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Wolf of Wall Street: Cryptocurrency ICOs Are 'the Biggest Scam Ever' (betanews.com)
An anonymous reader shares an article: Jordan Belfort -- the real-life Wolf of Wall Street -- has warned that ICOs (or "token sales" or "coin sales") are "the biggest scam ever" and will "blow up in so many people's faces." The former stockbroker, who spent nearly two years in prison for fraud and financial scams, says that the Initial Coin Offerings used to raise money for cryptocurrencies are "far worse than anything I was ever doing." His fears seem to stem from the way ICOs differ from the more traditional IPO. With IPOs investors gain shares in whatever company they plough money into, and profits can be easily shared. With ICOs, however, there is no mechanism in place for distributing any profits that may be made, profits are reliant on the value of a given cryptocurrency increasing and, perhaps more worrying, ICOs are not regulated in the way IPOs are. Aside from the fact that some ICOs are out-and-out scams, many people believe that the cryptocurrency bubble is just that -- a currently growing bubble that will eventually pop, leading many people to lose out.
A crypto currency is a very convenient way to store and move money. Banks will charge 5% or more to convert your money from one currency to another and wire transfers are a pain and usually cost $10. Other money transfers often come with 1 or 2% fees and banks in some countries are corrupt and incompetent. Crypto currencies could replace a good portion of M2 since they work better than most traditional money. M2 world wide is equivalent to almost 30 Trillion USD. One day one crypto currency will likely approach this amount.
ICOs are a scam. They replace shares but are inferior in almost every way except they by-pass the traditional stock markets. (I suppose some conspiracy people might think this is a good idea). ICOs also don't allow high frequency trading since trades can only take place as fast as blocks are added to the block chain and buried to a sufficient depth to be trusted.
Not all crypto currencies are created equal but common sense hints that most of them will certainly pop because obscurity will kill them: 1192 are far too many.
Because a scammer knows a scam when he sees one.
Why should we listen to you instead? What are your accomplishments?
He's 100% correct.
ICOs and their older siblings "premines" are a true mark of bullshit. When the Ethereum bubble pops, almost every single altcoin (i.e., all cryptocurrencies other than Bitcoin) will crash and burn overnight. In the Bitcoin world, currencies with a significant premine were universally known as scam coins. In essence, the creators of the currency decided to print themselves tons of free currency before opening the doors to the public. ICOs are a similar deal. It's like buying stock in a company that doesn't exist. Most commonly, they're an extension of Ethereum and are a mountain of nothing, pegged to nothing, and sold for real money or Ethereum (which is quickly sold for real money).
Setting up your own ICO for some token running in Ethereum (along with a shitty site that does nothing but let you send those tokens to other idiots in the ICO) is a turnkey operation, which is why they're so prevalent.
It's not the technology that makes it a scam, but the economics behind it. He's mostly pointing out the issues with ICOs: no oversight, no"coinholder" rights, and no regulations, which make them a powerful magnet for all manner of scammers.
If construction was anything like programming, an incorrectly fitted lock would bring down the entire building...
When people point out that "fiat" currencies are only backed up by government promises, they forget to note that cryptocurrencies are only backed up by "fiat" currency
This is not right and shows you never took an economics class. I'll try to explain it for you briefly, but you should know it is nuanced and complex.
No currency has innate value, including gold. If "innate value" determined the price of an object, then people would be paying a lot for air, because it's as valuable as life itself.
The value of a currency is determined by what people are willing to pay for it (again, just like anything). If no one is willing to pay more than $10 for an ounce of gold (for example, if the world collectively realized wedding rings are stupid), then that's its price. If people are willing to give you $5000 for a single bitcoin, then that's its price. In other words, Bitcoin is backed by what people are willing to give for it, not by fiat currency. You can exchange Bitcoin for pizza or for hotel bookings.
The price of bitcoin isn't based on "how much 'real' money people have put into it." Bitcoin (and stocks) are not a bank account. The price is determined by what people are willing to pay. Assume for a moment that the bitcoin bubble crashes: in that case, its price could drop to $0 without a single person withdrawing money from it. No one will be willing to buy them. Likewise, the price can jump dramatically in the same manner.
