Token Sales, ICOs, Blockchain: The good the bad and the ugly

Giftcoin: the Case Study

When you’re looking to pioneer a disruption in a half a trillion dollar sector, then naturally you’re going to be entering into unchartered territory. This is where risk v’s reward lies.

Giftcoin is looking to disrupt the charitable giving and good causes sector using blockchain technology and crypto currency. Smart contracts will be used to track the direct impact of donations. Thereby giving donors increased confidence, and charities a powerful feedback loop to elicit further support. The Giftcoin vision is to offer a feeless system for end-to-end giving.

Blockchain

Blockchain and the distributed ledger is the technology on which Bitcoin sits, and this technology is being rapidly adopted to solve problems across multiple industries. DataIQ recently posted about a variety of sectors that include real estate contracts, the leisure industry (inc Disney), and charities (where they focused on Giftcoin). Like any emerging technologies and fields, we don’t have all the answers yet. But as David Reed concluded, as blockchain goes mainstream any underlying issues will get resolved.

When it comes to how to take projects like these from ideas to implementation and wide spread adoption, then a new model has emerged, the token sale, or as referred to more often in the media ICOs (Initial Coin Offerings). This can allow a project to attract different levels of investment from different audiences at key points in its construction, launch and continuous development.

Token Sales

As it currently stands, ICOs largely fall outside of regulation. As a result of this a number of bad actors have arisen, and either poorly managed, inexperienced teams, or out and out scams have been jumped on by the media to highlight the dangers for anyone looking to invest in such projects.

This does not mean that ICOs or token sales are a bad idea, to the contrary they can offer many mutual advantages to the developing team, investors, and users of the platform/network. The key is being able to have some process to recognize which projects fall into which categories. I like to ask myself the following questions:

  1. Is it solving a real problem?
  2. Is the blockchain the best way to solve this problem?
  3. Who is the team behind the project?
  4. What’s their experience like?
  5. How trustworthy are they?

There are some projects out there where there is far too much mystery surrounding the team, the underlying technology, the motives and the validity of the business model that leave gaping holes, yet have still attracted a lot of participation and investment. When people talk of the ICO bubble, I see it’s in these enterprises that you’ll witness the burst and people will lose a lot of money.

But that shouldn’t let you dismiss all ICOs or token sales. There are a great deal of worthy projects happening and coming up on the horizon. As Lewis Cohen stated in a recent Business Insider post: “I don’t think it’s really fair for legitimate platforms that are trying to create new and innovative business models to be thrown in with other less scrupulous parties who may see token sales as a way of making a fast buck.”

Documentary

In the case of Giftcoin, the team has chosen to live by their value of transparency and are documenting their journey taking viewers along with them. Giftcoin: The Launch Story is giving you a behind the scenes window into what is involved for the founders to get this project off the ground. By doing so there’s no shroud of uncertainty in who the team is, it’s a great education for anyone who wants to know what goes on behind usually closed doors to launch a blockchain start up, learn more about the charity sector, and it builds engagement with their audience along the way.

Episode 1 and Episode 2 are now airing with further Episodes up coming. The documentary aims to cover everything involved from dealing with investors, to getting your messaging right, legal considerations, to cash flow, introducing more of the team with highlights on it’s advisors, and which ever road bumps will ultimately come up along the way that they’ve not yet foreseen.

Warning: Does contain strong language from the start

Legal Considerations

Another indication of the validity of a project is how the team approach regulation or the perceived lack of regulation. Token sales are an interesting space, because essentially when they take place they are happening globally across different jurisdictions with different rules and regulations, simultaneously.

While crypto currency itself might not be regulated, how a token is categorized, whether it be a security, or a commodity, what the data protection issues are, tax implications etc do exist and you’ll want any ICO or token sale you enter into to have given due consideration to this element. Check to see who is on their legal team to see if they’ve given this adequate thought.

Using token sales to generate participation and attract investment at different stages of the project enables a sensible roadmap for their development and deployment. The initial funding can be focused more on experienced investors, to help develop the base platform, then as the product is ready to be used, a second token sale open to everyone can help the project reach maturity and mass adoption.

In this instance such use of a structured scaling of token sales can help increase the value and benefit of it’s project to everyone, founders, investors, users, beneficiaries alike.

As Marco Santori Partner at Cooley and author of The SAFT project), said in a recent Tech Talk on Structuring Legally Compliant Token Sales: “From the perspective of my clients, most of them …….. don’t want sell to a small group of white haired men who all live in the same zip code and all have the same political beliefs, it doesn’t do anything to enhance the product, it doesn’t do anything to enhance the network. What really enhances the network is a wide distribution, a wide seating of that network participants whose incentives are aligned, not in the growth of the enterprise and of the company like the silicon valley folks but, in the growth of the network itself.”

Open Source

I think this is a key part of blockchain/distributed ledger technology (DLT) solutions, that isn’t given enough attention. Software development has moved from closed sourced to open sourced, and that open source culture is practiced, almost exclusively within the blockchain community. Openly sharing knowledge and resource for the betterment of a network and community outside of any single venture itself.

In the case with Giftcoin its ledger will be publicly readable to encourage transparency and to provide a valuable resource for researchers, foundations, NGOs, governments and individuals to see precisely how the money is being used. The team also believe that a large body of data showing the flow of funds will enable better policy-making and better use of charitable spend.

The future

What will the future hold? It’s clear with so many wildly differing opinions on topics like bitcoin, crypto currency, blockchain and ICOs, that nobody knows. But in the case of Giftcoin at least we’re being offered a front row seat to find out. We get to discover how to go about being pioneers in disrupting a half trillion dollar sector using this technology, and for that I’m very excited.

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