This article originally published the "Deep Reading" column of "Wired" magazine, originally titled "To get rich in crypto you just need an idea, and a coin", compiled by Encrypted Valley.
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The article from the British blockchain start-up project DOVU (mobile data online market) during the independent referendum in Catalonia, Spain, is a cut, with a non-fictional novel brushstroke, revealing in depth the internal operating mechanism and appeal of the industry. The spiritual qualities that people devote themselves to.
Despite the fact that it happened in a foreign country, for the blockchain industry still in the dawn, such in-depth reports revealing insider information are still very valuable. Encrypted Valley compiled this article to readers. On October 3, 2017, on a cloudy, sultry day, 700,000 people took to the streets of Barcelona to protest against the Spanish government. Two days ago, the Madrid authorities reacted fiercely to the independent referendum held in Catalonia, and the court ruled that the vote was invalid. The police stopped the Catalans from voting and the violence was on the verge.
Barcelona, the capital of Catalonia, is now undergoing a general strike, shops are closed, taxis are slowly driving through chaotic streets, ignoring angry potential customers. The national flags crowded on the tree-lined parallel avenues.
All of this is like "The 1993" by Victor Hugo.
A country may be mutilated and a new history may be being created. But at this time, Irfon Watkins and his team are considering tokens.
"We are going through a riot," Watkins said. "This is the fun of running a global technology company." For the 53-year-old Watkins, this should be their important day.
Watkins wears thick-rimmed glasses, a fluffy silver hair, a little scum, and is a Welshman. He is the CEO of UK blockchain startup DOVU, which aims to create an online marketplace for mobile data using blockchain technology, a P2P distributed ledger that supports digital assets such as BTC and Ethereum.
The company has only nine people, but has received an undisclosed investment from Jaguar Land Rover and the government-backed fund, Creative England.
But in fact, most of the money to build a DOVU comes from another channel: selling 300 million tokens online.
When the token is created, it becomes the tiny currency that buys DOVU blockchain data. Potential buyers are eager to get it. There are also some speculators who are planning to hoard for sale. If the DOVU's function is to make it appreciate, they are resold at the digital asset exchange. Many online buyers are doing the same thing. They have purchased dozens of tokens from other projects, hoping to become rich.
Krasina Mileva, DOVU Co-founder and Chief Operating Officer and Legal Counsel
Watkins and his co-founders Arwen Smit and KrasinaMileva walked from the Barcelona Convention Center to the hotels in the city centre. They will meet with product director Alex Morris at 7 pm and make product recommendations.
At 6:35 pm, we walked through the crowd. The street was uploaded to arm the police roar. The protesters shouted "Asesinos!" (murderer).
"We have to support these people." Smit, a 26-year-old Dutch girl with blue eyes and freckles, stared at her cell phone.
Watkins raised an eyebrow and asked: "Catalans?"
Smit replied: "I mean investors."
In September last year, DOVU officially released a white paper. Subsequently, they have been communicating with potential buyers through Telegram. The questions asked are varied, from the technical aspects of DOVU, how the token will be delivered after it is sold, and when it can be traded on the exchange. There are many traps. Telegram reports that there are scammers posing as DOVU team members and privately sending messages that tokens can be offered at a discounted price.
As they crossed the narrow medieval alleys of Las Ramblas, Watkins said:
"There may be some flaws. For example, the site is hacked, someone forcibly breaks into an account, and scams, etc. But in general, I am calm."
The three returned to the hotel at 7:03 in the evening. A journalist named Morris is waiting for them by the pool on the roof.
Morris looked at his laptop and said, "Sales have begun." His voice was overshadowed by the buzz from the night air police helicopter.
On the street below, the demonstrators began to tap the pan – a form of traditional protest called Cacerolada. The hotel manager raised the volume of the background music in response.
“Open the champagne,” Watkins told. As Moët&Chandon flows into the wine glass, the buyer's payment also begins to flow into DOVU's encrypted wallet at a rate of two per minute. Everything is going very well.
The token sales lasted for two weeks. If DOVU can sell all tokens, the company will eventually earn £30 million. Such digital assets can be exchanged into legal tender at exchanges such as Coinbase.
