If I have to summarise what will be presented here then I will tell 3 very un-techy words – promise, greed, and hope.
So let’s dive in and understand why did the ICO era end and the beautiful idea ended up in not so beautiful way…
Back in 2012 a guy on Bitcointalk published “the Second Bitcoin Whitepaper” that basically spelled out how ICOs would work … but 17 months later still no one had tried it.
Then at the 2013 San Jose Bitcoin conference that same guy (J.R. Willett) was a panelist and spoke about it publicly. He did finally launch the first ICO, Mastercoin (now called Omni) in the same year.
Little did he know it would be five years before the idea in his white paper would become a runaway trend. It would be built on Ethereum instead of Bitcoin, but would represent the same concept nonetheless.
So in basic terms what was an ICO?
Imagine if the Kickstarter and the blockchain had a baby… well that’s it!
In short, it’s a crowdfunding model where instead of “real money” people contribute cryptocurrency (in this case Ethereum).
What do they get in return? The token issued by the project…
So why was that good for blockchain projects?
The whole beauty of the concept was that it completely democratised funding and investments.
There were no gatekeepers and middlemen in-between – anyone from anywhere could raise money and invest in ICOs.
People with great ideas and dreams no longer had to be in Silicon Valley chasing and begging VC funds to hear their pitch to get a chance. They no longer had to give up part of their company and shares… and eventually risk losing control over their vision and the way they wanted to do business.
Now everyone had equal chances to raise money for their project by issuing their own token…
And that’s what they did, raising $2 billion in just the first nine months of 2017 and leaving venture capitalists fretting about the future.
So from the tech side of things – everything was working smoothly. You can only imagine the feeling one gets while refreshing etherscan page and seeing 1mln+ in a matter of minutes… It’s just mind-blowing.
But let’s look at the humans and the non-techie processes.
Everything starts with a white paper… and in some cases, it was literally a blank white piece of paper or blank laptop screen that projects were filling up. Ideally, the paper covered all the details about the project: who will be building it, what would be the role of the token, how would the funds be used, etc…
In many cases, unfortunately, it was just wishful thinking or fiction (science fiction) writing…
But whatever it was… it was basically the promise. The white paper was the promise to token buyers about the future of the project.
And token buyers bought because they believed… Or at least that was the plan.
The beauty of ICOs from my perspective was that not only you could bypass the gatekeepers – just like self-published authors are bypassing the whole publishing industry and directly selling to readers…
….but also that you could build and nurture the community of your token buyers while you were building your project and they would be with you through the journey. They would help you beta test your product, become your first users, later brand ambassadors, etc.
All you had to do as a project was to keep your promises, right?
I’m often told that I’m idealistic and in cold business reality, when you look at it from that perspective – it is just a deal. The project is selling their token.. the buyer is buying it.
And from that point of view – as soon as the token hits the buyer’s wallet the deal is complete.
Back in 2017, the regulation was not mature enough which made the whole space a Wild West.
That led us to rely on human nature… which is where things got twisted and led to where we are.
A new character – greed – entered the story.
And this is valid for both sides… projects found an “easy” way to raise money and were ready to promise anything just to get it… money that they did not need for building the project, but money that they just thought was a nice number to have.
Token buyers no longer cared about the project and did not even read the whitepapers as long as they thought that the token would moon and make them rich overnight…
As a result, it was no longer space where ideas were competing, where the tech was competing, and where teams were competing to become token buyers’ choice.
It became a space where almost 100% of the success of the ICO depended on marketing. Not even real marketing – the “marketing” in it’s worse sence – hype, exaggerations, paid fake influencers, and all that stuff…
It became harder and harder to choose among projects, to see through smoke and mirrors…
That led to many scams, a bad name for the whole space in general, many people who gave up investing in ICOs – the market crash
… and disappointed moon boys, who did not get their Lambos.
Which led to more regulation and search for new models of fundraising for a blockchain project. We ended up with STOs and IEOs and who knows what else will be coming next …
I personally think from the logical and technological perspective there was nothing wrong with the ICO model – it has proved to work.
Unfortunately – we (the participants in the system) as projects and token buyers broke it.
We are experimenting with the new models… none of them is ideal at the moment and I don’t know which one will be the next big thing… At the moment, I personally think, all we have is a choice between options where we have to compromise.
But I am sure sooner or later we will come up with something, just like that guy did back in 2013.
So here is my version of the story of ICOs that started with a promise, got damaged by greed, and left hope for the future.
… And something tells me that at some point I would probably write about the greed again, but this time probably related to DeFi, which now are representing the new hype in the space…
But I also hope that won’t be the case.