I’ve brought tokens for the Electroneum ICO, but I do have questions.

Who is this article for?

I’ve written this article, in my capacity as a crypto coin novice, for other newbies, who might be considering investing in this opportunity. I’m not an IFA, so it’s not investment advice, just opinion and observation. As Electroneum is a UK based product, most of my references are UK based, even though this coin will have a global reach.

I’ve also aimed it at Electroneum, and very much hope they’ll engage with some of what I’ve raised. In doing so,I think they’d stand themselves apart from a lot of what I’ve seen in this sector — and add more legitimacy to the offering.

What’s an ICO and what’s the opportunity?

The Electroneum ICO looks exciting. ICOs, for those who don’t know, are Initial Coin Offerings. Similar to an IPO (an initial public offering), which is the first time a company’s shares go public, (think Royal Mail), an ICO is the first time a new coin becomes available in the unregulated, volatile cryptocurrency sector.

This digital wild west is something I am fairly new to. As such, this article may be littered with inaccuracies and misunderstandings. But I’m going to cut myself some slack, because Electroneum is aiming to broaden the pool of people who invest in alt coins. So, if I don’t get it, other target investors might not too. And as such Electroneum might want to address some of the points I’m going to raise here.

I like the look of Electroneum because it’s UK based. As it’s local to me I feel more compelled to take part. However it’s the opportunity it provides for mobile-friendly mining that piqued my interest.

As I see it, there are a six key ways to make money with crypto and learn within this emerging asset class; Investing, trading, mining, launching your own coin via an ICO, or earn it via gaming or gambling. I’ve written so far about my adventures investing and trading. Both of them are a bit of a gamble. I’m not a gamer. Just now I don’t know about getting involved in an creating an ICO. So that leaves mining. While that’s driving my investment, I’ll leave my observations on it till the end.

A quality look and feel provides reassurance and lends credibility

Since I started investing in cryptocurrencies my Facebook feed has become littered with ads on a multitude of altcoin opportunities. The visual quality of the Electroneum site stands it apart from a lot of the other schemes I’ve seen promoted, and that helped me notice it amongst the noise. The quality lends a lot of reassurance, which is key. Whether that’s justified or not is another thing entirely. Electroneum want to bring coin investing and mining to the masses, and by exploiting the opportunity for engagement via smartphones it sees that as a route in.

A slick ‘look and feel’ will go a long way in helping pull in that target customer. And, on the face of it, the level of attention to detail in the site build, the quality of the content (like the white papers) and the effort around social media engagement make it look less likely that it’s a scam. It’s no surprise that the site, content and social engagement is so good because Electroneum, as a company, has its genesis in web design and marketing.

The social media engagement is obviously key to getting the ICO message out to crypto newbies in a way that can be easily understood. I hope that this is backed up by customer care and support post-launch. Newbies will need it, but I also think decent customer care can be a differentiator for this new player, compared to the rather poor efforts I’ve seen made elsewhere in the sector.

What made me decide to invest?

The ‘decision maker’ for me was the on-site endorsement of Duncan Logan, and, I shall declare my hand here; I’ve spent a modest three figure sum in GBP on discounted tokens. And based on the answers I get here, I might even flutter a bit more.

The inclusion of Uber, Spotify and Hootsuite logos on such a good looking page also lends Electroneum authority, creating a visual impression that these three companies are endorsing the coin. But, the Logan connection aside, as far as I can see, they aren’t — so it’s a little misleading. If I was working in legal at any of these three organisations I’d be issuing ‘cease and desist’ notices as regards the use of those logos. This is one thing I’d like to hear Electroneum’s view on.

Security concerns

Just now the ‘My Electroneum’ web app just needs to cover the purchase of tokens pre-ICO. So there is little to steal. And any layer of additional security would be a barrier towards people completing the key task of buying those tokens. Hopefully this is the reason why there’s no current option for any level of two factor authentication (2fa). Allowing authentication via Facebook also lessens the barriers to participation in the ICO, because users don’t need to manage and remember a separate user account. However, post-ICO, if this doesn’t change, both of these things look like security shortcomings, because the potential of unauthorised account access isn’t mitigated well enough. (Account locks and timeouts would also be useful features.)

Of course, in terms of storing my coins, a tool is provided so that I can generate a paper wallet offline. However I think many newbies will struggle to generate and store the wallets securely, understand the difference between the keys and addresses and, ultimately may lose or disclose this crucial information, and as a result be parted from, without any comeback, all of their investment.

Both of these issues could undermine confidence in the project if wallet loss or account hacking become widespread. I can picture it in the Daily fucking Mail already…

Another security related concern is around user verification. When I signed up to my account, I didn’t get so much as an email verification, or any acknowledgement. Neither have I had to do anything when creating a profile to verify my identity, or the source of my funds. And, I have little of worth that shows that I’ve invested, should Electroneum disappear with my deposit. As of today, £700k+ has been committed to the token sale, with seemingly not even a check in place to see if any of it is associated with a valid email address. Imagine if all that NHS ransomware Bitcoin was laundered through this? I can see that in the Mail too!

