Inflated balloon

Chris DeRose is a software developer, bitcoin evangelist, public speaker and lead developer of Drop Zone.

In this opinion piece, DeRose argues that, while initial coin offerings (ICOs) may offer some benefits, such tokens are little more than rebranded altcoins and come with similar risks for investors. 

Inflated balloon

While prominent blockchain groups are quick to herald in the age of the appcoin model of software design, no one has yet sat down and taken an honest and sober look at the proposition of these investments and their impact on product development incentives.

The exuberance of finding new software paradigms in the space seems to be drowning out any measurement of past lessons that have been learned, and cogent examination seems to have fallen to the wayside.

Fortunately, we do have similar development models that have preceded these new initiatives, and, their outcomes would suggest a murky future on the endeavors of initial coin offering (ICO) proponents, at best.

A new process

Let's start by taking a short trip into the Stone Age of software design. Back in the ’70s and ’80s, project management philosophy was largely borrowed from electrical engineering and construction management techniques. During this era, projects were drafted by committees of developers, and project managers who were at best tangentially related to the actual software users themselves.

Program design goals were whiteboarded and typed into design documents, the purpose of which was to serve as a blueprint for the code that would be later produced. This technique was officially labeled the “waterfall” method of development, and is still used today in some sectors, most notably government procurement.

However, software is very different than construction, and the faults of this methodology were immediately obvious.

Software is unlike most engineering efforts in that it's a constantly evolving structure. Whereas a car engine or a building structure is built once and left alone, the only software that is ever “completed” is the software that is no longer used.

Projects designed upfront, and without usage feedback, typically reflected little consideration for the ways in which people actually used the software. In waterfall methodologies, there are few concessions given to the development of updates to the published code outside the initial specifications. Once produced, and pushed onto the consumer, the process typically led to buggy products that were out of touch with the performance, user interface and the safety concerns that would become apparent once users started to actually use the code.

Over the years, such metrics became the most important part of the modern development process, with “iteration” and “responsiveness” being primary goals of building a modern software platform.

Fast forward to the ’90s: as web-based platforms allowed for continuous deployment, "agile" and "lean" methodologies arose which resulted in greater quality and success by minimizing "Big Design Up Front", and by prioritizing quick, lean, and constant iterations to the production of code.

With agile development methodologies, a “minimally viable product” is created with the only the minimum amount of features implemented. This allowed a product to be quickly released to the market, where user feedback could be received more easily. With usage statistics in hand, iteration could proceed in a path that most closely resembled the needs of users.

This methodology is the preferred mechanism of developing software in the modern era. Countless successful modern startups constitute the proof that a "start to finish" approach is far less desirable than a "start and continuous iteration" approach.

Bold claims for appcoins

So, what does this history have to do with appcoins? Well, with appcoins, the primary audience isn't users, but speculators. And for this market, minimalism is not a virtue.

Sweeping, bold claims are the way to get funding, for a fixed scope of work. Sound familiar? Big Design Up Front is once more the operative mantra, and a quick read of nearly any ICO white paper would draw sharp references to the early, buggy days of software development.

A case in point of this shortcoming in ICO practice could be levied at ethereum's lack of an address checksum in its value sending interface.

Countless ethereum users have sent money to mistyped addresses, only to see that this money will never return. The address checksum feature that exists in bitcoin has saved countless users from mistakenly sending money to invalid addresses.

With Ethereum, though, there was little incentive to design this feature, when crowdfunding obligations incentivize development goals that match the initial promise list. As such, address checksums would not appear to be an important feature to implement for the project, with more dubious goals of switching away from proof of w0rk-based consensus mechanisms seemingly taking a priority.

Speculation-based economy

So why are developers, and now VC's, soliciting funds with tokenization strategies?

While some are suggesting that such tokens are necessary for this new age of software development, tokenization has preceded the innovation of blockchain since... well, forever.  Many offline businesses issue tokens in the form of gift certificates and coupons, and there are similar parallels online. Social media sites commonly issue 'upvote karma', and in-game assets and currencies are very common in video games.

The blockchain is a largely unnecessary innovation for the mere declaration of a redeemable token. Crowdfunding certainly isn't new either, with Kickstarter and Indiegogo being in common use today for many software development projects.

ICO proponents target the decentralized markets because there are secondary markets where investors can offload their holdings onto greater fools, and where there's a culture of 'getting rich' that (thus far) brings out greater returns from unqualified investors in the market. It would appear, that for these proponents, a blockchain solves the regulatory arbitrage need in enabling a securities model to exist, where there previously would have existed an enforcement structure designed to curtail reckless speculative investment activity.

Particularly damning in the ICO market is the general lack of blockchain and product usage by funders. Most ICO funders never even bother to take their tokens out of exchanges, or use the software that they funded. The quality of the software is largely irrelevant, because the only ones to actually use this software are the exchange operators themselves, who employ it for inter-exchange settlement.

With proclamations that an 'ICO season' is upon us by industry magazines such as Brave New Coin, it would seem that the proliferation of these ICOs is being fueled by predatory marketers who seek to find project leaders to take stewardship and liability of these projects, so that the marketers themselves can pump the prospect to investors and dump their holdings to these investors after launch.

It has yet to be seen if any of these tokens projects will create a non-speculation-based economy, but if the recent history is any indication, the potential for this methodology to create much besides 'baghodlrs' would appear to be highly dubious.

Sustainability vs speculation

In the year 2016, we have a very efficient model with which to create useful and sustainable infrastructure software. That model is the open-source model, with software incentives tied to continuous feedback from programmer and user concerns – not tied to fleshing out the requirements of speculator's funding goals.

As for the model to produce commercially successful software, it would appear that the creation of a minimal product – say, the broadcast of 140 character messages (Twitter), or community building tools aimed at college students (Facebook) – and a further iteration thereafter would produce the most responsive and useful programs from which large companies can be scaled.

With the exuberance of easy money pitches that has always fueled altcoin speculation, many of the ICO proponents are quick to suppress analysis of those drawing obvious analogies. But the demise of countless altcoins in the recent years would attest that very little is new about the ICO pitch, other than a new coat of paint in the branding of altcoins as "ICOs", and new round of predatory behavior from endless fuel of speculatory greed that has always powered the engine of blockchain fever.

Perhaps there's something new in the ICO pitch worth examining. But, given the complete lack of reservation, and a persistent desire to chastise those who question incentives, it's far more likely that there's very little that's new here in the ICO space.

Except of course, for a new brand market over the tarnished brand of 'altcoin', and a new round speculators, with fresh hopes of striking it rich.

Inflated image via Shutterstock

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