Dogecoin Creator Jackson Palmer Is Concerned About Ethereum’s ICO Bubble

Dogecoin Creator Jackson Palmer Is Concerned About Ethereum’s ICO Bubble

The one of biggest stories in cryptocurrency over the past couple of months has been the meteoric rise of the ether price and the speculative frenzy around the Initial Coin Offerings (ICOs) launching on top of the Ethereum platform. In a recent video uploaded to his personal YouTube channel, Dogecoin creator Jackson Palmer shared some of his thoughts on ICOs and their effect on the ether price.

“The real reason the [ether] price has been going up something like a hundred dollars per week for the past month is really just greed: greed from developers, greed from investors [and] greed from everybody in this speculative market,” said Palmer in a summary of his main point on the topic of Ethereum and ICOs. “And that’s not necessarily a bad thing. People making money is how the world works. But it’s the way in which it’s been happening and the speed at which people have been doing these ICOs that is a little bit concerning.”

This Is Not Our First Rodeo with ICOs

Before getting into the details of the current speculative bubble around ICOs, Palmer pointed out that this is not the cryptocurrency community’s first rodeo when it comes to these sorts of token sales and speculative investment opportunities.

As specific examples of past token sales from an earlier time, Palmer pointed to Mastercoin (now Omni) and Ethereum itself.

Then there was Havelock Investments, “literally a platform where you could buy securities or invest and get equity in a company based on bitcoin,” added Palmer.

In addition to Havelock Investments, public offerings for investment were also made on platforms such as Bitfunder, BTC-TC and GLBSE.

Palmer also brought up several infamous cases of bad investments or outright scams from the past.

He discussed Neo & Bee, a startup that failed in spectacular fashion after raising funds through various bitcoin-based stock exchanges. Cyprus eventually issued an arrest warrant for Neo & Bee CEO Danny Brewster.

Then Palmer also recalled the infamous case of Josh Garza and his schemes related to cloud mining and the altcoin known as Paycoin.

“They launched a coin that was literally just a token to facilitate their Ponzi scheme,” said Palmer. “And they would actually sell a product that didn’t exist.”

Why Are We Seeing a Flurry of ICOs Right Now?

So, if these sorts of schemes have existed in the past, why are we seeing a boom around the concept today? In Palmer’s view, Ethereum’s ERC20 token standard has made it easier for anyone to launch a token sale on their own.

“Because it’s so easy and a standard to copy, there’s been a lot of people that can just fire up an ICO in a couple of minutes,” said Palmer. “There’s actually a couple of websites out there that’ll let you generate an ICO or generate a token on Ethereum with no coding required.”

Although previous token sales did not involve much more than a Bitcoin address and a spreadsheet, Palmer said there’s something more tangible about the process on Ethereum.

“Something that is more tangible about Ethereum ICOs is that when you send the ether to the contract, the Ethereum network does recognize — and many wallets out there because of the ERC20 standard will recognize — that you got whatever coin or whatever token shows up in your wallet,” said Palmer. “So, it’s a lot more tangible. You’re not just sending money somewhere and never hearing about it again.”

Palmer added that developers need to take a step back and question whether it’s right for them to raise $150 million for their “little startup.” As a comparison, Palmer noted that normal seed round funding for a startup is between half a million to a million dollars.

“Many of them don’t even have a tangible product yet,” claimed Palmer.

While Palmer’s video casted a cautious tone over the entire ICO market, he did mention and Civic as two projects with legitimate, tangible technology behind them.

How Are These ICOs Affecting the Price of Ether?

Another aspect of the speculation around Ethereum-based ICOs is the effect these digital assets have had on the price of ether. There’s been a flurry of ICOs launched on the platform in the past few months, with some projects raising over $100 million in a matter of minutes.

“When [an ICO is launched], the only way to buy into these ERC20 contracts or these ICOs is through ether or Ethereum, so if these companies are raising $150 million in ether, that’s locking that ether up in that contract,” said Palmer. “And so, it’s taking that money off the market. So, what happens is you have this shortened supply, but there’s an ICO coming on the market every single week. And so, people are getting really excited about this and trying to buy up ether.

“This is what’s really happening,” Palmer continued. “This is what’s driving the bulk of the [ether] purchases and trade right now is people buying ether to send to a contract in the hope they’ll get rich quick off one of these ICOs.”

In Palmer’s view, the speculative boom and FOMO driven by the ICO market has spilled out into the entire cryptocurrency market.

