the future of initial coin offerings - wordpress.com 27, 2017 · the future of initial coin...

The Future of Initial Coin Offerings

Wulf A. Kaal

FinTank

Chicago

July 27, 2017

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Slidesavailableat:wulfkaal.com

Outline

• CaseStudy:Ties.Network• ICOBasics• ICOTrends• ProblemswithICOs• FixingICOs• Outlook

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Ethereum

Ties.NetworkEthlanceJob Site

AKASHASocial

Decentralized Applicationon Blockchain

EthereumPotGambling

EtherLoversImmortalize Love on BC

... ...

Crypto-CommunityTraders

Investors

DevelopersConsultants

Lawyers

Enthusiasts

The community is separated. There is no unique platform for finding partners and making deals.

Ties.NetworkBusiness Platform for CryptoCommutity

PRincrypto-community

Voteandratingsystem

Partnerssearchandbusiness-transactionrightinthenet

Abilitytopreservefullanonymity

Byzantine Problem Tolerance

“ATTACK!!”

? ?

?

? ?

?

??

?

Thisproblemhasasolutiononlyiftheamountofloyalgeneralsis⅔(2m+1).Ormorethanahalfiftheycan’ttwisteachother’swordsaround

• Byzantinefaultinthesystemwhenoneormorecomponentsstarttobehavemaliciously.• Thesystemisbyzantinefaulttolerantifitsurvivesmaliciousbehaviorofitsparts.• Trust:Youneverknowifyour(anonymous)collaboratorstellyouthetruth• Therefore,allthepublicsystemsthatallowanyonetoparticipateshouldprovidebyzantine

faulttolerancetoensurestability

Ideal storage

Fast

Distributed and Decentralized

Structured data

Byzantine Fault Tolerant

Public

Sharding and scaling support

Mutable data

Advanced search capabilities

Current storage options

Blockchain

Blockchain Distributed DatabaseP2P File System (IPFS) Decentralized cloud file storage

Immutablestored data

Smallcapacity

Slowconfirmation time

Blockchain

Blockchain

Pros Cons

Peer to peerOnly used files are stored locally

Necessary to stay onlineOtherwise your files might not be

available

Content-addressableMalicious modification is impossible

Static files only

High throughputParallel download of popular files

Files cannot be removedonce they are downloaded by peers

No content search

IPFS(InterPlanetary File System)

Based on Distributed Hash Table, BitTorrent

Pros Cons

No need to stay onlinefor your files to be available

Static files only

High reliability No content search

High throughput Not for free

Files can be removed

Decentralized cloud storageSia, Storj, Ethereum Swarm

(just cloud storages like Dropbox, but difference is that the content is hosted on user’s computers who offer their hard drive space for rent,

rather than in datacenters.)

Pros Cons

Fast

NOT Byzantine Fault Tolerant (Allthenodesoftheclusterfullytrusteachother.Soany

maliciousnodecandestroythewholedatabase)

Linear scalability

Fault tolerant

Mature realizations

Distributed noSQL DatabaseMongo DB, Cassandra, RethinkDB

Pros Cons

As good as RethinkDB Immutable

NOT Bysantine Fault Tolerant

BigChainDBShould be: BigPrivateBlockchain

● Build on top of RethinkDB cluster

● Each BDB node can write directly to the cluster

● NOT Bizantyne Fault Tolerant

● Public - any user can write to the database

● Record remembers its creator (owner)

● Record can be modified by owner only

● Everyone can read all records

● Each user has its own primary key space

● Permissions are rechecked on replication

● Permissions are managed via smart contract

Ties DBBringing BFT to noSQL database

public key

(owner)id payload signatu

re

Alice profile {...} Alice

Alice rating for Bob

{...} Alice

Alice rating for Eve

{...} Alice

Bob profile {...} Bob

Bobrating

for Alice

{...} Bob

Eve profile {...} Eve

Eve is owner, so this record can be modified by Eve only

Special data organization Example

Incentives for

retrieval

Incentives for

storage

Ties DBIncentives

● Anyonecanparticipateinthepublicnetworkwiththeirownhardware

● Incentivesmotivatenetworkparticipantstobehavehonestlyandresponsibly

● Usersandnodesshouldhavedepositonblockchainsmartcontract

● Userspayfordatabaseoperations

User

Incentives for retrieval

Coordinator

● Coordinatormanagestheuser’srequesttoretrievedata

● Userpaystocoordinatorandnodeswith“checks”(off-chain)

Incentives for storage

User

Coordinator

Receipts

● Coordinatormanagestheuser’srequesttostoredata● Nodesreturnreceiptconfirmingtheystoredthedata● Userpaysthecoordinatorandnodeswith“checks”(off-chain)● Receiptenablesanyonetoverifythatdataisstoredproperly● Nodeviolatingstoragecontractcanbedeprivedofitsdeposit

Conclusions

Ethereum

Ties.NetworkEthlanceAKASHA

EthereumPot EtherLovers

......

