The ICO advisory board trick

The ICO advisory board creates trust

With ICOs, an advisory board is often quickly founded and announced, which is intended to act in the role of advisor for the project. The existence of such an ICO advisory board engenders trust, because if Vitalik Buterin is advising a project, then nothing can go wrong, can it? Theoretically, the project stands a better chance, but in practice….

Vitalik Buterin is a great member of the ICO advisory board

There have been reports of cases in which Vitalik Buterin was listed an advisor on an ICO advisory board and he knew nothing about it. The initiators asked him a question about some technicality at a conference and he answered the question because he is a nice person. It must have been a great honor for him to have been instantly and unknowingly elevated to the advisory committee of the project. It was doubtless no honor for the investors who invested in a very dubious ICO.

Nowadays, you can find an ICO advisory board on nearly every ICO website. Many white papers will also include details of their advisory board. Many of the advisors are actually the initiators’ advisors and are aware—unlike in the previous case—that they are listed there. Before you invest, you have to ask a couple of questions:

• What is the advisor doing for the project, and can he really help or have influence?
• If he can help at all, how much time will he be able to devote to the project?
• Is this person a paid advisor who advises on a lot of projects because that is his or her job?
• Is this person truly contributing to the project?
• Will the project be any better because this consultant is advising?

These questions are an important basis for the investment in an ICO

If the answers to these question can be ticked off and you are satisfied that the advisor or advisors are contributing real value to the project, then that is another green light for investment in this ICO.

However, if this ICO advisory board is just for show or is filled with paid positions, then you have to consider whether it really makes sense. It can be assumed that the wheat is quickly sorted from the chaff with this procedure because most ICOs are watched like hawks by the authorities around the world. Genuine advisors do not commit easily to projects because—time and energy aside—they are publicly named as associated with a project and thus could be personally liable if something goes wrong. Not to mention potentially tarnishing their professional reputation and credibility if a project goes very wrong. This would certainly cause anyone getting involved in a project to be cautious and check more closely when they are asked to publicly endorse a project and its initiators to become a member of the ICO advisory board.

As already stated, a white paper has mutated from a purely technical discussion paper to a marketing paper in recent months. In fact, in many cases, these papers look a lot more like a financial prospectus than a technical document. So, it is time to dedicate some time to the regulations and check what ICOs are, or what they can be.

What are the differences between ICOs and IPOs?

IPOs (Initial Public Offerings) are stock floatations. IPOs are extensively regulated all over the world and are subject to strict conditions. These strict regulations are intended to protect the investor, though opinions vary as to whether they do or do not. The real debate is whether many these regulations are truly necessary or whether they simply line their pockets of advisors and bankers at the expense of the investors. Regardless of the legitimacy of these arguments, the plethora of regulations and requirements for stock floatation do exist and must be satisfied.

A myriad of regulatons and provisions

The same applies to any other kind of capital and investment brokerage. In nearly all cases, and in all jurisdictions across the world, a license is needed for such a business. That is typically in the form of an expensive bank license, which is likely out of the reach of a group of cryptocurrency enthusiasts—not that they would wish to conform to traditional banking regulations! In any case, crypto projects are usually started by liberal-thinking people who wish to break away from the power of the banks and state regulation. A bank license is the last thing they would want. That is where ICOs and the ICO advisory board come in.

An ICO is a completely different affair because no money changes hands. The only thing exchanged is cryptocurrency, and these are not even qualified or recognized as financial instruments in most countries. For that reason, they should be unaffected by the regulations of the traditional financial markets.

This is a position taken by many. In fact, most authorities are at a loss for how to deal with the whole situation. It is not just different from country to country; even within one country, there can be differing views taken depending on which official, institution, or department you speak to.

Many government cooks spoil the broth

In the USA, there are so many state centers and financial monitoring authorities that it would be a miracle if they all agreed. Is Bitcoin a currency or a commodity? Is it an exchange item, a private accounting system, or is it a financial instrument? What about the new belly-draft coin?