"It’s like holding a party. I thought that nobody cares, but the result is like a market. This is the feeling of the first token release."
Irfon Watkins, DOVU co-founder and CEO, at its East London office
Imagine that you want to open a casino but have no money. Investors are not keen on business plans, banks are leaving you, friends and family can only provide limited help. However, if you make a limited number of chips and sell them to the public, you can use it later in the upcoming casino. What is the result of raising funds in this way? People who agree with your creativity can not only help promote the establishment of casinos, but also get a bunch of chips after opening. Moreover, due to the limited number of chips, if buyers are enthusiastic about the future development of the casino, they can resell at a higher price and profit from it.
Although this metaphor is not invulnerable (the casino chips have a fixed value), it helps explain the encryption boom brought about by the BTC bubble.
In 2016, entrepreneurs began to realize that blockchain technology enabled them to make money for their intangible casino crowdfunding. What really makes it easy is the Ethereum, which is known as the “blockchain 2.0”. Ethereum allows developers to run open source applications on them and use digital tokens. Importantly, tokens can also be traded on exchanges, creating space for speculators.
The first to spark this upsurge is The DAO, a venture capital fund based on Ethereum. Raised $150 million (£112 million) by selling tokens with investment decision voting rights.
In May 2016, just a few weeks after launch, The DAO was hacked and stolen $50 million. Despite the setbacks, this is ample proof that someone is willing to pay a big price for a token.
Things are going very fast. Every day, the founders with ideas ask for their tokens for millions and ask for regular payments.
In April 2017, Gnosis, the blockchain forecasting market platform, raised $12.5 million in 12 minutes;
In June of the same year, a company called Bancor raised $147 million in three hours;
In July, a new blockchain project called Tezos raised $232 million;
Even a spoof site called "Useless Ethereum Token" (a useless Ethereum) raised $40,000.
In most cases, no one can guarantee that these projects will be implemented smoothly. Some people admit that they may end up failing to deliver on their promises. Therefore, such payments are usually defined as donations. Moreover, the anonymity of the blockchain makes it difficult to pursue the responsibility of the fraudster afterwards. But there are still a lot of people who want to enter the encryption circle because of their passion for diversified portfolios or for their desire to make quick money.
Soon, the first token financing was labeled as a “bubble”. Erik Voorhees, CEO of digital asset trading company ShapeShift, told me: “This is a complete bubble. The amount of money raised by projects that are not even prototypes is horrendous.”
As tokens grow in popularity, companies are competing to emphasize that their tokens are practical, with some essential features (such as access to services), and are not unregulated securities-type tokens. But the “Faust-style transactions” between the rich-selling token sellers and the active token holders in the secondary market have caught the attention of financial regulators around the world.
In August 2017, a joint report by Goldman Sachs and CB Insights stated that the first token financing has replaced VCs and became an early source of funding for Internet companies.
By January 2018, the digital asset exchange had already launched more than 1,500 tokens, and venture capital firm Fabric Ventures estimated that the total amount of funds raised through the first token financing in 2017 was $5.6 billion.
Suddenly, every corner of the world is filled with cryptocurrency. Everyone wants to know what happened.
Arwen Smit, co-founder and chief marketing officer of DOVU
Brock Pierce stands on the stage of an auditorium at The Brewery Brewery in East London. This is a refreshing September day. The air is filled with the smell of wood varnish. Pierce doesn't seem to care that there are 100 viewers watching him. He is short, slender, blond, hoarse, and a smile comparable to a Hollywood star – you might be able to recognize him from the Disney movie Invincible Duck and The First Child.
Pierce, who starred in children's dramas in the 1990s, is 37 years old, but his figure is still very good and can still appear unobtrusive in a youth drama.
Born in Minnesota, Pierce is a blockchain investor and chairman of the BTC Foundation and has been in the digital asset industry since 2012.
In 2013, he co-founded Mastercoin, a company known as the pioneer of blockchain financing.
He claimed to be involved in 150 projects and purchased 1 million Ethereum at a price of 20 pence each when Ethereum was first launched in 2014. As of January 2018, the price of the Ethereum was approximately £600, which allowed Pierce to have at least £600 million in assets.
