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China bans crypto-currency fundraising schemes

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Typical

China bans convoluted financial engineering schemes aimed at fleecing ordinary people in the markets - bunch of communists

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Re: Typical

China operates financial repression. Which is a reason to ban Bitcoin.

That's an economic term by the way, not a political insult. QE is a also a means of financial repression. It means to try to disuade people from saving in banks (usually with below inflation interest rates), in order to either force them to spend their money and boost the economy, or at least to take more risk with it - so that they're boosting investment (and thus the economy). So Chinese banks pay about 1% interest, even though inflation's nearer 10% - which is one reason Chinese people are so desperate to find places to put their savings that they'll risk Bitcoin. Especially after last year's shennanigans with the stock market.

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Paris Hilton

Peak Paris?

The Chinese knew it was time to intervene when ICO scams were becoming profitable enough that they're hiring celebrities like Paris Hilton to shill for their cause.

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Re: Peak Paris?

She can't have been shilling! Her tweet had the hashtag #NotAnAd in it.

Surely by the laws of Twitter this means that it was a genuine personal endorsement? No? You're not trying to tell me that slebs whore their names out for easy cash are you? My life is now meaningless! Why!!!!!

Fortunately #HonestRon'sOnlinePharmacy do remarkably cheap Prozac with same-day delivery. Hooray for them. #NotAnAd #NoticeMe! #WillShillForFood

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Paris Hilton

What can you spend the tokens on?

If each ICO creates a set of digital tokens unique to the fund raising for an individual firm, how do you convert them to real cash?

Shares at least give you a nominal "share" in the company, but shares not traded on a recognised exchange can be almost impossible to value or sell (see many boiler room scams passim).

The tokens must start out at virtually zero cost to the issuer (like shares) to be worth issuing to raise captal.

Obviously missing some vital step here.

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This post has been deleted by its author

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Re: What can you spend the tokens on?

Why the conspiracy theories?

Politicians haven't regulated Bitcoin, because nobody uses it. They've got much more important stuff to do.

There are about 5-20k (ave c10,000) transactions a day on all the exchanges tracked by Bitcoincharts. But then their top exchange is only doing a couple of thousand dollars a day in volume - so most of those transactions are for 0.1 of a Bitcoin.

To be fair, Bitcoin Charts may be crap. When I looked at it years ago, it seemed to list all/most of the top exchanges, but since the ones I've heard of all seem to have gone bust / closed down stealing most users' money, I've no idea what's current.

Volatility is still huge though, which suggests the charts are right, and the market isn't liquid. So there may be lots of coins being held, but few people are trading them back into real money. Meaning many people may have paper fortunes, but when they try to realise them, they'll crash the market. Which isn't a problem if there's stuff to spend them on, but I've not seen figures for how large the Bitcoin economy now is - as opposed to exchanges with real money.

It could be that nobody gathers those stats - though it should be dead easy to work out the velocity of money from the blockchain. Prices a bit harder. Maybe there's a huge economy going on there, and nobody's noticed - in which case low exchange volumes are irrelevant and Bitcoin's important. Otherwise it's just a weird internet fad.

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Re: What can you spend the tokens on?

Blockchain.info show how many coins were traded for each block, looks like about 50k per 10 minutes of ~$200million

https://blockchain.info/

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Re: What can you spend the tokens on?

MonkeyBob,

Thanks for that info, I wasn't aware of it. It suggests the Bitcoin economy is more vibrant than I thought.

Although I've also realised that this info doesn't give much of a measure of the Bitcoin economy on its own. As people use the blockchain for validating software licenses nowadays, and also to carry other information. Though that's micro transactions, so unless millions of them happen every few minutes, shouldn't have too much effect. But also you undertake a blockchain transaction every time you move money between different personal wallets - or a company/exchange does.

But it's still a lot more transactions than I was expecting from looking at the exchanges.

Oh and the post I was replying to above, from an anon, has now been deleted. So there's no longer any vague conspiracy theory about politicians using Bitcoin for nefarious purposes for me to have argued against. Ooops.

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Re: What can you spend the tokens on?

The beauty of an open blockchain is you can see exactly how many trades are occurring. 200,000 to 350,000 transactions per day. Still small compared to fiat currencies. But that is just BTX, and not including Eth, at 400k per day. Litecoin 25k per day.

Cryptonight - Unknown as it's anonymous. and many others that can all be swapped about for each other. Then cashed out back to US$ or such.

Yes, they are useful, Steam accepts them but the main reason they will not go away, is simply that they are the default currencies of modern black markets.

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Re: What can you spend the tokens on?

There are a lot of 'phantom' transactions that occur with Bitcoin because of mixers/tumblers that are designed to obfuscate transactions by breaking everything up into tiny pieces and moving it through the system separately.

i.e. if I wanted to pay you $50,000 in bitcoin to "make a problem go away", but neither of us wanted this transaction recorded for the Feds to possibly trace later, it might end up causing several dozen or who knows even several thousand transactions depending on the mixer.

