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Scavenge Exchanges
First and foremost, please start with regulating the exchanges in the full sense of the word. Regulation policies cannot apply to some and not apply to othersâââwe must either recognize an institution in full or it cannot exist and operate in the same sphere. Grey zones are a shame which weaken the whole supposed field of regulation.
We need our accounts to be fully secure and government-insured, preferably. No banks should reject services for using regulated crypto exchangesâââitâs quite frankly, humiliating. Please put an end to pump-and-dump practices, track down inside traders and throw them in jail.
Most importantly, please control the exchanges properly, asset by asset. Stock markets are controlled; there are strict regulations which donât vary from one stock to the next. Please, do the same with crypto assets. Speculation with pseudo-crypto assets wastes investorsâ money, which otherwise could support valuable engineering. It also misleads newcomers and generally spoils the emotional climate of the community.
Reveal Purpose of Assets
Maybe you are not sure what assets to start with, and, of course, you have limited manpower. No problem. Consider opening a formal petition tabling web resource and start with assessing the assets that collect at least a few millions votes. You can always lower the threshold ones the initial rush is over.
Assessments are going to be a creativity demanding job. Iâd recommend starting with a set of criteria defining whether or not an asset is a crypto at all. Look at the purpose of an asset. âBlockchain-basedâ, for example, is really a silly criteriaâââthe Mars rover, suitcase, and hamster all use wheels but that doesnât put the three into any same category of things. At this step, you will be able to filter out the most shameful and purposeless assets, such as Ripple.
Classifying crypto assets by their core purpose is natural and essential; it must be at the very beginning of the process to regulate the same. It explains the most about the asset in the shortest path possible; however, note that over time, patterns of usage may change, fork, granulate.
For example, Bitcoin was sequentially used a as a libertarian position statement, a gambling token, a store of value, a hedging tool, a value transportation tool (sort of payments, but not exactly), and a convenient escrow collateral. Soon, with broad Lightning Network deployment, it may come to commerce for real and its purpose set will fork, pivot, and grow again.
Another example: Ethereum. Ethereum was used as a crowdfunding mechanism for its founders, a gambling token, a sandbox for various experiments, and most of allâââa platform for other projectsâ crowdfunding campaigns. Recently it was used for hosting an unregistered gambling game. Although widely discussed, it was still never used for real, in any practical applications for which smart contracts were originally purposed. No real medical records, cross-border settlements or commercial logistic optimizations have used Ethereum as of yet.
Even in terms of it being a fully-functioning system that one can look over and study, itâs not clearâââwhat is it for? One way to figure this out is to put an asset into a particular existing stable. For example, you decide that Bitcoin is a commodity. Fine, but then you have to keep it there. If (when) it escapes or outgrows that stable, you will need to work again trying to hobble it. Another approach would be to create a new set of asset classes. While that seems somewhat impossible at this moment in time, in truth it wouldnât be very hard; there are not too many truly purposed narratives in the crypto space.
Delexicon of the Term âCrypto Currencyâ
Crypto currency is an incorrect term with a misleading narrative. Claiming to be a currency, crypto or not? As soon as confronted with the economy, it runs. Period. And, letâs be honest. Coherent and consistent believers of Hayekian properties should not even bother applying for an exchange listing in the first placeâââthey should only care about their communityâs economy, not rates to the âpre-minedâ USÂ dollar.
This âcrypto currencyâ term paints crypto enthusiasts as naive and aggressive anti-fiat conspiracy adepts. Thatâs harmful. The best professionalsâââthose who could help in strategic crypto developmentâââdo not even approach the industry sector. Whoâs there instead? A ton of scammers and weirdos looking to cash in on other peopleâs misfortune. Why do you think user experience and customer support of literally all crypto-related services sucks so much? High demand? No! The demand was high even before the hype. So why is it? Well, simply put, we get the worst type of marginal entrepreneurs.
While many economies suffer from corrupt practices in the banking and payments sectors, fiat currency in and of itself represents not a problem, but a solution. The mourned gold standard was a very short experiment, in historical terms, and it has failed. Today, currencies are deliberately soft, they are the tool that runs economies, they are something that is specifically, wilfully designed not to âgrowâ, but rather to create an ongoing incentive to spend. Small inflation is not a problemâââit is actually an ideal and the desired state of things. Hyperinflation is never caused by economic, and even less so currency diseases; it is always a result of a political cancer.
Of course, even if wrongly named at the edge of an insult, inherently good things will find their ways to the top. Bitcoin, for example, has been nurtured through a stage when it was still possible to be destroyed by a niche group of escapist libertarians and some undereducated conspiracy believers. It is not the first time something of a great value appeared as a result of a fundamental mistakeâââthe entire America was discovered that way.