On the same stage as Pierce are two executives of block.one. Block.one is a startup company that is headed by Investor and Strategy at Pierce and is the operational entity behind the star project EOS.
Under the zipper hoodie, Pierce wears a pendant with the EOS logo.
After the speech, it is the question and answer time. Someone asked a hot question: Is Securitization Certificate a security? Whether the person issuing the pass should be concerned about the US financial regulator. After all, unregistered securities are illegal in the United States. When they asked any lawyer in the industry before, the answers they got were unclear.
Pierce has a different view on this: Instead of carefully putting the token on a practical brand, the company should consciously tag it with a security label. He says:
“Most tokens will no longer be practical, but securities. Because investors want rights, want royalties, and want to pay dividends, all of which are given by securities laws.”
There are precedents for this move. In April 2017, his then venture capital firm BlockchainCapital registered a $10 million venture capital fund in the Cayman Islands by selling the “BCAP” token. These tokens are issued through an institution in Singapore. Because under US securities laws, all US citizens are not allowed to hold such assets except for qualified investors.
BCAP is touted as a "digital security." However, the documents show that BCAP holders do not have the right to assign or dividends unless Blockchain Capital decides to repurchase them. If the fund goes bankrupt, the holder has no voting rights and liquidation rights.
Pierce explained that the main advantage of BCAP is that they are mobile, unlike stocks in traditional funds that usually freeze for years. “Selling a token is the way you make money. You buy it for one dollar and then sell it at twice, five or ten times.” He said: “This is the future of venture capital.”
Prior to coming to London, Pierce gave presentations in Cologne, Rome, Frankfurt and Kiev. The public is confused about the operation of the token, and one of Pierce's missions is to get rid of their confusion.
He experienced a bubble after he left his acting career in 1999. At that time, he just became the vice president of DEN, based in Santa Monica. The company is engaged in a new streaming business.
This failure is a typical Internet bubble. The company went bankrupt after the underage actor accused Pierce and other executives of sexually assaulting him. After Pierce was arrested in Spain, he denied these allegations and was eventually acquitted. But DEN's CEO, Marc Collins-Rector, pleaded guilty.
In 2001, Pierce founded the online game entertainment company (IGE), becoming the authority in the field of virtual assets. IGE is primarily aimed at players of massively multiplayer online role-playing games such as World of Warcraft. These games use "gold coins" as an in-game currency that players use to purchase items for their characters. IGE has hired thousands of Chinese people at low prices, playing the game for hours to "hoard" gold coins, and then resell them to Western players for dollars. This practice is legally suspicious and angers other game companies and upright players. They believe that this is cheating.
In 2005, when he was CEO of IGE, Pierce met a legendary figure, Steve Bannon.
At the time, Bannon had just stepped down as chairman of the board of Brabart News and was no longer the chief strategist of US President Donald Trump, becoming a dedicated investment banker.
Bannon joined the IGE board of directors and successfully received $60 million in investment from former employer Goldman Sachs the following year.
Pierce said: "Steve Bannon was my right hand. Although he didn't like me to say that, he did work for me."
Pierce said that they all have a strong driving force and have a natural aversion to sleep. He only sleeps 45 minutes a day. “In the ten years I met Bannon, I sent him a message and I was immediately responsive, whenever and wherever, day or night.” They still kept in touch.
Bannon eventually replaced Pierce in 2007 as the head of IGE. With litigation from gamers and game companies, he decided to lead IGE to a different core business: the gaming forum.
Brock Pierce, Partner, BTC Foundation and co-founder of Blockchain Capital
Soon after, Pierce discovered the cryptocurrency. “As the founder of IGE, I have been the world's largest digital currency proprietary trader for many years. This leads me to BTC and other cryptocurrencies.” He said: “From online games to the real world. I have a lifetime. Are doing the same thing."
Pierce leans against the wall of a fine dining restaurant, just a minute's walk from The Brewery Brewery. At lunch time, there are a lot of people in the room, about 20 people. They are all employees of block.one or friends of Pierce.