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Re: What can you spend the tokens on?

Lots of rants about Bitcoin but no answer yet.

As far as I can tell the ICO does not involve giving the company money in return for Bitcoin. How would that work anyway? The company would have to buy the Bitcoin to give to the investors.

This seems to be about giving the investors an alternative to Bitcoin which has been created by the firm specifically for this ICO. In effect they have printed their own banknotes which are not legal tender.

The nearest I can come to this is the mining companies who used to pay their miners with private coinage which could only be spent at the company store. However in this case there is no mention of a company store.

So i will ask again.

Where can you trade these (not Bit)Coins?

What can you spend them on?

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Re: What can you spend the tokens on?

David Roberts,

I wouldn't call any of the, mostly thoughtful, posts above "rants" about anything. But this being a thread about digital currency, people are mostly discussing Bitcoin.

To answer your question, it's almost certainly a scam.

The people who created Bitcoin got rich*, by owning the first coins. Which they granted themselves effectively for free - and then as the currency took off, they owned a nice chunk of it. And that was a thing, and Bitcoin succeeded to some extent, so you can argue they earned that money. After all, they'd invented a new thing, or at least a new way of doing an old thing, and people found it useful, and so used it.

Then Etherium and a few other Bitcoin clones came along. And some of them actually get used. Heaven knows why, because Bitcoin already existed. And presumably those people knew about the first Bitcoiners doing so well, and so wanted a piece of that action themselves - rather than just using Bitcoin. But I guess they put the right unique features into theirs, that people would use it. Apart from the ones that failed of course.

But now? It's a crowded market. Maybe nobody thinks they can successfully start a new thingy-coin and get other people to actually use it. And if nobody joins in, they don't get rich from having the first few blocks. Sad. This way you just get people to give you money straight out. Hooray! Then if your coin-thing is shit/unpopular/unlucky, who cares. You've already been paid!

They've like and unlike shares. More like the kind of shares venture capitalists buy. When Facebook did their IPO, you had a company that was turning over something like $10bn a year, and making a billion or two of profits. So you knew that if you bought shares in it, you were buying a share of something profitable. It might not last, or it might be hideously over-priced, but it was an existing enterprise, with buildings, and staff and network infrastructure and customers. The first VCs who bought into it got a share, but it was a much more notional value. So maybe they guessed it would be worth $100m, took 5% and so offered $5 million. The IPO was for a value of $100bn, so these notional people would have turned $5m into $5bn! But they've probably put a lot of $5m stakes into companies, and I believe the going rate for tech VCs is you make 10 investments for a tiny return on 1, losing everything on 8 and get a fat profit on 1 that covers the rest.

So if you buy into an ICO, you're trusting that these people have a good business plan, know what they're doing, can get the software right, can get customers and aren't just out to steal your cash. VCs do this by having lots of meetings, getting lots of references and maybe helping with the bits of the business plan the company can't handle themselves. Plus getting a seat on the board, so they can keep an eye out. Investors into an ICO are just hoping to get rich* quick.

Company scrip is different. The deal was to under-pay your miners/factory workers. You issued the currency, but that could only be spent in the company shops and pubs. This meant you could sell to them for a guaranteed profit. So you were effectively paying them in goods, not cash. But if you were too stingy, they could work out what they were getting, and bugger off to the factory down the road. And if you ever stopped paying, you went bust for lack of workers.

This ad-coin thingy is just selling the hope that other people will use the coins. Unless they give a legal guarantee that their company will honour them at a fixed rate - then at least you know they go bust if they steal your money.

*For a given value of rich. My quick look at exchanges yesterday showed none that had traded more than a couple of thousand dollars in a day. So that means none of them had converted even a single Bitcoin into real cash. So if you've got 1,000BTC, theoretically worth $4 million, you'd struggle tor realise much more than 1BTC worth of it a day - and that would have to be into a mix of dollars, yen, Euros, pounds and Yuan. The Yuan isn't freely convertible, so useless unless you have a Chinese bank account. Transaction and currency conversion is probably going to cost you about 10% of your fortune - and it's going to take you years to realise your cash. Try selling even 10 BTC and you may materially affect the price. Try selling 100 in a week - you may find you've crashed it.

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@David Roberts

The implicit assumption is that these new cryptocoins would become successful and popular like bitcoin or etherium. The more cryptocoins there are the less each one will be used as the market gets split amongst them, so clearly many of these ICOs will fail.

Basically they're relying on suckers who tell themselves they're getting in on the ground floor of the next bitcoin, or next etherium, and an initial $1000 investment will be worth millions in a few years. Of course that won't be the case, probably every single ICO will be a failure in the long run, for everyone but those behind the offering (and the Paris Hiltons getting paid to flak for them)

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Re: @David Roberts

Thanks for the extra detail, guys/gals.

