In the World of Cryptocurrency, Even Good Projects Can Go Bad

https://www.nytimes.com/2018/05/31/technology/envion-initial-coin-offering.html

by petethomas • 8 years ago

84 60 8 years ago

adwhit• 8 years ago

Envion said it would use the money collected from investors to build mobile rigs, filled with computers designed to “mine” or digitally create new Bitcoin. The rigs could be moved between sources of renewable electricity, which would power the mining computers

Good project?? Sounds absolutely pie-in-the-sky. Another ridiculous idea that raised an insane amount of money from extremely naive investors. In other words, just another ICO.

Maybestring2• 8 years ago

It would be a great idea, had only cryptocurrency been invented before powerlines.

EnFinlay• 8 years ago

Powerlines are far from lossless, so there is still an advantage to being close to the power source. https://en.wikipedia.org/wiki/Electric_power_transmission#Lo...

tgtweak• 8 years ago

It was extremely naive, they had a budget of $1000 for delivery and connection. The first container shots were empty, and the dashboard showing earnings was mock data.

Anywhere these are outside in the winter they will ingest snow with those fans.

Lots of red flags everywhere and yet still extremely successful.

tlb3• 8 years ago

I missed the part where this was ever a good project.

Cryptocurrency mining has to use the cheapest available power, or else it loses money because the mining rewards float at just above the cost of the world's cheapest power. Because many companies prefer renewable power (such as data center operators who want to claim they are carbon-neutral) and there's a limited supply, renewable power will always be at a premium over the cheapest power.

A big problem with successful ICOs is that the companies immediately have too many shareholders to let them pivot. The idea could probably be morphed into something that works, but not with 100s of retail shareholders demanding progress on the idea they originally backed.

Havoc• 8 years ago

If you need to pivot an ICO then it's already game over I reckon.

lawnchair_larry• 8 years ago

This can be shortened to "If you ICO then it's already game over"

ICO anything is a really strong signal that nothing good can come of whatever you are reading.

to_bpr• 8 years ago

have too many shareholders to let them pivot

Token purchasers in ICOs aren't shareholders.

100s of retail shareholders demanding progress on the idea they originally backed.

They have no guarantee or protections when buying into an ICO. They may try to pivot and get some disgruntled worthless-token-holders as a result, but if crypto has shown anything it's that even outright scams will maintain an unfortunately strong community of supporters.

tlb3• 8 years ago

OK, "stakeholders".

Can you point to an example of a company successfully pivoting after an ICO?

skybrian2• 8 years ago

If electricity were easily stored and transported, you might have a case that renewable power is always more expensive.

But renewable power is sometimes generated in inconvenient places or times. For example, the power lines needed might not be built yet, or it might be using the wind blowing at night. Sometimes crypto mining is in the best position to take advantage of that.

tlb3• 8 years ago

That seems like a shocking lapse in planning when installing very expensive solar arrays. Can you point to an example? Does this happen frequently enough that there’s nearly always somewhere to run a miner?

Lazare3• 8 years ago

I missed the part where this was ever a good project.

Agreed.

Cryptocurrency mining has to use the cheapest available power

Mostly agreed.

A big problem with successful ICOs is that the companies immediately have too many shareholders to let them pivot.

An ICO doesn't give you shareholders. Some ICOs outright call the money you give them "contributions" or "donations". (Tezos, who had a very successful coin offering and then hit somewhat similar challenges as this lot was very explicit: "Any contribution made to TEZOS during the Contribution Period as described below is qualified as a non-refundable donation...") But even the ones who label the money as an investment aren't giving out anything remotely resembling ownership, control, or voting rights to the purchasers.

I don't see any reason why a pivot wouldn't be possible. And, cynically, a lot of ICOs do pivot almost immediately, from "building the product they promised" to "spending the money they raised". :)

not with 100s of retail shareholders demanding progress

They can "demand" all they like, but what can they do? They have no ownership, no control, and no votes. The company is apparently owned by one Matthias Woestmann; as the article notes, he doesn't even have to listen to the founders. He certainly doesn't need to listen to the people who participated in the ICO.

perl4ever2• 8 years ago

I found the term "contributions" odd, and when Googling it, found the following, which seems to be the epitome of the sort of ICO you describe, the "Useless Ethereum Token":

https://uetoken.com/

siruncledrew• 8 years ago

Agree to all of those points. The part where any "investors" essentially have no say, control, or equity in the company would certainly defy any possible reason for a sentient angel or corporate investor to make an investment. There's an abundance of red flags that people need to seriously look at.