Pierce is yelling at a young man with a beard wearing an EOS T-shirt. According to the plan, the next morning, the man will fly to Macau to attend a token conference. The partner is a casino. The inviter promised to take his ticket and accommodation, just to eagerly want to show that "blockers influencers" like their business model.
This is not new in Macau, where casinos are everywhere. The special thing is that the rumors of the casino, the behind-the-scenes of this casino is the famous Yin Guofan ("crashing"). Those who have experienced the new wave of Hong Kong movies in the last century must be familiar with this name. There is a movie "Lijiang River" that describes him.
"You are mixing with very bad people!" Pierce said. He warned the man that if he was not careful, he might be killed. Pierce picked up a glass of Shiraz wine and said, while he was restless.
He said that the blockchain movement is not only about the “democracy of venture capital”, but also the potential demise of traditional platforms such as the New York Stock Exchange. It is also about destroying the entire operation mode of existing enterprises and replacing them with scattered, open source and token-driven “ The bright future of the economic tribe.
“Everyone needs a token. Once you have a token, you are not just a customer, but a shareholder.” He said, tapping the table with his fist.
“When you are a customer and a shareholder, you also want to be a contributor. So now every customer will start contributing to their company or tribe. Everything they do can benefit others and themselves.”
In other words, Pierce believes that in the future, tokens are the cornerstone of a community that is committed and selfless. His favorite spiritual guide is Burning Man, a festival in the desert of Nevada, USA that expresses itself through clothing, with large-scale art installations, self-expression concepts, and the use of recreational drugs. And famous. Every summer, many tech executives flock to participate.
The theme of "Fireman's Day" will appear in all of Pierce's speeches. He said that the 2006 party trip turned him from a profitable businessman to a philanthropist.
"I saw the future of mankind."
In 2016, he married Crystal Rose. They held a wedding on the theme of "Fireman's Day". The bride, groom and guests are dressed as unicorns. His wife's company Sensay also recently conducted blockchain financing.
In his speech, he summed up the values of the festival with inspiring vocabulary such as "dream", "love", "earth" and "believe", but vaguely how to incorporate the spirit of "Fireman's Day" into the business plan. Resignation.
He told me that when choosing whether to support a project, he would not ask the founder's vision, but only his beliefs.
Pierce said: "I only help superheroes, and never help the wicked. But now there are shackles everywhere, they are funding the wicked."
He hopes to change the old world through small-scale decentralization, which is why he poured money into almost every blockchain financing project. "I am involved in everything," he said.
He also invested heavily in real estate, saying he was "building the entire city." One of them is in Puerto Rico.
He kept tapping his "family badge": a small pendant, shaped like two unicorns, under a burning human figure.
One waiter brought another bottle of Syrah. Pierce nodded with approval. "I don't care about money," he said. "If I need money, I will issue a token."
Blockchain financing is the result of hard marketing. Their website is cool, full of rhetoric in science fiction, and comes with a tense countdown timer that reads: "Token sales start in an hour."
The publicity of the gimmick is also full. Celebrities such as Floyd Mayweather Jr, Paris Hilton, Jamie Foxx, and Luis Suarez are on different social media. For the blockchain project platform.
In a post on Instagram, Mayweather Jr. sits on a private jet with a $100 bill in front of it, titled: "August 2, I am going to make a lot of money in Stox.com token financing.钵盈”.
Obviously, the promotional expenses for these cases are paid by token.
Other market strategies are more subtle. Discounted tokens are usually offered to venture capital institutions and high net worth individuals in the form of “pre-sales”.
Max Mersch, an investment analyst at OpenOcean & Fabric Ventures in London, said: "As a consultant, sometimes you can even get a free token in your personal capacity."
Blockchain financing is also often associated with parties. A company called Karma celebrates its token launch on a rooftop in Los Angeles, with dancers wearing bikinis and transparent angel wings.
In a yachting party in Kiev, young women wore thin student uniforms with prominent project names on their chests. In South Korea, the launching of new blockchain projects is sometimes even comparable to large church events.
On the evening of The Brewery event, EOS is hosting a more understated party at the Sushi-Samba restaurant on the top floor of London's Heron Tower.