I'm still somewhat bemused that people would put money into such a thing, but as the saying goes "you can't patch stupid".

I am assuming that if you invest in the more traditional way in a firm pre-IPO you get private non-traded shares which give you certain legal rights and are regulated. You hope that when the firm goes public these shares will increase massively in value, or perhaps a second stage investor will buy out your stake at a profit in a future funding round.

I am struggling (as usual) to work out what rights you get from an ICO.

If you buy shares in a company then you are more or less tied to the financial success of the company.

Company does well, you share the profits.

What is to stop the company making billions but abandoning the digital currency?

What ties your investment to the success of the company?

What rights do you get?

If you are just selling a new digital currency why does it have to be tied to a company? What gives added value? Or is it truly just a money making scam selling wooden nickels?

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Re: @David Roberts

You don't get any rights at all. It's almost certainly a scam. Even if not, you're shouldering the risk - as I'm sure they'll grant themselves lots of free coins, just in case the thing does actually take off.

After all, half the point of digital currencies for many poeple is avoiding government regulations, and tax and laws and such pesky stuff.

There's an argument that securities legislation applies to digital currency in the US (as the SEC has decided it thinks it does), but nobody seems to be taking that very seriousy yet.

Anyway none of these things are audited, or proplery documented or controlled. So you've got nothing.

Also they're not guaranteeing that this digital moolah will have a fixed face value. So you've got no way to argue that you've lost anything. This advertising one may be backed by them promising to honour the coins for a certain amount of advertising, but I bet it isn't. And even if it were, that doesn't protect you if they go bust.

If you buy shares in a limited company - then that company is subject to audit, the directors are legally responsible for not outright stealing your cash and a VC probably signs a deal to get access to the books and/or a seat on the board.

The similarity is that there's no transparent market for shares in private limited companies. So they're impossible to value, until you sell them. If you can even find anyone to buy them that is. Lots of people invest in small companies, but choose profitable ones to get an income, rather than what VCs do, which is gambling on getting a huge pay-out to cover all the losing bets.

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Boffin

Cryptocurrencies defy the purpose of money + devalue other currencies

If the purpose of a currency is to track who owes what to whom (i.e. to serve as a store of value) then a currency that rapidly appreciates like a ponzi scheme defies that purpose. Given alternatives, why would I want to gamble my earnings for a cryptocurrency that rewards a select few who got in early, and could equally collapse to zero since it has no intrinsic value?

The ideal currency would be one specifically designed to PRESERVE VALUE regardless of how much it is traded. A day's labour today is still worth a day's labour tomorrow. Unstable currencies should be avoided in the interests of economic stability. I'd be surprised if many of these new cryptocurrencies are long lived.

Given there are only a finite amount of physical goods that can be traded, does the introduction of new currencies not threaten the value of established currencies? Every time a purchase is made using a new currency, the set of goods available for purchase reduces, but the total amount of old currencies in circulation remains unchanged. Hence the purchasing power of the old currencies is reduced.

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Re: Cryptocurrencies defy the purpose of money + devalue other currencies

Given there are only a finite amount of physical goods that can be traded, does the introduction of new currencies not threaten the value of established currencies? Every time a purchase is made using a new currency, the set of goods available for purchase reduces, but the total amount of old currencies in circulation remains unchanged.

No. It doesn't really work like that. Firstly the world economy is growing. So there's plenty of room to take a share of the pie and for everyone else to still have more pie than they had before - depending on the numbers. And Bitcoin is still very small potatoes.

Secondly we have productivity growth. This means we're continually able to do more stuff for the same resources. Also our resources are growing. Obviously there's no new oil going to be turning up, but we're getting more people - and also much more renewable power generation, to name a couple of things.

Also as economies advance, a lot more of their production comes from services. Which often need much fewer inputs, and use more people. So increasing population ups the available resources, as well as globally improving education meaning more people can do more things.

Economic growth is also often a virtuous circle. It's certainly not a zero sum game - because money circulates, almost nobody holds on to it in a pile of gold under the bed. So if I get paid more for my work, I've got more to pay you for yours and so and, and etc.

You do have a point about volatility.

though that can go too far. The problem with the gold standard is that if the gold supply grew slower than the economy, you got deflation. And if it grew faster, you got inflation. It basically wasn't all that stable at all. Plus there are times when economic purity is disastrous. QE saved the British and US economies from much worse recessions in 2008. Also determined QE has pulled Japan out of a 20 year stagnation - basically by forcing inflation on people. We even have a counter-example, something quite rare in economics. The Eurozone did better in the recession than the UK/US - but then didn't do QE and so recovered less well, and then mostly dropped back into recession when the US and UK didn't. Then when they did QE, they recovered. So inflation ain't always bad. That's why central banks try to increase the money supply at roughly the same rate as the economy grows.

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