Other gems from the article:

“I know most of the I.C.O.s out there are either fraud or won’t deliver on their promises,” he said. Envion, he believed, was different.

Uhh...

Seif Shieshakly, an adviser to Envion who is based in the United Arab Emirates, said that the I.C.O. structure had “cut out so many middlemen” and created new investment opportunities, but that “the lack of regulations, again because of the infancy of I.C.O.s, carries risks that regulated environments would generally have far less of.”

This one again speaks for itself.

The investors have also turned up evidence that some of the founders sold their own tokens before the current mess spilled into the public.

Wow... so I guess with a lack of regulation, insider trading is suddenly cool again.

But he said the funds added up to only $50 million at this point, not the $100 million that the founders had claimed. Mr. Woestmann said the founders hadn’t raised as much money as they claimed. And the declining price of virtual currencies has dropped the value of the various digital tokens Envion is holding.

So they not only willingly defrauded investors, but also basically used the money like a bank instead of a company, and just purchased other crypto assets to trade and earn from.

Jessica Smith, a 21-year-old in England, said she had put $28,000 into Envion — almost all of the money she had made over the last two years of trading cryptocurrencies nearly full time. She said she was now looking for new work.

That's a very painful lesson about putting all your eggs in one basket, but one she will probably learn from.

nonbel• 8 years ago

"Cryptocurrency mining has to use the cheapest available power, or else it loses money because the mining rewards float at just above the cost of the world's cheapest power."

How much energy is being wasted each year due to power plant and grid inefficiencies?

duxup3• 8 years ago

"A big problem with successful ICOs is that the companies immediately have too many shareholders to let them pivot. "

I don't quite understand. What could you pivot .... to?

You were either going to the ICO... or what could you possibly be geared to do?

I know ICOs are all "techy" but outside that I don't see any reason someone offering an ICO would be good at anything else but that. It seems like a one shot business ... it either happens or it doesn't.

Lazare3• 8 years ago

I think what's being suggested is that if you launch an ICO to "build an amphibious sheep ranch" or whatever, and raise $100m, and then it turns out that no such sheep exist, you don't have to just shrug, go "oh well", and spend the $100m on Lamborghini's. You could pivot and do something else.

Here the company had an ICO to raise funds to build mobile crypto-mining rigs to move to where green energy was cheapest; if that's not viable, maybe they could build mobile crypto-mining rigs to move to where non-green energy is cheapest. Or maybe get into the green energy business directly. Or, I dunno, start making cooking shows, why not?

What could you pivot .... to?

The suggestion isn't that they should pivot from "doing an ICO" as their business plan; that wasn't (meant to be) the business plan. The suggestion is that now that they've done the ICO, maybe they can pivot from their original business plan to something viable.

...or they can just spend the next few years suing each other and spending the money. That works too.

mrb2• 8 years ago

«renewable power will always be at a premium over the cheapest power.»

That's patently false. The share of global electricity that's going into crypto mining is small enough—less than 0.5%—that it's too small to directly affect the price of renewables.

In fact some mining ventures are even starting to build their own private power plants (one example: https://news.bitcoin.com/20mw-solar-farm-set-to-power-crypto...) There is no reason why this would increase the cost of renewables. More money, more R&D, more infrastructure deployments will in fact in the long term push prices downward for the rest of us (economies of scale):

jacobush• 8 years ago

Is it only me who considers 0.5% to be shockingly large for doing so little? (Not counting future relevance of crypto coins.)

lordnacho• 8 years ago

How much of this ICO story is simply rediscovering things that old finance had already found?

All this talk about being able to trust the entrepreneurs, that they were building a real business in good faith, it's not exactly a new problem.

The solution, before blockchain muddied the waters, was that you'd find a reputable investment bank, which would stake its reputation on your sincerity, and they'd introduce you to people who would be willing to invest. There would be a bunch of rituals to go through, like a road show, presentations, meetings. And that's not all; there was a regulatory process they would show you how to pass as well.

wpietri3• 8 years ago

Definitely. So much of cryptocurrency world seems hell-bent on rediscovering why current financial regulation exists.