About 60 people squeezed in and held cocktails in their hands. The tireless bartenders threw the bottles under a cherry tree decorated with fairy lights. There are balloons with the EOS logo on the scene. Under the gleaming logo, there is a huge banner with the words "EOS Dawn".
EOS is probably the highest net worth of blockchain financing activity in history. It was launched in June 2017 and was originally planned to last for 341 days. But by the 197th day, it has raised more than $1 billion. The blockchain is still in development.
“We have enough money to develop the software,” Brendan Blumer, CEO of block.one, told the author. “All proceeds from the sale of tokens will become the profit of the platform.”
Blumer said that in October, block.one will invest $1 billion in projects running on the EOS platform, but block.one itself does not plan to launch a platform, but leaves the task of creating a network to technology enthusiasts.
It is unclear what kind of application EOS will publish on the community platform. The legal terminology on the EOS website describes the token as “without any material rights, uses, purposes, attributes, functions or characteristics.”
Block.one Companies in the Cayman Islands have announced that they will not participate in the sale to avoid disrupting the auction or distort the token price. However, this restriction does not apply to individual members such as Blumer or Pierce.
Pierce has not yet arrived at the restaurant, but almost everyone else who has lunch is already in place. Their dresses are very similar: hoodies, T-shirts with EOS logos, pendants, black boots, and most people have beards.
Some participants jokingly whispered the word "cult." The music is getting louder.
One of Pierce's assistants, Francoise Sinclair, is dancing with a glass of wine in his hand. She stared at the city outside the window through the large windows of the Tower of London.
“London is very different from other places,” she shouted in the music.
She explained that she was joined by Pierce's team after realizing that blockchain technology could connect humans in a disruptive way. she says:
“I think that thanks to the blockchain, we can become part of the collective consciousness.”
Pierce has not arrived yet. His other assistant, Stephen Morris, is a former senior executive of the British mining industry. The two had together attended a dinner hosted by the conservative magazine "The Spectator" at the Addison Club.
According to Morris, the guests of the night included the Conservative political strategist Lynton Crosby.
The next day, Pierce and his team will fly to Milan, then back to London, then to the closing party in Ibiza, then Barcelona, then to California, finally to Gibraltar, and Mike Costachi (Mike Costache) co-chairs a conference.
Costache is a close friend of Trump, chairman of the Karma Angel Dancer Party, and former host of Miss Universe Romania. In January 2017, when they were invited to attend Trump's inauguration, Pierce wore a hat that “made BTC great again”.
Alex Morris, Product Leader, DOVU
What exactly is blockchain financing? This sentence has become a hot topic since the beginning of the password boom. But in fact, the question should be: "What exactly is token?"
This answer will determine the fate of token sales. Token can be practical (think BTC, which was invented as a payment protocol); it can be a security – its main function is as an investment tool with a certain expected profit. Although token sellers have done some tricks in rhetoric, some tokens are definitely securities. In July 2017, the US Securities and Exchange Commission (SEC) announced that DAO is a security, and many other tokens may also be securities based on their own characteristics. The SEC advises investors to be cautious because there is a risk of fraud and if this happens, it is almost impossible to recover the funds. The token issuing company began to ban US individual investors from participating in the investment. Unless they are certified investors – high net worth individuals who can participate in the SEC. But some Americans use Internet agents to circumvent this ban.
In early September 2017, China issued a blockchain financing ban. South Korea followed closely and introduced relevant measures. Yisul Cho, an investor at Blockchain Partners Korea (South Korea's blockchain partner), said: "In Korea, there was a period when there was no white paper, and I received a financing promotion call."
Then, in mid-September 2017, the UK Financial Market Conduct Authority (FCA) issued a cautious statement stating that some tokens may be securities, but this will depend on the circumstances. Like the SEC, it warns investors of potential fraud in this area and compares it to a white paper with a legitimate financial statement. "
For lawyers, reading the IPO's prospectus is one of the most painful things. Raoul Lumb, a technical expert at Simons Muirhead & Burton law firm, said.
“But this pain is just a reading footnote. In the blockchain financing white paper, there is usually no footnote at all.”
According to Lumb, the anonymity given by digital assets means that the identity of the token buyer is unknown, which constitutes a “inside trading” in disguise. Other experts point out that the price of the token may be kept high by the people holding the shares of the issuing company, and they can even secretly inject thousands of dollars into the transaction.