Scrutinize Claims of Decentralization
âDecentralize somethingâ is a legit purpose, but only for things that are worth becoming public domains and that will succeed in doing the same. The requirements to qualify for this category must be fastidious: to become a public domain, a system behind a considered asset must have some substantial user base, a sizeable history of development and maintenance, and structural quality assessments done by recognized professionals.
Consider a national parkâââitâs not something that is randomly assigned. Similarly, there must be a clear criterium as to why a particular application needs a version for the commons. For example, it is easy to see why a file storage or credit rating should have a publicly run ownerless alternative; however, most decentralization claims marketed by ICOs are clearly ridiculous. In any case, regulators donât need to be petty tyrantsâââthe user base size filter will do the most of the job.
By the way, public domains have to be protected. Your colleagues in other governing bodies make sure no one contaminates tap water. In the same vein, why do you allow various freaks to spoil the Bitcoin image and steal its good name? The core attribute of Bitcoin is to be trusted by the publicâââone canât mess with it. Why is it you still didnât send a couple of black-suited agents to that porch in Saint Kitts and Nevis?
âPublic domainâ is a very demanding status. Before you hand it out, you should make sure the considered system needs a freely traded asset. For example, the founders of smart contract platforms claim their asset is needed to protect the network from spam and for other reasons. But donât only accept their word for itâââeven that has to be verified. This is the early stage at which you can filter out most of the impostors. The next question is just as important: even if the asset is proven to be necessary, does the systemâs purpose really imply the need for people to gamble it? Why not maintain the price through some more administrative instruments? Not every functional valuation in this world happens through open market trading.
Help Honest Tokenization
Tokenization is a way to securely account for things and harmonize supply chains. We use tokens every day, everywhere: keys, invoices, receipts, tickets, etc. Crypto tokens are just more convenient, more secure at low cost, andâââunlike our current various tokensâââthey can be compatible, globally.
Myriads of businesses canâââand shouldâââbe tokenized; after all, that is the legit purpose to have a traded token in the first place. So, you should request those who want to list a token on an exchange to present the application and see if it works. Do people actually use it? Do the tokens fully reflect the claimed technical specifications? Formally speaking, tokenization is the process of substituting sensitive data elements with non-sensitive equivalents that can be operated anywhere outside of the original data custody domains. So, simply ask the founders to show the sensitive data domainâââwhat is for your eyes only? After the demonstration, Iâm pretty sure the deliberation will be clear. Of course, the vast majority of ICOs will die right there, on the spotâââtheyâve got nothing to show.
Oh, and one more thing. Tokenization projects canât come as stand-alones, they need to emerge in alliances.
Administer All Product-less ICOs as Crowdfunding
One very large category of crypto assets includes projects with nothing real in hand, but a vocal crowdfunding effort. When I say ânothing realâ I mean that in most cases, itâs even missing an original idea. Everyone in this world starts from zero, but not everyone wants to sell that zero for real money on day one. They also want to be listed on regulated exchanges, especially once youâve ensured there are no others, unregulated ones around.
When applying for an exchange listing, what these flounders are essentially asking you for is to allow them to bypass the normal competition for âsmart capitalâ and grab some âdumb investment moneyâ. Can you understand how wrong that is? I mean, itâs often presented as avoiding the VC or IPO bureaucracy, saving money on lawyers, but thatâs a lie. It may have been true in the age of the first ICOsââânow you still have to spend a few hundred thousand dollars on ICO marketers who are just as much of a parasite as lawyers. So, when assessing an asset, you are mostly trying to answer, âDoes the public need you to grant that sort of indulgence to someone? Will that help finance some valuable ideas and teams that for some reasons could not be funded through normal channels?â Maybe so, maybe not. To help you decide, letâs recall how it all developed.
History of Envying Bitcoinâs Success
At the dawn of the Age of Discovery, a very specific market has emerged. People with some money would hire some daredevils and wannabe-pioneers with the instruction: âSail over there somewhere and discover something; bring me goldâ.
This is similar to the market of ICO white paper writing today. In most cases, the originator simply decides to cash out on something, quickly. He has no clue about the technology and usually has only a very vague idea what segment of business he wants âto put on a blockchainâ. And he almost never can explain why, so he hires a white paper writer.
No, wait⊠this discovery analogy softens the reality. Let me give a more precise illustration.
Itâs 1873. J.C. Maxwell unites many known phenomena into a single field and force. Suddenly, electromagnetism equations open up a whole new dimension of understanding nature. Any similarly significant discoveries, where new physical interactions will be described, are decades away. And those forces (weak and strong nuclear) will not be used in any âconsumer applicationâ for hundreds of years, maybe more.