At one point in US history, it was relatively easy to create a bank, and the banks could issue their own private currencies: https://en.wikipedia.org/wiki/Wildcat_banking

This provided relatively little value and quite a lot of failure, so it was taken as a "let's never do that again" lesson.

The Etherium fork after the DAO theft was in my view people rediscovering the value of having a regulator.

Given the regular and massive losses due to breakins, scams, and fraud, I have to wonder if this is the most efficient way to learn these lessons.

jesusthatsgreat• 8 years ago

Etherium

Is this a running joke or something? I've seen the misspelling of Ethereum several times now on hackernews and it's a tell-tale sign that the people talking about it haven't invested much time researching it or delving in to the space in any way.

Given the regular and massive losses due to breakins, scams, and fraud, I have to wonder if this is the most efficient way to learn these lessons.

Where there is money changing hands, there are scams and fraud. The difference with crypto is that you can follow / track the money at all times. It doesn't mean you can get it back, but it does increase the chances that somewhere along the line the attacker will slip up and reveal themselves once they try to buy something or exit in to fiat currency.

The bottom line is that crypto exists because the banking system is perceived as broken by many. It's slow, expensive and corrupt as far as the average person on the street is concerned.

hectorr1• 8 years ago

How much of Uber was simply rediscovering things that the taxi industry had already found?

seibelj• 8 years ago

The JOBS act was a push towards securitized crowdfunding but it had too many strings and never took off like many hoped. ICO's are proof that there is demand for real-time trading in private companies with micro-investment, but it also has obvious issues.

My hope is securitized-ICO's develop that make it easier to raise money from a global pool of investors, and the investors also have liquidity and legal rights. We need regulation that improves the situation without destroying it.

JumpCrisscross• 8 years ago

ICO's are proof that there is demand for real-time trading in private companies

ICOs are proof all the retail investor protections I used to think were irrelevant are unbelievably important.

wmf2• 8 years ago

ICOs are proof that there is demand for real-time trading in private companies with micro-investment

Is it? Or is it proof that people will put up with really sketchy structures to chase potential 10x-10,000x returns? Prudent token offerings like Sia have had low demand.

dnomad• 8 years ago

There's demand but there is no supply. No serious company is going to crowdfund away actual equity. Only the very worst companies are going to go out on the street and beg randos for capital hence ICOs. The reality is that the public will never have access to high quality deals. But there is a lot of money being left on the table that is flowing into scammy ICOs and badly managed Kickstarter projects. It's really too bad the IRS has nothing on the spectrum between private foundations and highly regulated public charities. There's a case to be made for "micro-foundations" that could be crowdfunded for a common purpose and would be barred from issuing ownership shares or taking on debt. (At dissolution time all "profits" of the charity must be disbursed to another charity.) There's a real failure of imagination here at the IRS: the internet makes it ever easier people to collaborate but it's very difficult to effectively pool capital which leads to Kickstarter and ICOs both of which are very sub-optimal solutions for everybody.

whataretensors• 8 years ago

It's bigger than that. It's about disenfranchisement of the people. Less than 2% of accredited investors are black, less than 5% women. Capitalism in tech can be thought of as voting for the future with your money.

The JOBS act is like saying blacks and women can vote, but only on 10% of issues and their votes aren't counted as heavily.

Right now there's the biggest disenfranchisement of our lives and most people don't even see it. It's selling the future out from under the public, and not even giving them a chance to buy in. It's racist and sexist to start off with, then it gets worse as you look. And it's completely state sponsored through authoritarian laws built for 'protection'.

BurningFrog• 8 years ago

Hey kids, good projects can go bad in all worlds!

wmf2• 8 years ago

The founders of the company ... set it up in Switzerland...

...problems had begun even before the project started fund-raising late last year because of the chief executive the founders brought in, Matthias Woestmann.

According to Mr. Martin, the founders gave Mr. Woestmann what they thought was temporary control of their shares in the company. Mr. Woestmann later refused to give them back, and then diluted the shares of the other owners, providing him with control of the money that was raised.

This is exactly the same problem Tezos had. What's the deal with people giving up control of their money?

Lazare3• 8 years ago

I read the same passage and did a double take.

If you give someone ownership of your company, obviously they're not obligated to give it back. It's their company now. You were dumb enough to give it away; why do you think they'd make the same mistake?

