During an interview
with Korea JoongAng Daily and JoongAng Ilbo, two largest news
publications in South Korea, Ethereum co-founder Vitalik Buterin
discussed the potential of his creation, merits and flaws of initial
coin offerings (ICOs) and his personal thoughts on whether
cryptocurrencies such as Bitcoin will be able to replace fiat
currencies.
ICOs: merits and flaws
Since the beginning of 2017, ICOs have evolved into a popular method of crowdfunding
for Blockchain startups. WIthin less than a year, ICOs have raised over
$1.5 bln, with several successful ICO projects such as EOS and Bancor
raising hundreds of millions of dollars.
Structurally, ICOs are a phenomenal method of raising money
in a decentralized manner, from a distributed ecosystem of investors.
ICOs enable startups to gather money within a short period of time and
also publicly demonstrate their valuations through the market cap of
their tokens.
But, Buterin explained, there are flaws in ICOs. According
to Buterin, many of the flaws in ICOs arise from the centralization
problem of ICO projects. While ICOs are launched on top of a purely
decentralized and peer-to-peer Blockchain protocol in Ethereum, ICOs are
often run by companies or single development teams with large funding.
Buterin explained:
“However, they also have their flaws, and I think many of these flaws arise from the fact that even though the ICOs are happening on a decentralized platform, the ICOs themselves are hardly centralized; they inherently involve many people trusting a single development team with potentially over $200 mln of funding. There are also not very good incentives for people to produce information to help people determine which projects are worth participating in. I think in the medium term, getting funds with ICOs will get harder, regardless of whether or not regulation is implemented.”
Unfortunately, the vast majority of investors in the ICO
market have shown that they are not likely to conduct thorough analysis
and evaluation on the technical intricacies of the ICO projects and
Blockchain networks. Because of that, many analysts and experts have
called for regulations within the ICO market. But, contrary beliefs are
that regulation of the ICO market would defeat the purpose of utilizing
decentralized methods of crowdfunding. More importantly, it will be
inefficient for startups to rely on government agencies and officials to
declare ICO projects either legitimate or fraudulent.
Two to five years for Ethereum to solve most scaling issues
Buterin further emphasized that it would take two to five
years to solve the majority of scaling issues in Ethereum. In contrast
to other Blockchain networks that are designed to handle specific tasks,
the Ethereum protocol was developed to operate as a framework and
infrastructure for decentralized applications.
Hence, it is far more difficult and complicated to solve the underlying scaling issues with Ethereum.
But, the Ethereum Foundation and developers in the open source Ethereum
development community have been working on numerous solutions to
effectively scale the network.
Vitalik Buterin, Ethereum co-founder comments:
“I would say two to five, with early prototypes in one year. The various scaling solutions, including sharding, plasma and various state channel systems such as Raiden and Perun, are already quite well thought out, and development has already started. Raiden is the earliest, and its developer preview release is out already.”
Recently, Buterin openly criticized Raiden and its
development team for running an ICO for a project that does not need ICO
tokens. In response, Buterin announced that he will personally develop a
private fund to provide capital to open-source and non-profit scaling
projects in Ethereum.