Of course, all this tedious compliance is just another barrier to participation. Newbie investors won’t have any concerns that they’re moving through a process that seems to be implementing little in best practice in terms of compliance and security, because they won’t know any better. Is this intentional on Electroneum’s part? Or an oversight? Neither is good, because the first smells fishy and the second makes me think, if they don’t get security for end users, how robust is their security around the coin as a whole?

Other random points

The team and business

It’s great to be able to find out about the team behind this — because they’ve made it very visible on the site. That’s a positive. The site carries a registered address, company number (which is valid) and D&B number. So that’s good too. The advisor photos look a bit sleazy, which is a shame because everything else (the possible misuse of logos aside) looks so slick and trustworthy. If I were one of the advisors I’d have probably found a better shot of myself than one that looks like I’m lounging in my private jet, or up against a fluffy wall. I’ve seen this commented on in a forum elsewhere as well — so it’s not just me!

2 decimal points — it looks and works like real money!

Electroneum make a big deal about how their coin will only ever go to two decimal points, and thus be more analogous to real money in terms of spending. This is something they’ve picked up in their user research. And it makes perfect sense. Of course there would have been a point with bitcoin where two decimal places worked well, until .01 of a bitcoin cost £20 and upwards. Does shifting the decimal point alone and having billions of coins as opposed to millions of coins stop this from ever happening? I also read in the overview white paper (again, this a great example of decent content that lends legitimacy) that mining whole coins is easier than partial coins — but I don’t get how where the decimal point is would make a difference. It’s just a number right?

Distribution through exchanges

I’d like to know more about plans for having this coin tradable on exchanges, like Kraken, or to what extent I’ll be able to convert my coins into fiat currency or other altcoins. I assume from launch GBP, EUR, USD, BTC and ETH will be covered?

Lack of core tech

This Electroneum blog entry suggests the mobile apps would be ready from 10 August. There’s a link on the site to an Android one, but I see nothing on iOS. And no updates as to where/when, other than we’ll be told when. The Android app doesn’t do much. It just says the miner will open on 1st November and provides more opportunity to invest in tokens. It’s secured by a pin alongside the username and password — so at least there’s some additional layer of security.

It’d also be useful to know more about the desktop mining app. If I was looking for evidence as to where this whole thing might be a scam, this might be an area to probe. A lot of ICOs have become known as ‘pump and dump’ schemes, where coin promotors big up the hype of a currency, to inflate its price, attract more investment (accruing more Bitcoin and Ethereum as they go) before exiting at speed, inducing panic and precipitating a dump. Often these schemes are easier to spot in ICO examples where the key components, like the blockchain, aren’t ready. So, the lack of availability of these apps here could be a sign of this. As an aside, the way this same blog post talks about the token raising crowdfunding app being your first Electroneum wallet doesn’t fill me with much confidence that account security for users will be any better at launch than it is today.

Hyperinflation

The overview white paper states that a maximum of 21 billion coins will be created and then goes onto to imply that a finite amount of coins means new currency just can’t be created — leading to a risk of hyperinflation. That’s great. But it’s slightly contradicted by section 5 of the user agreement, which gives Electroneum the right to issue additional coins under the vague condition of ‘massive future demand’. It does however say this won’t happen for three years — so we can probably wait and see — but again it’s being promoted on a basis where inflation isn’t an issue, where as one day, the company has the ability to make it one.

Mining

For now, rather than try and get my head around the complexities of cryptocurrency mining, I just tend to think about it like any type of mining, where success depends on what and where to mine, and the quality of the mining hardware. I own a MacBook Pro, and, as far as I can work out, it’s not a cost-effective piece of machinery to mine with. It lacks in one key area (a powerful GPU, which I’ll explain later), and, given they’re not cheap laptops, the thrashing mining gives it makes it an expensive way to burn out over-priced hardware quicker than is ideal. To get returns from mining, I’d be better off building my own Linux box and running it overnight when the electricity is cheaper. Even then, do I mine alone or as part of a pool? (most likely a pool, but how can I be sure?) And whatever I do, how can I be confident I’m secure and not open to any risk? If Electroneum can get this right on mobile, that would be impressive. But smartphone mining (as would be the same with Mac Book Pro mining) is more reliant on the CPU than GPU — and that can be impractical and cause issues.

