Following on from part 1 and part 2 of this series, what I find most curious about the current ICO mania is that the majority of people filling their boots with crypto-plunder clearly understand the dangers, but do it anyway. Let's take EOS's ICO for example, if you look at the company's Terms of Use (TOU) you will see that the founders have sensibly made provisions to indemnify themselves against future liability.
One of the most challenging aspects of accepting crypto-currency from investors is meeting Know Your Customer (KYC) provisions, so to minimise exposure anyone located in the US or China is prohibited from participating:
"NO U.S. OR CHINESE BUYERS: EOS Tokens are not being offered or distributed to U.S. persons or Chinese persons do not purchase or attempt to purchase EOS Tokens".
Furthermore, to ensure their tokens cannot be regarded by regulators as securities, they clearly disclose that they do not offer holders any rights or benefits:
"EOS TOKENS HAVE NO RIGHTS, USES OR ATTRIBUTES. The EOS Tokens do not have any rights, uses, purpose, attributes, functionalities or features, express or implied, including, without limitation, any uses, purpose, attributes, functionalities or features on the EOS Platform. Company does not guarantee and is not representing in any way to Buyer that the EOS Tokens have any rights, uses, purpose, attributes, functionalities or features.
NOT A PURCHASE OF EOS PLATFORM TOKENS. EOS Tokens purchased under this Agreement are not tokens on the EOS Platform. Buyer acknowledges, understands and agrees that Buyer should not expect and there is no guarantee or representation made by Company that Buyer will receive any other product, service, rights, attributes, functionalities, features or assets of any kind whatsoever, including, without limitation, any cryptographic tokens or digital assets now or in the future whether through receipt, exchange, conversion, redemption or otherwise".
Yet people are still prepared to fall over themselves to buy EOS tokens in good faith! Don't get me wrong, I am not suggesting EOS is a scam - I have huge respect for Dan Larimer and his team. I totally understand the reasons for their counterintuitive approach, and why people are willing to participate, but I just find the dynamic curious and fascinating. Let me try to explain.
What appears to be happening is, out of necessity to comply with regulation, contract law is being trumped by contextual law. What I mean is that a tacit understanding has been formed en masse between EOS and its token holders. This understanding is based on a collective implicit implied agreement that takes precedence over the company's TOUs, at least in the eyes of the investors, otherwise why would they be willing to buy EOS tokens?
This legal dynamic is prevalent in high context societies such as China where people rely on guanxi to enable them to enter into agreements based on implicit understanding. As a result they tend not to rely on the need to codify written agreements, instead opting for what we in the west, call a psychological contract.
It is my view that EOS is taking a similar approach as an ingenious way of circumventing regulation whereby investors agree to EOS's TOU on a kind of wink wink nudge nudge basis. Outwardly they agree that EOS tokens won't entitle them to "receive any other product, service, rights, attributes, functionalities, features or assets of any kind whatsoever", but due to the psychological agreement they believe that they do in fact own a share of the company's future success in the form of a security, but that doesn’t actually exist, or does it? Do you get my drift? To say this is a legal grey area is an understatement!
The EOS crowdsale continues to raise money and will do so for the rest of the year. The plan is to release 2m tokens each day that will result in the issue of 900m tokens (100m will be kept by the company), so a company that has no income and no product could soon be worth around $1bn!
In theory the founders could do whatever they like with the proceeds of their ICO, and technically they wouldn't be breaking the law. Disclaimer; I'm not a lawyer, so this is my understanding based on nothing but guesswork and conjecture.
What I find incredibly ironic is that one of the greatest benefits of blockchain technology is that the system was designed to be trustless. Yet in the world of ICOs trust continues to be as important as ever.
Unlike the rule of written law, psychological agreements particularly between strangers are very fragile. If there was a collective loss of faith people would stop buying tokens, and rather than hold they would panic sell. This would then lead to a total meltdown.
All booms start with a fear of losing out, and all busts are caused by panic selling caused by fear, uncertainty and doubt. It happened in Holland with Tuplip mania in 1637, Britain when the Spanish opened trading routes to the British in 1720, then again after the Napoleonic Wars in 1825 after Latin American trading routes were opened. Further examples include British railroad mania in 1840, the great American Depression in 1929, the dotcom bubble in 2001, and the global financial banking crisis of 2007.
I would argue however that the boom and bust cycle is a necessary evil and therefore so is the current ICO craze. Without speculators the new world would never have been discovered, railroads would never have been built, and the car and computer industries wouldn't exist today. All the money lost by speculators who invested in failed dot com companies wasn't in vain. Like the railroads, it resulted in a global communications infrastructure that we all collectively benefit from today. Perhaps if the global financial crisis hadn't happened, the need for a decentralised currency would not have been so obvious. Like seasons of the year, the boom-bust cycle will continue in perpetuity, therefore it is only a matter of time until there will be a major cypto correction. Sadly people will lose money from investing in ICOs, but on the upside they will be making a noble contribution towards the creation of a new decentralised web that humanity will ultimately benefit from.
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