Do not crowdsale.

Let’s get something basic out of the way, right off the bat. Because, as we will see, the crowdsale allows dishonorable people to get away with some pretty outrageous nonsense.

This first part is a secret that’s currently worth 7,484,804,177 - 6,841,234,454 = over $643 million dollars US! So, pay attention.

The Testnet Scams

Does your ScamToken have a future? No? Then, at least be honest about it.

Tokens and Their Value

In my view, every asset is a database for favors.

So, if you buy stock in a company, and the company does well, that company will/should reward your for your timely assistance. It is comparable to you “doing a favor” for a friend, and then that friend striking it rich: you now have a permanent invite to his yacht parties.

This explains “money” in general, which aims to simply accomplish this on a larger scale, ideally the largest possible.

When you earn money, you essentially “do a favor for Everyone” and We recognize that favor (by paying you), and you can “redeem that favor” later (by spending your money).

When you buy a stock, you essentially “do a favor for Some Group”, and the group recognizes the favor (by issuing you stock), and you can redeem that favor later (by selling the stock). Scale is really the only difference: the concept of “Walmart doing better than Target” isn’t different, in principle, from the concept of “the Yen doing better than the Euro”.

Everything that you can’t use directly (money, stock certificates, gold, your line of credit), might as well be “a token”. It doesn’t matter if this asset is represented digitally, or on paper, or with rocks, or merely remembered by your hunter-gatherer tribe: the asset’s value comes from “the favor network”. It is “"”only””” worth what others will pay for it.



This is why, as Dan Krawisz rightly points out, AppCoins are Snake Oil.

You can buy Snake Oil if you want, there’s nothing wrong with that. But, the problem that any thinking person would have with Snake Oil is: it doesn’t do what its seller claims it will do. It is Fradulent!

The fraud: AppCoins, when connected to an open source project, do not allow their wielder to “cash in” any of their equity-tokens…these tokens are superfluous to the operation of the “app”, and the value created by the app.


The case is even more dire for Altcoins – their existence declares, loudly: “If you do a favor for the Bitcoin community, I will not honor it!” and, therefore, these ‘coins’ compete directly with Bitcoin (for the same territory: the internet).

And yet, Altcoins have a permanent disadvantage on the key competitive metric: trust in the cryptosystem (ie “Can I trust this software to work? Can I trust other people to use it?”).

Moreover, if an Altcoin ever triumphed over Bitcoin, by doing so, it would reveal that “cryptocurrency adopters don’t remain loyal to the front-runner”, in which case the question must be asked: why should we expect the new front-runner to last? This is bad for all possible front-runners simultaneously, so instead there’s a gentleman’s tacit agreement never to allow anything to overtake Bitcoin, on which the fate of Bitcoin depends.

The Sanity Barrier

In cases where these two conditions are met: [1] the entire business process, suppliers to customers, can take place on a blockchain, and [2] this process can’t be copied by some kind of parasitic ‘general smart contract platform’ other-blockchain, we might be able to see a CryptoToken inherently represent equity (as opposed to a ‘normal’, legally-compliant issuance of equity, which is out of the scope of this article).

These conditions have yet to be met, but I have high hopes for a few projects.

( Yes, condition [2] implies that Ethereum (Rootstock, “smart contracts”, etc) would inherently kill all DACs and DAOs, it’s first-year graduate game theory. Fortunately, one reaps what one sows, and Ethereum’s adversarial nature guarantees it would destroy itself, if it ever grew to be capable of destroying anything. )

( This, incidentally, is how I know that Nick Szabo is nowhere-near-qualified to have invented Bitcoin. If he really is Satoshi Nakamoto, it was either a wild fluke, or he’s pretending to be extra dumb today, to avoid suspicion. )

Bitcoin Testnet + Lies = ScamCoin

What is the point of all this? Well, there’s no need to crowdsale something that will be worth zero, which, so far, includes everything on CoinMarketCap that isn’t Bitcoin. ( LiteCoin and DogeCoin may, temporarily, have limited money-laundering and/or entertainment value. )

The thing is, we already have something called Bitcoin Testnet (currently, the second most important blockchain), which lets users screw around and test new features. Users can even fork the Testnet and run their own private testnet! However, no one expects Testnet-BTC to ever be worth any money (aka, any favors).