TiesDB

TiesDB is public, high speed, high capacity, byzantine fault tolerant noSQL database with rich queries

• ICOfall2017afterMVPout(Americancitizenscannotparticipate)

• Lookingforlong-termpartnersintheUSA• MovingbusinesstotheUSafterICOlater• InvestindevelopingdecentralizedtechnologiesintheUS

• PossiblePartnerCompaniesORpotentialclientsofTIESDB:– Companiesthatdealwithstructuringandorganizingbigdata(ourDBcanmanageHUGEamountsofdata)

– Catalogsofmusicfiles,photo,video,andaudiocontent– Socialnetworks,messengers,andforums– Healthcareblockchain-relatedprojects.WereceivedrequeststouseourDBforClinicalBlockchainLLCforexample.

– Publiccourtrecords(anylawfirmcanuseourdatabaseaswell)

– Publicdomainrecords– Copyrightandtrademarkrecords

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ICO Basics

UniqueICOProperties• Tokenscomparetoafuturescontractbecausetokenholdermakesapredictionaboutthefuturesuccessofacompany/project.

• Tokensproviderighttobuygoodsandservices,likeacurrency.

• Ifaprojectorcompanysucceedstokenvaluecanincrease.

• Independentstoreofvaluethatcansucceedevenifthecompany/projectfails.

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28Source:KaalConsultingLLC– GenericICOWorkRequirements

Inku Ventures - ICO Consulting Proposal - Kaal Consulting LLC

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Please see below a short description of required work segments and a timing sequence for your ICO. Upon request, I would be happy to provide more details as needed.

SequenceofICOWorkRequirements: BasicDescription: CostEstimatesin

US$:

Whitepaper Description of market, Purpose of the ICO, Company business, Intended use of proceeds

$10k - $15k

ICO Framework Consulting with client’s legal team to create structure for accepting money in crypto from investors

$25k-$50k

Technical Setup Smart contract (coding) development to receive money from users in crypto

$25k-$50k

Landing Page Landing page - web-site development and integration

$5k-$15k

Marketing Social Media Marketing (Facebook, Reddit etc.), representation of ICO at conferences, Network introduction to ICO etc.

$50k-$100k

Professional Relations Writing and placing articles about ICO in crypto market media

$15-$25k

Banners Banners on the web $25k Marketing Team Crypto Marketing Team - working for 2-3

months $20k

Community Managers Crypto Community Managers - working 2-3 months

$10k

Project Management Project Management - working for 2-3 months

$20k

Please be advised that the above proposal constitutes a very roughly estimated budget and actual cost may be +/-30% depending on the availability of contractors and subcontractors and their actual bids. Moreover, on top of these estimates I would charge a consultancy fee, which might consist of the following: fix + success fee + coins/tokens of ICO. Finally, raising crypto funds opens up different investment opportunities with the proceeds of the ICO, including but not limited to the following: 1. Investments in crypto currencies, 2. Investments in crypto companies, 3. Investments in other ICOs. Depending on your preferences as to the uses of your ICO proceeds, Kaal Consulting LLC would also be able to provide consulting services, among others, with regards to such investment opportunities. Please do not hesitate to get in touch with any questions. I look forward to discussing the proposal with you at your convenience.

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3 PitchBook 2017 Fintech Analyst Note: ICOs

The decentralized nature of the crypto ecosystem allows the

industry to maximally leverage regulatory arbitrage in order to

deter scrutiny of any legal basis. Many players take advantage

of laws governing legal nonprofit associations in Switzerland,

which allows them the same legal standing as established

entities such as FIFA, the global governing body of association

football (soccer). This has led to Switzerland becoming a hub for

blockchain entrepreneurial activity. Under this guise, associations

can form token-backed sub-entities in order to carry out

development of specific crypto projects which aim to ultimately

generate revenue. In fact, this has also led to the recently formed

Crypto Valley Association formed in the canton of Zug.