"First they came for the slanderers and i said nothing."
BTC and cryptocurrencies are relatively new, shiny, and edgy. The problem is that there are tiers of currencies:
At the bottom tier are items that can be used and traded. Ammo is the ideal currency in this department, since it is fungible (for the most part, assuming factory stuff.)
Once there are some laws or governance in place to minimize cheating, precious metals come to mind, as they have intrinsic value.
From there, pieces of paper that can be redeemed for precious metals, so one doesn't have to carry currency around.
Once you get stable governments, fiat currency becomes possible. This allows for capital to expand.
After you get stable governments, good communication world-wide and solid storage, cryptocurrencies can be used.
However, like Mazlow's Pyramid, if something happens, like communications or power going out, the currencies that are higher level will wind up being useless.
Exactly.
There's nothing wrong with blockchain technology being used in public share offerings. In fact, ICOs could eventually become a replacement for current equity funding methods.
But as practiced today, they are totally scammy. Unlike stock offerings, coin offerings are almost completely unregulated- owning a coin doesn't confer any rights or protections to the owner akin to share offerings. They have a lot of appeal to the entity making the offering, but I don't see what they offer to the investor. They are like a penny stock offering, but without the protections of SEC oversight and a bunch of tech smoke and mirrors to attempt to make up for that.
Ohh you got me there. Just because bitcoin looks and acts like every speculative bubble ever doesn't mean it is one, right?
A good rule of thumb for what is a speculative bubble: When the value of something dramatically increases without an answer to the question, "why". (aside from the below key factors in a speculative bubble):
Displacement: A displacement occurs when investors get enamored by a new paradigm, such as an innovative new technology or interest rates that are historically low.
Boom: Prices rise slowly at first, following a displacement, but then gain momentum as more and more participants enter the market, setting the stage for the boom phase. During this phase, the asset in question attracts widespread media coverage. Fear of missing out on what could be an once-in-a-lifetime opportunity spurs more speculation, drawing an increasing number of participants into the fold.
Euphoria: During this phase,caution is thrown to the wind, as asset prices skyrocket. The "greater fool" theory plays out everywhere.
Valuations reach extreme levels during this phase.
During the euphoric phase, new valuation measures and metrics are touted to justify the relentless rise in asset prices.
Profit Taking: By this time, the smart money – heeding the warning signs – is generally selling out positions and taking profits. But estimating the exact time when a bubble is due to collapse can be a difficult exercise and extremely hazardous to one's financial health, because, as John Maynard Keynes put it, "the markets can stay irrational longer than you can stay solvent."
Panic: In the panic stage, asset prices reverse course and descend as rapidly as they had ascended. Investors and speculators, faced with margin calls and plunging values of their holdings, now want to liquidate them at any price. As supply overwhelms demand, asset prices slide sharply.
I'm not hating on bitcoin and actually think it will open up some new avenues to challenge the credit card companies to be more competitive but the irrational exuberance sucks people in and it hurts them, especially when highly speculative vehicles like ICOs are looking to cash in on it.
Invest in the stock market, and you become a fractional shareholder in a real company. If the company does well, you do well, it's joint ownership. Invest in a cryptocoin, then you're not really "investing", but you're speculating, gambling, etc.
There IS a law that you must accept U.S. dollars to satisfy a debt in the U.S. That doesn't mean you can accept only U.S. dollars. It doesn't mean you have to agree to a new transaction in u.S. dollars (since no debt yet exists). It doesn't fix the value of a dollar, but if I owe you a cow, and I offer you the current market value of a cow (delivered) in dollars, you MUST accept it and consider the debt paid.
The one thing that your theory is missing is taxes. You can exchange Bitcoin for pizza or for hotel bookings. But you cannot pay the IRS with bitcoin. If you wish to live or do business in the United State, then when the tax bill comes due, you'd better have US dollars. In a practical sense, the value of a government backed fiat currency is based on the relevance of that country to the world economy.