The only difference between Bitcoin Testnet and BitShares, PeerCoin or Ethereum, is that suckers are fraudulently misled into believing that the coin can hold value. No matter how good the coin is, it cannot do this better than Bitcoin.

Ok, but let’s assume you have a legitimate blockchain-business which could make use of equity somehow. Even under these ideal conditions, you should not crowdsale.

Crowdsales and Open Source – 5 Problems

If you ever “invested” in a crowdsale, you made a big mistake. It’s OK, maybe you didn’t know any better. Until now.

1. Open Source: Nonexistent Revenues, Benevolent Dictators

Even assuming you could get revenues from something which is, by definition, free (ie, assume a viable ‘equitycoin’), “investing” in open source software isn’t actually possible.

Specific Innovation Support is Impossible

First: notice that “investments” are indistinguishable from “conditional forecasts” (if we did X, the result would be Y). An investment is a statement that “if we combined capital to build X thing, the result would be Y useful”.

Second: open source software is information. This isn’t true of closed-source, proprietary software, or patented software, etc., but open source software contains its own design. The value of open source is really created when developers read the source code for the first time…from their computer monitor into their minds. The product is information. In fact, the process by which ideas become code more resembles R&D (tinkering, problem-solving, uncertain outcomes) than it resembles labor.

Third, by Popper/Taleb and “the law of iterated expectations”: it is impossible to “forecast any forecasts”. “Forecasts of forecasts” just collapse into one big concept called “today’s forecast”. The result is that anticipating innovation is impossible (if, in 7000 BC, you had “predicted” that someone would invent the wheel in 1000 years, you’d just invent it the very same day).

Combine all three, and you get this: your opinion of “which FOSS will be useful” doesn’t mean anything. If you actually knew what FOSS would be useful, you’d just write it yourself. Even your excuses (that you don’t have enough free time, or your hands have been sliced off or something) don’t square with the realities of writing software code (where, mid-writing, new problems and thinking are often discovered). If you’d like to tell other people what to do, your problem is that “your opinion on what-code-others-should-write”, will sound the same whether it is correct or incorrect, sincere or scam (and scammers are often better salesmen than programmers are).

This all applies perfectly to Bitcoin, which did not ask anyone to ‘invest’ in it. In fact, when it was first published, everyone (even the cypherpunks) hated it (or said that it wouldn’t work, had been done before, etc). Even today, most people hate Bitcoin. Just about everyone who likes Bitcoin today hated it the first time they heard about it (and “forecast” that it would fail).

Open source software exists in the minds of programmers, who temporarily express it in code.

Who’s in charge around here?

There is only one way to successfully invest in open source software: invest in a developer you trust. This person will have all the power over the software, and you’ll have to basically just hope they won’t screw you.

Figuring out whom to trust is very difficult, and almost always involves extensive personal Skyping and/or international flights for face-to-face meetings. Such activities do not scale, and are the opposite of the crowdsale’s comfort-zone of “get small donations from a lot of people”.

An Aside: Innovation Charity

( If you want to support innovation via a charitable contribution, your problem is that you don’t know whose brain will (by luck or skill) come up with the next great idea. To solve this, aim to improve the situation of all brains. For example, try to make sure that children have access to books, computers, etc, and have lots of free time. Help make “intellectual tools” (Microsoft Office, programming languages, Github, Skype, ..) easy to install and use, and encourage people to have low debt and lots of savings and financial independence. )

So, the crowdsale model is inherently flawed, because the only logical way to fund an open source project is via a contract with with project’s benevolent dictator (who will always have all of the real power).