Industry analysts have lumped in token sales and ICOs. In

the former, entities issue a tradable token typically using the

ERC20 standard which makes them compatible with other

dapps (decentralized applications). The former include tradable

token sales as well as other crowdsale projects facilitated using

cryptocurrencies. Ethereum first enabled the development of

smart contracts using its turing-complete architecture. Turing-

complete means that the Ethereum network acts as a distributed

virtual machine with the ability to execute any application that a

typical computer would using its distributed network. Some of the

most successful token sales have utilized the Ethereum blockchain

to execute their smart contract tokens.

ZombieICOsoftencannotanswer:• Whatisthebusiness/infrastructureproblemtheinvestmentpropositionsolves?

• Howwillinvestormoneybespenttobuildtheidea?

• TeamcanshowMVP,pre-productionsolution orasset?

• Businessplancredible/providesclarityonhowpropositionworksandwhycustomerswouldbuyit?

• ICOteamqualifiedwithexperiencestartingandrunningabusiness?

• Sufficiencyofinformationforinvestmentdecision?35

CoreProblemsinICOs• Uncappedraiseswithnoproduct• Tokenstradingbeforeunderlyingprotocol,network orapplicationislive

• WebpagefocusonICOwithprojecttimelinebutlesscontentonproduct,project,technology,andteam.

• Lackingdisclosuresonvestingandlockupperiods• ManipulatingthesmartcontracttochangeICOsalesrulesmid-courseduringtheICO

• Uncertainuseofproceedspiechart:%onsoftwaredevelopment,%marketing,%operational,%legal

• UncertaintreasuryroleforICO:currencyconversionplansintoactualcompanyreserves unclear

• Non-disclosureofchangesincompanyvia10k10q8kequivalence

• Promotingadviserswhosetokensvestimmediately36

FixingICOs• AppropriateDueDiligence• Vesting• KnowYourCustomer• AntiMoneyLaundering• Leadershipandteamwithaprovenabilitytoexecute• Viablebusinesswithasolidvaluepropositionandbusinessmodel• Teamwithdeeptechnicalskills• Whitepapersuggestingefficientuseoffundsandbusiness-basedthresholdsfor

minimumandmaximumraise• Well-Definedlegalframework,outsideUnitedStates(Howey)• Scamprotection• TransparentICOprocess• Escrow• Controlledreleaseoffunds• Delayedfounderliquidity• GovernanceStructures• Opt-intocryptodisputearbitrationplatform 37

TrendsinFutureICOs• Increasedaccountability.

– Developers“carteblanche”forICOraisedfundslesslikely

– CryptocompaniesbecomingtransparentandaccountableforICOfundspending

• Fixedfundingtargets.– Open-endedfundingcampaignscancreatesuboptimalresults,e.g.DAO.

– Futureprojectshavemoreconcretedevelopmenttargetswithfixedbudgets

• Governmentregulation.– Investorfraud+increasingICOquantities=governmentinvolvement

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Short-TermOutlookonICOs• ICOpromoterswillbeprosecuted bytheSECfor:

– Violationsofsecuritieslaws– Promoter/teammisappropriatesfunds– ICOteamimplodesduetolackinggovernancestructureandbasic

bookrunning• ICOmainstreaminthenext12months.

– FollowingSingaporeseveraljurisdictionswillformallydetermineandannouncethat,asdefinedinsuchjurisdictions,“networkaccesstokensarenotinherentlysecuritiesunlessmarketedassuch”

– FirstsmallerEUstateswithBlockchainhistorylikeEstonia,Gibraltar,Malta,Luxembourg

– UnitedStateslastcountrytoadoptthisposition• Next18months:

– PushedbytheirVCs,existingpipelineofzombiestartups(nogrowth,stalling,lackvestingperiodsforexistinginvestors)ICO soVCcanliquidatepositions

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Long-TermOutlookonICOs• BecauseofICOmainstreamtrend:

– Employeesand/orusercommunitiesorchestrateICOtakeoversofunderperformingWeb2.0platforms

– Butlackofpropercrypto-economicdesignresultsinfailuretoturntheWeb2.0platformsaroundlong-term

• Proven/commercialmanagerswithhand-selectedteamsareinstalledbyactivistinvestorforkstoleadprotocols

• ICOScrapYards:Hedgefunds/privateequityfirmsbeginscoutingfailedICOteamstorelaunchundernewmanagement

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ThankYou

Join the Conversation!

Wulf [email protected]/@wulfkaal

Wulf [email protected]

Facebook.com/wulf.kaalwulfkaal.com

AKASAH wulfkaal

the future of initial coin offerings - wordpress.com 27, 2017 · the future of initial coin...

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