“Blockchain financing and venture capital and private equity investment are competitive. Regulators cannot allow it to be completely outside the law. It is likely that within a year they will solve this problem and introduce new regulations.”
However, some jurisdictions, such as some parts of Switzerland, the Isle of Man and Gibraltar, have been welcoming this new funding model. Gibraltar has even worked with its official stock exchange to develop a token sales platform.
Imogen Garner, a partner at Norton Rose Fulbright, said: “Having a coordinated international response will be challenging and take a long time. We may see a split in the medium term.”
Some observers believe that blockchain financing behavior should be more concerned about its own contradictions than supervision. Jamie Burke, CEO and founder of British venture capital firm Outlier Ventures, believes that the first token financing is an effective way to help open source developers make money, but he also worried that things will soon go wrong.
He said: "Because there are too many funds, the team usually lacks the motivation to complete the project itself. There will be many 'zombie companies' soon. As the prices of BTC and Ethereum soar, the founders may find that instead of using them To build your own projects, it is better to store the digital assets that have already been incorporated, which is more profitable."
Outlier only invests in companies that already have initial products at the time of financing, and Burke has developed a contingency plan to prevent the situation from getting worse.
“At Outlier, we always have enough fiat currency to maintain a year of digital asset collapse.” He said: “If the token sales of some large projects fail, then everyone will think we are all A group of scammers. When people drive the luxury car of the encryption economy, it seems that they completely ignore the future. This is very tasteless."
Just as King Felipe of Spain angered the Catalan separatists on television, DOVU's servers suffered a DDOS attack and the site smashed for eight hours. Their team eventually managed to recover it, but it has caused some damage.
Watkins told the author: "Hackers are likely to launch their own counterfeit financing plan, want to attack our attention that some investors will never come back but we will eventually encounter some people who really support the project…"
In late October, two weeks after the launch in Barcelona, DOVU completed the pre-sale and raised about £4.5 million.
Watkins, Smit and Mileva attended the celebration at the Marriott Hotel in Monaco. Before the tokens were entered into the buyer's wallet, their team members in the UK were working on the final details. After that, DOVU will officially start product development.
Watkins is very optimistic. He believes that the company will launch "useful things" within three months, though – as with each blockchain project – they have unlimited time to complete.
It was then that cryptographers were horrified to watch the highly anticipated Tezos launch an open internal war.
The founder of the project published an article attacking the head of the Swiss Foundation. The foundation manages $230 million in wealth related to the project. The founder accused the director of the foundation of using the funds he managed to make a profit for himself. The latter is rebellious, calling this allegation "personal assassination."
The question now is: Will Tezos launch its own product, or will it collapse internally? Is this the end of the blockchain project?
However, the sun, the wind and the white yachts parked in front of the hotel are so wonderful that you can't waste your troubles.
After the event, a cocktail party and financing promotion meeting was held.
The wine glass is slimy, the sushi is not good, and the promotion meeting is very boring. But Watkins still had some successful conversations.
"A Russian proposes to exchange some of our DOV with his token. Should I do this?" he asked.
The event organizer called several taxis and took people to a restaurant in the center of Monaco called "La Maison du Caviar".
There is no caviar for dinner. Before the dinner, there was a marketing campaign called "MonacoCoin" token.
Watkins, Mileva and Smit are sitting in crowds. There are different personalities, people who are committed to disrupting cancer screening, entrepreneurs, people who are engaged in artificial intelligence, cybersecurity and blockchain research, but what they have in common is that they all recommend their own tokens. .
The DOVU team left after the dessert. But in Monaco, you have to go to the casino, just like in Macau.
They selected a casino called Fairmont: standard red and gold carpets, and the unscrupulous casino admins called out loud in French to guide people to bet.
"They also sell tokens here!" (pun, this is the chip) Watkins said, putting down $100 on the roulette table.
Watkins bet red and won. Once again bet red and win again.
Then he lost. He shrugged.
"No one can win all the time!"
GIAN VOLPICELLI author
DUANNI YI translation
Edited by Sonny Sun