Hello. This is Kevin Cha, CEO of Coinone

While global news coverage and various online content continue to be released and show signs that the market is improving, issues surrounding policies and regulations still show an industry that is depressed and contracting.

Yes, it is true. This market is still quite heated. Whether this heat is positive or negative is something that can’t be determined yet, but it is still hot. And competition is fierce.

It has been four years since I began operating the Coinone exchange. The cryptocurrency market is still in its early stages. There are many things it must go through in order to grow even bigger.

Approximately three months ago, I wrote my first post (https://steemit.com/blockchain/@kevin.coinone/ico) and expressed my desire to share my thoughts on cryptocurrency, blockchain, and ICO here and hear the opinions of others on these topics. I believed that this process would not only be a meaningful stepping stone for my own growth, but the growth of this market as well. That belief has not changed to this day.

And today, I hope to place down the first stepping stone by speaking of ICO. The post may be quite long and I’m not quite sure how well I will be able to express myself.

What is “ICO”?

ICO (Initial Coin Offering). It is such a familiar word to me now. In order for public blockchains to be able to function according to their original purpose, cryptocurrencies are a necessity. Therefore, when developing a public blockchain, how to divide cryptocurrencies in the early stages in order for the platform to function is something that should be on one’s mind from the beginning.

Bitcoin, the first blockchain to be created, is not burdened with such concerns. Because its starting point was when it had a value of 0, it functions in a system in which Bitcoins are given as rewards to nodes that maintain the blockchain through mining.

And as time passes, the Bitcoin has become more recognized for its value. With this, various blockchains that have built upon the Bitcoin have begun appearing in the world. As these blockchains were created in a market in which the Bitcoin was already being given a value and traded, it is inevitable that their trajectory differs from the early stages of the Bitcoin.

First, a blockchain development team establishes a foundation. Then, a portion of the cryptocurrency that is issues is owned by the foundation and developers, while another portion is sold publicly to those who are interested in the project. The fund that is made from those sales are then used to develop blockchain technology. After publicly collecting funds, effort goes in to effective distribution in order to construct a healthy and active ecosystem.

And through a successful vitalization of the blockchain, the intrinsic value of the blockchain increases and leads to the price of the cryptocurrency rising as well, and it is from this system that the foundation, develops, and initial investors are able to earn profits.

I believe the “Ethereum ICO” was the starting point of the ICO boom. At the time, Ethereum brought new advances to Bitcoin, formed innovative technology such as smart contracts, and created a stable ecosystem through high-quality work. It is the best example of platform that seamlessly transitioned from fundraising to technology development.

There are many works out there that have organized and outlined the history of ICO. The work I have linked below is especially perfect to understand the flow of ICO. Please view it as supplementary material to my explanations. https://steemit.com/kr/@keepit/keepit-ico-1

What is the issue?

In 2013, Vitalik Buterin made the claim that funding was needed to make it possible for Bitcoin to be scripted (programmed). However, he was unable to reach an agreement, and Vitalik Buterin made the decision to personally develop a new platform. At the time, the Ethereum White Paper gave developers much inspiration and encouraged them to think more deeply about innovative technology.

Bitcoin and Ethereum became great pillars of the history of blockchains with their innovative technology. Naturally, Bitcoin, Ethereum, and the topic of cryptocurrencies itself began to receive more coverage and interest, and major cryptocurrencies increased their value by the tens and hundreds, reflecting the high global interest it was receiving.

And it was then that issues surrounding cryptocurrencies began to emerge as well. Everyone rushed to create their own cryptocurrencies. At some point, ICO became a strategy to raise funds with ease.

The bigger issue is that these people have no interest in how blockchains are created and maintained or forming a sustainable ecosystem. All of the interest is on creating a passable White Paper and good marketing plans. There are even some who claim they were pursue an ICO without White Paper.

There have even been start-up companies that attempt to pursue ICO to amass funds. I am not saying that all of these instances are unequivocally wrong. The issue is that the people pursuing ICOs are those who “just want to make a lot of money.” They have no interest in developing blockchains or creating a sustainable cryptocurrency ecosystem. And yet these people are able to get their hands on hundreds of millions of dollars. How is this possible?