Are the stock exchange supervisors responsible for Bitcoin? Or is it the Securities & Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), the Federal Reserve System (“Fed”), the Federal Deposit Insurance Corporation (FDIC), the Financial Crimes Enforcement Network (FinCEN), the Financial Industry Regulatory Authority (FINRA), the Office of the Comptroller of the Currency (OCC), the National Credit Union Administration (NCUA), the Consumer Financial Protection Bureau (CFPB), the National Association of Insurance Commissioners (NAIC), the National Futures Association (NFA)? Or is the responsibility placed on the president himself?

Each institution has its own rules and regulations, along with their own opinion on cryptocurrency and ICOs.

This question becomes especially relevant to an investor if he has invested in an ICO and the ICO is then prohibited. If that happens, what happens to the money they have paid into the ICO?

Until autumn 2017, there was a whirlwind of various conferences all created to attempt to classify the newcomer. At the meetings and conferences, the employees of the state centers all said their piece, all countries, all authorities. The wilder the ICOs became, the greater the pressure placed on the officials.

In late summer, the American stock exchange supervisors (SEC) investigated the DAO ICO of 2016 and established that this constituted an issue of financial instruments. As a result, this ICO should have been subject to the same regulations as an IPO. However, since nobody had actually done that in person, no prosecution would follow.

The sector classified this as a warning

The SEC is said to have deliberately investigated DAO because the Decentralized Autonomous Organization was not actually a company with conventional structures. It was not structured like a company—it didn’t have a board, officers or shareholders—and therefore could not be treated as one. The SEC could only fire a warning shot and wag a finger so they wouldn’t lose face. Strictly speaking, they could have found against anyone who had supported the DAO, because even the offer to acquire an instrument is prohibited. However, many believed the SEC did not want to go that far. Instead, it is following a watching brie and watching every new ICO like a hawk.

If the DAO had been a company

One additional factor to consider is that the SEC had probably become aware that it was not possible to just shut the system down. At the beginning of the 1990s — a time that is now known as the infamous dot-com bubble—things were much simpler. The SEC had a lot to do and was — in their view — very successful.

A crypto system on a blockchain is something very different — something they had no experience dealing with. Especially because it was a public blockchain that simply could not be switched off. If the DAO had been operated by a company, then the servers would no doubt have been deactivated and the handcuffs snapped shut.

However, in mid-September of 2017, just a few weeks after the statement by the SEC, an ICO prohibition was announced in China. This was not a surprising development. The ICO wheel was spinning faster than ever before, now reaching alarming speeds. And more and more people with no idea what they were doing were tempted into all kinds ICOs by blustering advertisers and finance providers peddling wild promises of fat profits.

Even bakeries launch ICOs – I wonder who will join the ICO advisory board there

May be it was the ICO of a bakery that finally broke the camel’s back. They produced mooncakes, a popular snack in China, and wanted to earn a bit of money. The business of baking these little cakes was more effort than an ICO, so an ICO was propagated to expand. Maybe they wanted to hash the mooncakes and save this hash in a blockchain so that if it came to it, the customer would at least know what was making them feeling ill. Whoever was an their ICO advisory board isn’t know.

However, many people raided their piggy banks for this and other similar ICOs. They blindly invested in all sorts of things without knowing what a blockchain is, what it means, or even without knowing what cryptocurrencies are. They knew nothing. They just saw the rate of Ethereum jump from $3 to $300—just like Bitcoin had jumped from $40 to $4,000—and it seemed like they had a once-in-a-lifetime chance to get in on the opportunity early. They didn’t care what the project was called. Bitcoin, MoonCoin or Mooncake—it didn’t matter. Their only aim was to get rich.

The authorities might be slow, but they are coming for sure

No wonder the authorities got involved and quickly shut them down. They immediately took a radical approach and ordered all the exchanges to close, but they might open again in a few months when they have the appropriate licenses.

Now, it appears that the sheriffs are regaining control of the Wild West and that cryptocurrencies are also going to be ordered and regulated. The SEC has implied that almost all ICOs are basically to be classified as new stock issues, and they are busy taking a closer look at the white papers and the surrounding circumstances.

It remains to be seen how strongly they will try to access the markets and with what motivation. If it is up to the banks and most politicians, they will try to control or prohibit cryptocurrencies. These demands are repeatedly voiced by people who have absolutely no idea how decentralized systems operate. You can only wish them luck in switching off or controlling a genuine blockchain.

Successful crypto ICO investments: risks and opportunities

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