ICO 2.0

Everybody is talking about Crypto. Everybody is talking about ICO’s. Where ever I am, you always hear the words Bitcoin, Blockchain and ICO.

I am really interested in the #ICO world, it fascinates me. Why? Because it is brand new, it is disruptive, it is a new way to help entrepreneurs bloom, it is the gas that the #Crypto world needs to startup. The last couple of months I have followed the news and visited meetups. Conclusion, the current ICO’s are a nice first step, but it could be done better.

Disclaimer: this idea is based on the #Crowdfunding ideas of TYGERMOM. Later on I saw that Alice has the same idea.

Regulations

Governments and financial institutions are warning us about ICO’s, we should not invest in it. Red flags everywhere. These parties have been discussing how to regulate ICO’s. I’m happily surprised that the Dutch government asks experts how to deal with Crypto and ICO’s. It is great that they are thinking about regulation, especially governments are there to protect us. For example the #KYC (Know Your Customer) is a great way to make a start.

To be honest, I do think it is wise to regulate ICO’s, but it should be done in a way to help both the entrepreneurs and the investors.

Decentralized regulation

The anarchist in me says we don’t need the government and financial institutions to regulate ICO’s for us. We could do this on our own.

How? Before I answer this question, I first need to check why the governments prefers regulation.

Reasons

I believe there are three main reasons for governments to regulate ICO’s.

Money Laundering & Taxes. Solution: KYC. Done ;-)
Government wants to protect themselves and their friends. No solution there. The world is changing, deal with it.
Government wants to protect their citizens from scams.

How to protect the citizens / investors?

The solution is in the Blockchain itself: the Smart contract. The smart contract can be combined with an escrow account.

How does this work?

In the Blockchain world we hate third parties, but we trust on protocols. What if there is a protocol acting as a third party? I’ll try to explain.

I think it is good to introduce an escrow account, working on a smart contract, for ICO’s.
The startup sets SMART goals. The goals are programmed into the smart contract. The startup gets rewarded for each goal that is met.

Process

Investor transfers the ETH (for example) to the Escrow account.
SMART goals are programmed into a smart contract.
Startup and investor can check how much ETH is on the escrow account.
Investor receives ALL the tokens.
When the startup achieves goal no.1 it receives the reward for goal no.1. Everything is handled automatically by the smart contract.
When the startup achieves goal no.2 it receives the reward for goal no.2. Everything is handled automatically by the smart contract.
Etc.
When the goals are not met by the startup, they don’t receive the funds. And the investor could get their investment back, this is a big security for the investor.

Key aspects and challenges

The biggest key aspect is setting SMART goals, without these it will never be a success. Every part of the process should be completely transparent (which is also good for governments and financial instutions).

A big challenge is how to check whether the startup reaches their goals. When goals are really SMART it could be checked by a smart contract, otherwise it needs to be audited, but by whom? A third party???

Maybe something with voting by the community on the Blockchain could be a solution, based on proof of stake. The more tokens you have the more voting power you have. But there are many possible challenges and solutions….
Benefits for investor and startup

There are a lot of benefits for the investor. For example the process is completely transparent and it offers a lot of security for the investors, the startup can not run off with their funds.

And what I really like is that the startups keep being hungry for success, because only when the next goal is met, they get a new part of the funding. And we all want these startups to hunt for success. This could be the vehicle to help them to change our world, to disrupt it, to innovate it!