Now imagine crowds of miserable entrepreneurs in late 1800s, agitated by Maxwellâs work, seeking to hire ânew field discoverersâ and âscientific paper writersâ. They find themâââthe money-backed demand rarely passes unmet! Few sober people take practical steps and on further develop of Maxwellâs work, they bring electricity to our homes. But the majority would try to âre-inventâ or âinvent something just like thatâ. Now of course, this is not how it was back, then but this is exactly what is happening all these years after the creation of Bitcoin.
One large chunk of ICOs exist to âdisrupt the global financeâ. Why? Presumably, because they think Bitcoin has something to do with finance, since it is âp2p cashâ. We have many âcurrenciesâ, lots of âasset managementsâ, and even âblockchain bankingâ. Do I need to remind you that it has been almost 10 years and, yet, absolutely nothing from that segment is used in real business?
Another historically big fraction of ICOs is âplatformsâ. They take another approach to re-invent Bitcoin: they try to make it âmore universalâ and âcorrect its mistakesâ. We can compare these people with those who would have tried to re-write Maxwellâs equations. Actually, the equations were re-written, for example, into the complex numbers form which is more laconic and beautiful. Did it make it any faster for people to have their homes electrified? No, it didnât even speed it up by a day.
Some platformsâ white papers are more interesting to read than Satoshiâs original, but thatâs a natural progression. New authors have more analytical data. Of course, new platforms are easier to use, easier with each iteration and evolution; however, I doubt it is a good thing, considering the circumstances.
When reading any of those papers, the strong feeling remains: the authors have little idea what their platform will be used for. Of course, they will host applications. But, as years pass, thereâs a growing concern that very few blockchain-based applications are better than their incumbent rivals.
Blockchain will transform the world, but not by repeating existing centralized systems in a decentralized way. My guess is that the decentralization trend and âtrust in math, not in peopleâ idea is seriously overstated. The blockchain world will merely tokenize the economic calculus, optimizing a lot of stuff without revolutionizing the basic socio-political platforms. Ubiquitous compatible tokenization is the phenomenon that we just donât have the analogy for today.
People started to look at Bitcoin in a more abstract manner and, instead of copying or âimprovingâ, tried to look around where some of its ideas, not all, could be appliedââânew meaningful ideas emerged with chances of surpass the incumbents. Some of them are:
- more consensus, tokenized prediction markets (Augur),
- âproof-of-contributionâ, distributed file storage (Filecoin),
- tokenization plus gamification gave life to the new crowdsourcing science (Adtoken),
- ubiquitous tokenization builds optimal supply chains (Sweetbridge).
The list is obviously longer, but not by much. And, of course, everybody has their own variant. What I want to draw your attention to is that many apps on the list are not actually stand-alone, but hosted on a platform. (So far, it is Ethereum in all cases but that will change very soon.) The overall pattern is quite sad. Currently, there are very few meaningful applications and each one of them makes more sense than the platform they are built on. It doesnât look like we need more platforms before we see some real contours of tokenization. Platform creation feels like a premature activity. I suppose good apps will eventually leave their current platforms. Partly because they will need to optimize to the bordering conditions of the app, and partly because they will not want to remain neighbours to thousands of generic projects, whom Ethereum and other platforms made so easy to replicate, with this kind of pitch:
âBefore us, throughout thousand of years of history, governments and rulers have had formal relations with religious organizations, political parties, commercial companies, and later, with non-profit formations. Every group of people united by one goal could always fit into one of those categories. Until recently. We are new and we are none of those. We are a self-sufficient closed-loop crypto-economy. We have to be treated, regulated, and even taxed differently. We are like a ânew countryâ. For _____ (insert an industry sector, like dentists or whatever). Everyone can become a âcitizenâ. We will build new land in the ocean, we will seize the land from old countries. Before we do that, we are selling millions of our âpassportsâ (tokens) to whoever wants to buy. We even allow them to sell passports to each other and help them drive the price up. People will buy passports because we use blockchain.â
Dear Financial Regulators,
We could survive without you regulating bitcoins and few other organically-introduced assets that make sense. Honestly speaking, weâd avoid you, by all means. Weâd just use billboards for OTC exchange; weâd make distributed exchanges work.
But now, with thousands of ICOs that have delivered nothing, we have a polluted home. The backlash to this situation is not only going to be socialâââit may enter the real politics category. Today, as itâs a very real possibility that the crypto community could die from âchoking with its own vomitâ, we need you, and fast.
Honest, Open Letter to Regulators: How to Deal with Crypto Assets was originally published in Hacker Noon on Medium, where people are continuing the conversation by highlighting and responding to this story.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.