2. Crowdsales Are Disloyal

Even assuming that the crowdsale contributions are donations (and not investments), they can still harm open source.

Crowdsaling a new cryptocoin-project is, in my view, the ultimate “f**k you” to Satoshi Nakamoto, and to the other individuals who spend their (scarce) time maintaining and improving Bitcoin. Few of us could do what they do, and fewer would do so…especially for free. Whatever battered-housewife-syndrome keeps the Core Devs in contact with this ridiculous community, is beyond my comprehension.

I mean, say you’re Satoshi, shopping for a new car, worrying about your monthly payment (or your nephew needs some expensive medical procedure, or whatever), and, after all of your hard (unpaid) work on Bitcoin, you learn that a bunch of clowns just raised $18 million dollars on a mere idea (and a terrible one at that). “Where’s my $18 million dollars?”, Satoshi might think, with some resentment. Maybe he’s been working on his own much-better Bitcoin 2.0 this whole time, or some other even better piece of technology, which he was also going to release for free…but, instead of finishing it, now he just goes out drinking with his friends every other night.

The lesson for developers, could not be clearer: The Bitcoin Community doesn’t value hard work, it doesn’t value accuracy or scholarship, it doesn’t value an honest dialogue. Instead…hire a bunch of marketing people to spam our communication channels. The former (a la Peter Todd, Blockstream) get you cyber-bullying and even death threats, whereas the latter will consistently net you millions of dollars!

My open question to anyone who has participated in a crowdsale: is this the relationship you want to have with the people who are responsible for your Bitcoin software? If I were Peter Todd or Greg Maxwell, I would have quit working on Bitcoin a long time ago. Then, who would write our confidential transactions, or first-seen-safe replace-by-fee, etc? Only the Core Devs know the true extent of Bitcoin’s technical weakness: if they began to leave, I wouldn’t hesitate to start selling.

Remember: the developers are Bitcoin’s weakest link.

So, in my view, each “successful” crowdsale pushes Bitcoin closer to oblivion.

3. Crowdsales Allow Unethical Behavior

It is, in fact, immoral to sell dreams.

Why? Because humans have a “wishful thinking bias”. This means that we are more likely to believe a false thing, if that false thing is a dream. Therefore, all dream-sellers have the ability to deceive (“steal money from”) the credulous.

You see, while people should be able to invest in whatever they want, others should also be able to openly criticize bad investment-choices. Unfortunately, silence is often interpreted as implicit endorsement, and so this criticism is simply too rare (because criticism makes one unpopular). With a few notable exceptions (all of which are devoutly informal, and non-startup), most people are too selfish and/or afraid to do anywhere-near the right thing.

So, crowdsales allow predators to get away with the crime of selling a dream.

4. Crowdsales Discourage Good Software in General

But even if it weren’t immoral, dream-selling is still outright unproductive: it prevents self-motivated dream-volunteers from showing up to work.

You see, most people would work on something for free, but would not work on something to make someone else rich. We are now in a situation where, by permitting crowdsales, we’ve actually forced crowdsales on every project, and threatened Free Software (Greg Maxwell now keeps most of his ideas unpublished).

If, instead of volunteering, people are going to actually play “the career game”, they might as well outright optimize for income (and schedule their intellectual explorations for weekends). The result is crappy software that is written top-down by people who are only there to get paid, and barely doing enough-work-not-to-get-fired.

Motivating software developers is a challenge. The best are intrinsically motivated…if you don’t know what you’re doing, your contributions will have a negative contribution to productivity.

5. The Ponzi Scheme Incentive Death Spiral

The incentives for the standard crowdsale model (“give us a bunch of money now, and we’ll make you rich, via the open source software product we are definitely working on, we promise”) are horrible. It’s amazing that anyone falls for this garbage; sometimes, it actually causes me to question my own sanity. In fact, it’s hard for me to understand, where it is that ordinary people get lost unless I drinking a gallon of bleach before

before to explain the problems.

That’s better.

