Like a lot of people I've been late to the cryptocurrency game, however do have a bit of trading experience in stocks. I notice the latest trend seems to be in buying ICOs using Smart-Contracts on the Ethereum (ETH) platform. I can't help but notice a few major problems with the hype surrounding these ICOs that makes me suspicious this type of investment can be sustained over the long term without heavy risk to investors.
First of all most of these ICOs rely on the ETH backend. If some future tech were to supersede/replace ETH, or even just make ETH less attractive, then how would these alt-coin tokens retain their value? Since they're fundamentally tied to the ETH/ECR20 backend. If a better tech comes around, future projects could be built on that tech, and the projects based on ETH would fall into obscurity. Doesn't this add an extra layer of potential failure to any new project that uses coins based off ETH/ECR20? Now the investor has two concerns instead of one: First the stability of ETH itself, and second that the ICO tokens they're purchasing are for a good project.
The other major concern I have is the barrier to entry in coin creation is now drastically lowered. It's surprisingly easy now to create a shitcoin as a smartcontract in ETH with a few lines of code. Yes this could already be done by copy/pasting bitcoin code, but by utilizing the ETH blockchain not much consideration needs to go into the actual development of new coins. Doesn't this lack of investment on the developers part make it much easier for scammers and experienced Wall Street traders/investors to create useless pump and dump coins with a lot of hype? How could you really tell the difference between honest projects and dump'n'dumps with the plethora of ICOs that are now out there?
Lastly, any ICO smart-contract/project that uses the ETH/ECR20 backend has a fundamental lack of control since the token itself is centralized with the Ethereum development team rather than the project development team. If a projects tokens are hacked there's little recourse/control that the project developers have. Sometimes the ETH team may help (but at a cost, as seen with the first hard-fork, there surely will be other hackings in future projects), but other times it may not.
Isn't this lack of control over the coin another point of failure that the investor now has to worry about? Ie: ETH is stable, you invested in a good project showing positive returns.. but now someone hacks the project you invested in, steals the coins, and ruins it all anyway, and the project development team can only rely on the mercy of the ETH development team for help. Huge additional risk.
I like the idea of how new projects can easily create and use their own coins via a secure third party channel (which is Ethereum), but I'm highly skeptical that the current high prices seen in these ICOs can be sustainable mainly due to the issues mentioned above. These are real risks in my opinion that aren't factored into ICO prices.
Tl;DR: There's three major points of failure for new ICOs that I see a problem with -
- ETH itself falling into obscurity by a future superior technology, indirectly affecting the value of the ICO tokens
- Inability for consumers to identify legitimate ICOs since it's so easy to create shit coins on the ETH blockchain, all project costs can now be spent directly on hype with a quick exit for the development team
- Unpredictability from the ETH development team itself
Investors in new ICOs based on ETH/ECR20 must now consider the above risks.