Adam Back recently took to Twitter with controversial comments on many of the industry’s largest crypto projects — including Ethereum (ETH), Cardano (ADA), Ripple (XRP), and Stellar (XML). His tweets placed these projects in the same category as a number of bonafide scams, which he considers to have been orchestrated as “premines”.
We interviewed Back in order to clarify his position on the matter, starting with questions of how he feels about Satoshi Nakamoto essentially premining over one million Bitcoin. Back responded that “Bitcoin has no premine”, adding that he considers Patoshi research to be “highly speculative”. However, he agreed that Satoshi was able to amass a large amount of Bitcoin in the early days when the mining difficulty was low:
“Yes I am agreeing with you. Even in the first year of bitcoin there would have been about 2.6 million coins mined at 50btc/block. So likely > 80% are other miners, clearly there were many 2009 miners.”
Yet, he still believes there is a difference between mining coins at a very low cost and premining. In the case of most ICOs, he noted that “it was unknown that bitcoin would bootstrap and have value. It didn't even have an exchange listing for over a year.” Though the same could be said about many ICO coins, Back parried by focusing on what he perceives as the unscrupulous nature of ICOs. In his opinion, the main goal of an ICO is to enrich its creators — Something he believes most would consider unethical.
Back also noted that ICOs offer investors far less in the way of legal protection. He elaborated:
“There are no investor rights, no financial oversight so I don't think you can really assert what the money is spent on. Given the temptation and presumed motivation it is likely that most is lost to grift and personal enrichment of founders, promoters etc., when the money is used up they move onto the next coin.”
High school architecture with $1B marketing
We asked Back if he earnestly believes that no major ICO project will ever deliver anything of note. With some hesitation, he admitted that a few may have funded useful research. He still believes that it is highly inefficient to utilize funds in this manner overall. He said:
“Obviously there are exemptions, and some interesting ICO or pre-mined altcoins funded research, or grants to skilled researchers, but the efficiency of capital I think is order of 100x less effective in converting money to secure, robust protocols than lean startups.”
The Hashcash creator believes that most of the top projects by market capitalization are nothing but high school projects “with a $billion marketing budget”:
“I think we can presume that incentives matter, and so it is a variant of follow the money — if they have immediate liquidity and no oversight they overspend on marketing, price manipulation over engineering substance.”
Back also supposed that ICO projects are left with second-rate engineers as most top blockchain developers “would not work for ICOs as a matter of principle”.