to go up. It is like VC investing for sure. But, without the expertise required to vet ICOs the whole "expectation of price going up" can be described as FOMO.
Shares mean you get a vote in the running of the company. You also have recourse in law to bayous standards according to the country's laws they are registered in
None of these dapps have implemented or demonstrably plan to implement any systems that require the use of these tokens in a way thats compelling. who cares if youre goldcoins on flavorville are on a blockchain? its such a trivial and incredibly boring use of the infra. I’m actively working in this space on open financial instruments, a common standard and “designer software” to model and test contracts before they get issued and broadcasted by market participants. also needed is a formal specification for contract formation that doesnt cripple rapid prototyping by quant devs or enterprise companies. Mass-market adoption of arbitrarily complex financial products is tricky and could be fraught with problems and dangerous classes of errors, which makes the need for the new instrument types to be interoperable across wallets and exchange venues, while also being editable and more easily deployable is critical to be aware. While displacing intermediaries structurally due to the extinction of prior trusted models, its important to understand that these tokens basically do represent ewuity ownership and calling them in app currency is not a reasonable “trick” to get around securities legislation
Neither did apple, until it did. But regardless, the appreciation is there. Google reinvests profits and buys back stock thus adding to the capital appreciation of their stock (something that yields better tax advantage than dividends anyway).
No sorry I see how that was confusingly worded... GOOG does not pay a dividend, much like BRK.A does not pay a dividend. I'm sure there are other stocks that don't, I just can't think of any others off the top of my head.
Majority of stocks pay dividends, but some double digit percentage do not.
There's no product yet, they're selling the tokens that will be used in future products.
When we finally find use cases that make cryptoassets relevant to regular people for routine activities, then the skeptics will understand that there's more going on here than just tulips and Ponzis.
Telegram has real potential to do that, it just takes some imagination to see what it could be.
They way you describe it makes it sound like you're giving free money to vapourware. Telegrams ideas around tokens could be useless and lead to the tokens being valueless. At a minimum we should expect a clear product roadmap from them.
Small nit: Until we finally find use cases that make cryptocurrencies relevant to regular people there's nothing more going on here than Tulips and Ponzis.
I chose "until" specifically because finding a good use case does not justify any of the shenanigans that happened before that discovery. The word "when" doesn't carry that connotation, and "unless" doesn't either - though I'm guessing you chose it because it implies we may never find one?
I think the strategy is getting in a central position in people's communication; they also have a huge user base; perhaps that doesn't justify 850M but those are some things to look at.
Wherever someone has this big influence and strategic position, they will have big chances to leverage them and make such investment worth (especially if the founder has a proven business-runned mind).
This is truly nuts. We are living through some truly irrational craziness that makes the dot com bubble look like nothing. When this correction comes it’s gonna be really bad. Greed is not a good thing folks.
To be honest I have not seen any official marketing page from telegram nor any ico calendars like https://www.coingecko.com/en/ico . Is this entirely private by some group of deserving entities?
When will the public can and able to participate?
The cake is eaten first by the guys with big guns. Then, ICO will likely go public, where public buys enough so that the big guys can dump and get what they invested + interest. If you want in, you are already late to the party...
Thanks to securities laws, the rich get richer, and the poor have to wait for the scraps.
Ideally the SEC's mandate would be limited to going after P&D groups and other scams, and no longer include enforcing restrictions on selling securities to unaccredited investors as a non-public company.
If the poorest households are allowed to spend 9% of their income on lottery tickets, I don't see the justification for preventing unaccredited investors from investing in whatever they want.
All it does is eliminate the long-tail of small companies and nonprofessional investors from participating directly in a key sector of the economy.
This is going to be an interesting fiasco, chewing ever more on the shaky public trust. The layman still getting in on this stuff makes it so private investors can liquidate their worthless investment at a premium, the former won't learn before the later does.
We now live in a world where you can have two products side by side, where one has any of "Crypto" "Block" Coin" or "Chain" in their name or description and the other does not, where both products do the exact same thing, and have one of them raise billions of dollars overnight from VCs and the other one not get a single upvote on the new page of HN.
We truly live in a post-informational time. Everything is emotion. Nothing is about rationalization or sense or an actual understanding of how something works. Because we don't know how the thing worked, the numbers got giant, and we want giant numbers too. So if you use the same words as the thing we will plow money into you like no tomorrow because we still don't understand the thing but we see 1000x profit in 5 years.
In this case "private" have nothing to do with the code license. Problem with Telegram is that protocol and cryptography they use is their own. They might use better reviewed protocol like one of Signal, but they didn't.
No need to explain what dangers same strategy going to cause with cryptocurrencies.
The official desktop client doesn't even support it, after years of people asking for it. Telegram is basically equivalent to Hangouts or any other random chat app, if you care about security.
People will tell you, that there is big gaping crypto vulnerability in Telegrams client-server crypto because it is not secure under CCA. In fact this is only certificational weakness (ie. attacker can replace message with different ciphertext that encodes exactly same message). The crypto is somewhat weird, but it is clear that motivation for the weirdness is getting small ciphertexts.
No it's not, the source is on Github. Windows client looks like it uses openssl, Android client looks like it uses boringssl. I didn't actually clone the repos and and take a proper look tho.
There's obviously no way they need so much money. The discounts pre-sale investors receive on their tokens will be enough to let them sell at a profit when the tokens become saleable. We don't even know how far along is the implementation they're working on, what will future adoption be like - at this point, there's only insider investors looking to cash in on the hype.
Another ICO. ICO that, ICO this... you cannot even go to another tech conference without an ICO gets mentioned. All this 1000 of crypto coins are useless in long term and I won't support Telegram too. There are 3 main players named Bitcoin, Litecoin and Ethereum which will stay here longterm and I don't see that changing anytime soon.
Ripple will also stay I think. But I would be careful of Ripple. Just my opinion. It's interesting it's connected so well with many financial institutions and that they have big names on board but I would be a bank I would rather look in something like Stellar than Ripple which is (theoretically) in a centralized control of one entitity. All this locked up XRPs which are not in circulation would not let me sleep well.
crypto/blockchain is significant and has broad implications for how human social structures cooperate on a global scale. consider everything you do on a daily basis and think about transactions and interactions you have with others - all of them
Buying tokens, which can be exchanged for a service at an unknown ratio (price), amounts to financing a new fast food chain by buying a million tokens for $1,000, where the tokens can be used to purchase hamburgers once the chain opens. The problem is that you have no idea if those million tokens — once the chain is up and running — will buy a thousand hamburgers or three.
So there’s a dichotomy here. Either your tokens remain low in value, and the end product of the business will be cheap (as it’s priced in these tokens) and you make no money as an investor, or the token price will increase and the end product will be expensive (but you’ll be able to sell your tokens for a profit).
In the end it’s a useless proposition: either token holders will be able to buy cheap hamburgers if the token price is low (thus causing a loss to the issuer/hamburger producer) or they will sell their expensive tokens for dollars and use dollars to buy their hamburgers elsewhere.