Exploiting Collectivism

One of the biggest problems with the Crowdsale, is that all equity-tokens necessarily come with a built-in MLM scheme.

The key point here is that, the crowdsaled entity isn’t finished yet! This is unlike an IPO (where the coin-equity is already making money), and so, at this premature stage, nothing actually exists to ‘auction off’ in the sale…except for the underlying community.

This creates a toxic, and easily-exploitable, emphasis on ‘the community’.

With Bitcoin, the software was already finished, and so this emphasis was harmless. Moreover, Bitcoin, as a form of money, had network-effects and coordination-surpluses. With a non-network effect business, which could have direct competitors, the situation is much more unstable.

The Run-Up

No Free Lunch

A crowdsale project will raise more money if someone (anyone) makes a concentrated promotional effort (ie “Marketing!”). Resources devoted to marketing, by definition, cannot be used for anything else, (for example, for constructing or improving an actual product).

So, a crowdsale immediately makes the project more expensive, and harms it financially.

Self-Propagating Propaganda

Worse, there are, inevitably, mis-communications or misunderstandings between “the business team” and “the technical team”. And, while the project remains in a pre-existing state, nothing prevents the audience from misunderstanding (and loudly repeating their anti-knowledge). Whatever the intentions of the original innovator, the pre-crowdsale result is -always- widespread deception and misinformation.

Sometimes, the innovator is even in on it!


Wink wink!

The Crowdsale Industry

And then, how are these marketing guys going to keep their jobs, once the need for hype is over? Well, like a drug dealer, they can either keep the project hooked on hype (Ethereum strategy) or they can defect to the newest crowdsale scam.

After all, now they’ve got experience!

Both paths lead to our media channels being filled with stupid commercials.

Agency Cost

I mean, all of the mo-ey is paid up f–nt, but not one monitors what the money is spent on. Reading software code is too hard, even for experienced professionals

i know what i’d do if 98-e soe00===

…. …

Ongoing Software Maintenance (“Bagholders”)

Software code needs to be maintained, like, over a long time. It’s not like the cute Pebble watch where you just ship it an–

–rse there is alwa— b– tradeoff between operating and capital co—

And yet, these future costs are of the utmost importance … in fact, open source software is essentially all capital c—–no one knows how long, or how to go about the process of minimizin—

And yet, why stay with the old project, when you can just crowdsale again with the latest suckers! You can even use everything you learned from the last scam!

Exactly the type of people who find the n_th crowdsale party attractive (both dream-buyers and dream-sellers), are those people who are most likely leave the n_th model for the (n+1)_th crowdsale party!

I present this (unrelated) sequential list of “smart contracting” platforms: Bitcoin, Mastercoin, NXT, BitShares, Ethereum, NEM, … The fact that each seems to arrive at around the same time as a new crop of Bitcoin-converts, is probably just your own imagination. … …

cough *cough* *cough* WHEEZE

*shakes head furiously*

*gasp*..sorry about that.

–dsale affects —rduc–vity

crowdsales. generate. skin in the game and a LOYAL community. Will protect their investment.

Feedback is the lifeblood of any——————————

Being a celebrity is, , a gigantic distraction and produces no engineering value? In fact, *cough* it produces…..negative…….. engineering value…because…the types of people wh ….. cares about people but they make bad scientists because loyalty offends

*cough cough* *gasp*

I mean, why wou—jsuz if… ….Krawisz and Goldstein hodlings….

Is the community really thi ..

*gasp* *GASP*

….with…….open source… gain nothing by redoing work, so, if any problem is noticed If a problem is noticed. Incentive is. To start a new business with New Crowdsale. New Make-Work Crowdsale with “problem” fixed.

…sweat…blood everywhere….

I mean, if the id-a is so monetizable, wh- a– they s-ll-ng it at –l?? ….ooo0000

xf, bb .3

> crowdsale(project)

 /     \
| () () |
 \  ^  /

You have failed.


…. incentives.

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