The rising trend of investing in cryptocurrencies

Following the initial reveal of Bitcoin, related technology and ecosystems have grown over the years and enjoyed a large increase in value. In early 2017, many cryptocurrencies including Ripple announced that they would be forming partnerships within the financial sector or with related organizations. It was around this time that stories of early investors who had enjoyed great profits through cryptocurrencies such as Bitcoin and Ethereum began spreading, causing an investment frenzy centered in Korea.

The blind faith that participating and investing in an ICO will bring one big money can begin to morph into the kind of investments that are made without doing proper research on the given market. ICOs worth billions of Won were bought up within minutes, and they would be listed on the stock exchange weeks later, despite not perfecting the necessary technology, and earn profits ten or more times greater than the initial investments. As the market grew, all the remained was hot money.

Playing adviser

As these cases became more frequent, interest in maintaining and developing blockchain technology lessened. There was no need for it. What became important was focusing on marketing and through it, attracting more investors. What made this possible was the fact that at the time, it was difficult to collect much information about the market and therefore, it was difficult for most investors to understand blockchain technology or the ecosystem that housed it.

However, with a growing number of people showing interest in this industry, some have risen to fame for carrying out successful projects on the basis of an interest in the necessary technology. This has also created an interesting occurrence, the ‘adviser’ system. In the eyes of an investor, if they see the name of a well-known person as an adviser of a project, they may come to the logical conclusion that the project will be a worthy investment. But this can also lead to investments being made without proper research being done. Such investments are made without even properly understanding what exactly the function of an adviser is in these cases.

Then what can an adviser gain from this situation?

Their name becomes linked to rewards. They are rewarded with a considerable amount of cryptocurrency for lending their name out, and this can be a very attractive exchange for them. The ICO team has the opportunity to borrow a famous person’s name and market their product, and the person who gave their name out as an adviser is able to make a considerable profit.

Of course, this is not to say that all advisers do not do their job as an adviser. In actuality, some projects have teamed up with fantastic advisers to create successful projects. However, why are the names of businessmen, celebrities, and developers who have no relation to blockchains being included on White Papers? I see this as an act of “Playing adviser.”

I recently had the chance to interview an individual who participated in a great deal of projects as an adviser. I asked them what kind of advice they gave to these projects, and they did not provide me with a definitive response and only stated, “I just gave them some general advice.” In the end, their advice had been nothing but introducing the ICO to people they knew.

The minimum value of cryptocurrency: liquidity

Assets that are “capable of fluidization” have a greater value. For example, stocks in a listed company have a greater value than those of an unlisted company.

The same applies for cryptocurrencies. With the assumption that all cryptocurrencies have an intrinsic value, that value increases if that cryptocurrency becomes more fluid. This is the reason why all cryptocurrencies put a great deal of effort into becoming publicly listed on exchanges.

To be frank, it is not difficult for cryptocurrencies to become publicly listed. Some make requests through people they know, and some exchanges will list companies for a fee. We have never undergone such practices as of yet. Even if a foundation allocates 10% of its cryptocurrency to a large-scale exchange in return for becoming publicly listed, they will still be able to produce a profit if their value rises by at least 10%. Their value may rise at an even greater percentage. As there are no regulations that exist regarding exchanges, this is an easy mechanism for people to use.

What is the solution?

Countless regulations exist in order to filter out unlawful practices when it comes to IPOs. If an issue arises within the IPO process, there is a high legal responsibility that is incurred.

Then, how will we be able to resolve the issues around ICOs?

First, I thought of a structure in which ICOs first receive investments from VCs. By first receiving investments from organizations with expertise in the field, it would create a certain level of verification and help resolve the issue of the imbalance of access to information.

However, even VCs act according to their personal profits. Unlike venture investments, which requires a successful IPO in order to collect funds, the cryptocurrencies market makes fund collection possible in a matter of weeks after becoming listed on an exchange, meaning the quality of technology has less of an impact on whether investments are made or not. Therefore, investments are made on projects, even if they may not have the greatest technology but are marketed very well, as long as a profit can be made. Therefore, VC-centered investments cannot become a fundamental solution for this market.