Also, to the extent that this had worked, it feels like an attempt at setting up a straw transaction to hide control of the company. Why exactly did they thing they needed to "temporarily" transfer ownership of the company?

duxup3• 8 years ago

What about this ICO made it a good product compared to others?

orthecreedence• 8 years ago

It had a whitepaper.

Rapzid• 8 years ago

My biggest takeaway from the past few weeks is that POW based distributed cryptocurrency is a bit like communism; it only works on paper.

The reality is that, even with Bitcoin, the power to stave off attacks has consolidated to a few big players. The massively distributed protocol and massive power usage is a huge wast at this point. If your gonna need a few big players anyway, might as well build a trusted circle from the start and eliminate the rest of the waste.

The coins that can actually be used for day-to-day transactions are vulnerable to attacks. The largest and most secure player, Bitcoin, has reached the point where transaction fees are too high and speeds to slow; nobody takes it anymore.

Where does it go from here? I predict governments are gonna crack the whip and altcoins, along with ICOs, will be a footnote in history.

ojr• 8 years ago

EOS has DPOS (Delegated Proof of Stake) which is not wasteful like PoW, it is a trusted circle model, and transactions are free, and it is easier to distribute ICO-like tokens, I think it might go there from here

flashman• 8 years ago

Jessica Smith, a 21-year-old in England, said she had put $28,000 into Envion — almost all of the money she had made over the last two years of trading cryptocurrencies nearly full time. She said she was now looking for new work.

Put it all on red!

granaldo• 8 years ago

Bad projects may perceive as good Good may perceive as bad The market dont know better

latchkey3• 8 years ago

I've been watching this one very closely as I'm a fairly large miner. This was a scam or failure from day one.

Totally over-engineered and zero experience running an actual mining operation. They put so much effort (patents!?) into those MMU shipping containers that there is no way for them to compete with all the other people who are just building a simple box and throwing miners into it.

The MMU had substantial airflow design issues as well. To the point that something as simple as opening the door of the container would throw everything off balance. How about putting 90+ holes on the side for sucking dirt and bugs into the container? I could keep going on and on...

The also heavily moderate their community. Anyone who speaks up with hard questions, is silenced with blocking and removal from their group.

To watch it get to the point where it has is quite entertaining to the say the least.

HydroMiner is a far more interesting project, run by two sisters, with actual long term experience in this industry. Nicole got ripped on the math for this article [1] which was directed at Envion, but at some level, she is pretty right. There was no way that Envion would ever pay back what they claimed they would.

[1] https://medium.com/@hydrominer/why-there-is-no-161-profit-in...

JohnJamesRambo• 8 years ago

a plan to bring clean energy to the computers that manage Bitcoin.

This doesn’t even make sense. Not surprising this failed and I don’t feel sorry for idiots that invested in a project that makes no sense. Bad projects must fail.

latchkey3• 8 years ago

From: https://www.investor.gov/howeycoins

RED FLAG: CLAIMS OF HIGH, GUARANTEED RETURNS: Not quite 'guaranteed', but seems quite inflated... https://www.envion.org/en/ico/

RED FLAG: CLAIMS OF “SEC-COMPLIANT”: Yes, https://www.envion.org/en/faq/ "Our token is fully compliant with regulations set by the SEC and Swiss financial regulators and outside auditors from one of the Big Four auditing firms will vet every aspect of the business, including prior to the ICO."

RED FLAG: INVESTING WITH A CREDIT CARD: Yes, https://www.envion.org/en/faq/ "We accept Ethereum (ETH) and Bitcoin (BTC) cryptocurrencies and credit card payments with Visa or Mastercard."

RED FLAG: PUMP AND DUMP SCAMS: Yes, look at the current price.

ksahin• 8 years ago

"The world as we know it, will change" ... It seems like a Bitconnect punchline !!

Seriously, how can they treat this ICO as a "good project". You are right, the landing page is full of red flags.

latchkey3• 8 years ago

People who invested with a credit card have their funds locked for up to a year!

https://www.envion.org/en/news/how-to-invest-short-instructi...

"Buying EVN by credit card will result your token to end up in a locking period of 4–12 months (see envion.org/faq). This locking period is a protection for our investors needed for credit card payments."

In the World of Cryptocurrency, Even Good Projects Can Go Bad

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