The difference between GPU and CPU is about where all the number crunching that goes on in mining happens. GPU stands for Graphical Processor Unit and its job is to do all the mathematically intensive work that’s needed to render hi-end video, graphics and 3D models on the fly. Intensive maths is also essential for mining. In both gaming and mining the GPU takes the load off the CPU (Central Processing Unit), which is otherwise just going the standard job of being a computer. As most desktops and phones only need to be standard computers, GPU specs off the shelf won’t be so high. This means, on most computers or phones, for gaming or mining you’re relying on your CPU to do more of the work, flat out, consuming more power and generating more heat and wear. If I can mine Electroneum on my mobile, great! But I do have concerns about how effective it might be, and whether it’ll be good for my phone, given the price of iPhones and with battery life always an issue.

In terms of how the Electroneum mining works, I don’t know to what extent the individual apps will all work on the same pool, or if they’ll aim to mine individually. I’ve only skim read for now this technical white paper (the very existence of which provides some reassurance) which talks about how the risks I perceive with mobile mining are perhaps mitigated. What I need to spend more time thinking about, or trying to understand, is if those mitigations actually render the mobile mining a little ‘gimmicky’ and that mining will, as mining does, depend on the right desktop hardware. If it is a bit of a gimmick, is the main differentiator nothing special?

So, could this be a scam? And even if legit, is it a massive risk?

If I were going to create my own coin one of the first decisions would be what blockchain technology to build the currency on. The CryptoNote algorithm as a starting point would be a good one, because it’s open source. Monero (XMR) is an example of a currency I’ve both invested in and traded in which is based on this technology. However, the algorithm’s low barrier to entry makes it an obvious one to build a scam on too. The technical white paper explains how Monero and ByteCoin (BCN) — top 10 and 15 cryptocurrencies it claims (although by market cap, this is inaccurate) — are based on CryptoNote. ByteCoin has had some pretty dubious things written about how it started off. I’m not sure I’d be holding that up as an example.

The overview whitepaper talks about how the blockchain was purpose built — which makes me think it’s been sufficiently forked from CryptoNote to be significantly different. So, has it lost the benefits of being an open source project now in terms iterative improvements and testing? Basically multiple eyes on the code? And how robustly can Electroneum’s team iterate, interrogate and test the code if it is now its own entity?

My conclusion? Well, I like to believe the best in people. Richard Ells knows digital and I’d venture, based on the companies he’s run, he has an exceptional knowledge of the addressable UK digital market, and of the still growing potential of the mobile web, gaming and crypto. I can’t see he either needs the money, or would risk trashing his reputation, to lead an alt coin scam. So no, I don’t think this is a scam. Caveat: I’ve been looking at Crypto since just July — so what do I know?

And that caveat segues nicely to my next point on risk… As far as I can see, ICOs and alt coins succeed on the basis of money flowing into them. This sector fluctuates enough as it is. Perhaps it fluctuates because, to an extent, anyone who invests in it lacks experience in the sector and in trading as a whole. But this coin wants to take crypto to a whole new market — potentially with less experience in both.

New markets are hard. The white paper says, ‘Electroneum is a complementary currency that has been developed to allow anyone, regardless of technical ability, easy access to a cryptocurrency.’ Technical ability (or lack thereof) often goes hand-in-hand with slack attention to detail with security. This needs to be addressed and improved online across the board for the good of the web and society as a whole — not just here. Don’t not offer 2FA because it’s a barrier to the masses. Make them understand it, and if they can’t, don’t let them play. A few fully invested rich technophobes whose Facebook profiles are secured with a password named after their cat, as I see it, introduce risk. These investors will panic when risks or challenges come up they don’t understand. Managing that will be a key challenge for Electroneum. In terms of managing the product — I think security and compliance need a lot more attention (or questions need to be answered) based on the points I’ve raised in this article. I hope I’ve been seen to raise those in good faith. I’d like to see this succeed.

It worries me that those Uber/Spotify/Hootsuite logos are misleading. Why do it? Those companies aren’t backing you — so take them off. I’m nervous the mobile mining differentiator might be a bit of a gimmick — and beyond that, the coins have got to be mined — so who’s doing that? The lack of the actual apps at this stage is a concern. And also, as a piece of software development, I’d want to know a lot more about how well that blockchain is being managed.

Other than the private jet picture (which raises its own concerns) the whole site, crowdfunding app, social campaign and content is an online marketing masterclass. From what I’ve seen of Richard in the forums, he conducts himself beautifully. This looks like a polished product. It should get people excited.

At the end of the day, my concerns aside, I think this is worth a punt. In the last 24 hours the Electroneum project as made me think more deeply about the alt coin lifecycle end-to-end than I have at any point in the last two months since I first got interested in it. And over that period I’ve given it a lot of headspace. And you have to make some kind of investment to get that chance to learn. It’s maybe, at this stage, no more risky than any established alt coin — or any other legit ICO. And it comes with enough polish, and info, to allow prospective investors to make an educated decision. Already, if I lost my entire investment, the learns would cover that and deemed it worth it. On that basis alone, I’m in. And I think, over the next three months we are going to hear a lot more about Electroneum, and the team, one way or another. I’m excited for that journey ahead.