“Anyone can create a currency, there are not regulations around going public, and anyone can buy or sell,” are all what we would hope from an idealistic free market.

Looking at the current situation long term, I believe that all of the issues we face will be corrected by market principles. The cryptocurrencies that were formed by those riding the investment wave and uninterested in anything but turning a profit will lose their value and returns for those cryptocurrencies will be close to zero. Though it is difficult to know when that time will come, I believe that in a few years, only those cryptocurrencies that are worthy will remain. Through that process, investors will learn about the market.

Even without regulations, these corrections to the market will occur naturally, However, there may be many individual investors who suffer a loss throughout the process. There will be those who placed an investment simply because of the news coverage, a friend, provocative marketing, unverified advisers, or simply because the cryptocurrency is publicly listed. In the end, some will suffer losses while only a select few will gain profits.

Currently, there are no penalties for blockchain project developers who do not reach their promised milestones. To put it easily, even if a project collects funds through an ICO and then uses those funds for a purpose that differs from the original intent, there are no regulations to stop that from happening.

Therefore, reasonable regulations are needed. There must be a regulation that states that until a project developer team develops their cryptocurrency according to the schedule they have provided and can prove that their blockchain is able to function with stability, a cryptocurrency cannot be sold. The requirements for being public listed on an exchange need to be strengthened, and a system needs to be created that holds exchanges accountable in the case that a listed cryptocurrency is found to be a “scam.”

Reverse ICO

Blockchains are a difficult topic that is not easy for most people to understand. Therefore, it’s understandable that many may become more interested in reverse ICOs as they are relatively easier to understand. “Reverse ICO” refers to the method in which a cryptocurrency is launched through an already-existing enterprise.

Therefore, it may be difficult to agree with the statement, “Bitcoin is a currency that can be circulated globally, and has great value in the fact that it eliminates the middleman. Therefore, there is a high possibility that Bitcoin will be used in many places in the future.” It is difficult for most people to envision how Bitcoin will be used in the future.

On the other hand, a statement like, “We have a business based on platform A. We will be creating a payment service using our platform A and a cryptocurrency we will launch,” is easier to understand and more realistic. This is because it has a more detailed business model than the previous statement.

However, most of the reverse ICOs I have come into contact with have simply been the process of replacing existing payment methods with a cryptocurrency. To put it simply, it is no different from taking a blank piece of paper and printing gift cards on it for free.

Based on the sole reason that they can be used within the company’s system, they print out as many gift cards as they wish and sell them at expensive prices, but what if they can’t guarantee the value of the cryptocurrency they are using? What if they are unable to explain why their cryptocurrency is more effective and why have to use blockchains?

The dangers of reverse ICOs is a topic Coinone has dealt with extensively in the report released by our Coinone research center.

Download the report here: https://s3.ap-northeast-2.amazonaws.com/research.coinone.co.kr/report/20180716_Cryptocurrencies_have_intrinsic_value_EN.pdf

Conclusion
Jordan Belfort was the main character in the film “The Wolf of Wall Street,” which dealt with the topic of penny stocks. He used what he called ‘Ants’ to reap in astronomical profits. It was a time when countless scams and unlawful actions were rampant. However, it can be said that it was because we went through such times and were able to grow and learn from those moments that the current capital market exists today.

The history of blockchain, which began in 2013 with the birth of Bitcoin, is currently passing the age of ICO. I believe that, like all other industries, the bubble and negative side effects of the current blockchain market are temporary and will make way for new blockchain innovations in the future.

I hope that the current growing pains do not last for too long. I hope that there aren’t any people who suffer a loss because of indiscriminate ICOs. And I hope that healthy and reasonable regulations and laws will be created as soon as possible in order to help facilitate the market.

The issue of information asymmetry due to the lack of information has not yet been resolved, and negative side effects that should be occurring continue to occur continuously. Coinone believes in the future innovations blockchains will bring. That is why we wish to find a solution to these issues. We will not be swayed by the current situation of the market. We will stay grounded in our principles and beliefs to be an exchange that can always be trusted, and become a company that is at the forefront of the blockchain and cryptocurrency industry.

Thank you.

This article is a translated version of https://steemit.com/cryptocurrency/@kevin.coinone/2zvrda-ico