Watch the full video here:

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More Mainstream Use Cases Needed to Secure Bitcoin’s Legitimacy

LTB: Coin Center

Blockchain technologies like the one that underpins Bitcoin are gaining wide acceptance across industry sectors from finance to healthcare to real estate. Bitcoin itself, however, is still struggling with legitimacy and regulation issues. Just this week, the fact that bitcoin was chosen as the payment method for the latest round of global data ransomware attacks, WanaCrypt0r 2.0 malware, has underscored the negative perception that still swirls around the cryptocurrency.

On the most recent episode of Epicenter, co-hosts Brian Fabian Crain and Meher Roy interviewed  Peter Van Valkenburgh, Director of Research of Coin Center, a nonprofit research and advocacy center focused on the public policy issues facing decentralized financial networks like Bitcoin and Ethereum. During the interview, Van Valkenburgh explained how Bitcoin is currently dealing with its branding issue; how Coin Center is laying the groundwork for future discussions about Bitcoin regulation; and how more mainstream uses of the technology would be helpful for discussions around regulation.

Bitcoin’s Branding Issue

Van Valkenburgh noted how Coin Center has struggled with the issues around Bitcoin as a brand, as many in the mainstream associate the digital currency with the collapse of Mt. Gox and drug sales on darknet markets.

“We take a lot of meetings with congressional staff, we take meetings with regulators at [the United States] Treasury, and oftentimes we can’t take credit for those meetings because a congressman doesn’t want it, necessarily, to immediately hit the news that he’s meeting with the Bitcoin people,” said Van Valkenburgh.

From Van Valkenburgh’s viewpoint, networks like Bitcoin are used to “decentralize power” and push security to end users’ devices. “That means you lose the choke point for regulation because the choke point for regulation is the bank, the choke point for regulation is the centralized intermediary,” he explained.

Van Valkenburgh went on to note that, since control over these networks is pushed to the edges, the technology can potentially be used for illicit activities.

Laying the Groundwork for a Future Debate

One of the illicit activities that regulators and journalists sometimes associate with Bitcoin is terrorism. Although there haven’t been any major terrorist attacks funded through Bitcoin or any other cryptocurrency up to this point, that we know of, Van Valkenburgh pointed out that it’s “possible that one day somebody will use these networks in a meaningful way” to finance that sort of activity.

According to Van Valkenburgh, one of Coin Center’s main goals is to prepare for the potential conversation that would take place within government in the aftermath of such an event.

“What will be the government response when this tool is used in a way that a lot of people get upset about?” asked Van Valkenburgh. “Our metric of success, I think truly, would be a reasonable response to clear evidence of illicit uses of the technology — like dangerous, illicit uses of the technology.”

For Van Valkenburgh, success for Coin Center in such a scenario would mean the prevention of a push for an instant ban of Bitcoin and other related technologies, along with software developers not getting arrested as part of the process. Coin Center is effectively laying the groundwork to make sure these future conversations remain reasonable.

“This is a technology and, just like all technologies, it can be used for good and for evil,” said Van Valkenburgh. “We are not, as Americans, in the business of banning technologies. We’re not in the business of banning speech.”

More “Legitimate” Use Cases Needed

Going back to the aforementioned branding issue, one possible way to improve the outlook on Bitcoin from a regulatory perspective is to create more mainstream use cases for the technology. This point was originally brought up by Crain.

“If you have stuff where there is 50 million users and they are like, ‘This thing is great. It really makes something possible that I couldn’t do before. It’s a totally legitimate thing, and this is amazing.’ It would be so much harder if it’s still this kind of fringe thing,” said Crain.

Van Valkenburgh agreed with Crain’s assessment and continued, “You need the legitimate use cases to emerge. You need to show that you’re making a positive impact on the world — that it’s not just a bunch of people getting rich off of token sales or people using underground drug markets.”

Van Valkenburgh added that Coin Center hopes to clear the way, at least from a regulatory perspective, for these sort of mainstream applications to appear. “The longer we go without more mainstream, legitimate uses, the more danger we’re in,” he added.

As far as mainstream uses of Bitcoin today, Van Valkenburgh pointed to the financial autonomy enabled by the technology, and he identified WikiLeaks’s use of Bitcoin to get around a financial blockade back in 2011 as a specific example. However, Van Valkenburgh also added that this example has become more politically charged since allegations of WikiLeaks working directly with Russia have appeared.

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