How to make money with Crypto via ITOs and tokens (Part 3)


It is possible to make money on Cryptocurrencies, in an interesting but short window post ITO (Initial Token Offering). This is the final installment, where we make our money.

In part 1 we set the scene, in part 2 we got into liquidity and market efficiency.

We concluded that it wasn’t easy to outsmart an efficient market. We also suggested that ITOs (Initial Token Offerings) showed many of the characteristics of inefficient markets, but we had a few concerns about investing in ITOs, due to the risk of under-performance, fraud, and not being able to sell our tokens, because we’re not sure when they’ll list on an exchange, or even if they will.

So, tokens, and their relationship to smart-contracts, is where “we”, are going to go, next.

Finally! You’ve stretched this out haven’t you? How about a TL;DR next time?

I empathise, I do, but if you are going to try this, you need to understand “the why” as well as “the what”? This could have been a shorter series, possibly just a single post, if I only wanted to show you what to do. But “the why”, the discussion on crypto, market efficiency e.t.c, add the context.

Anyone can pull a lever! But you know both what you are doing, and why you are doing it.

It also means you can transfer the approach to other areas when the door of opportunity closes, as it surely will. You might see opportunities, which are nothing to do with crypto, where the market feels a bit inefficient - don’t forget to tell me if you do!

Without understanding, only knowing the buttons to push, you can get yourself into trouble too, because in any market, even efficient markets, naivety and/or greed, sort of makes the market inefficient, or more inefficient, depending on your starting point.

The information is available, but you have, effectively, chosen not to have it. So you set yourself up to be the loser, while someone else profits on your loss.

Here’s an example of how you can “lose” even in a regulated market when you are naive. And that naive person was me!

Remember the investment risk warning from part 1: “your investment can go down as well as up, and you may not get all your money back”, or words to that effect? Well the implication is that investments are risky. But I know and expect the value of my investments to fluctuate. And I know, something could happen that means I make a loss, but I also know that to realise a loss, it largely depends on when I choose to convert the fund units back into cash. That’s what I know.

Well, I had some money invested in “Woodford”. That fund ran into trouble, and lost a bit, and I thought, well, I don’t need the money now, I still own the units, I’ll ride it out and hope they recover. After all investing is for the long term.

Then the fund got locked, so I couldn’t trade my units out for cash, or into another fund. Now the fund is being closed and liquidated, and I’ve literally just read that investors could lose a further 40% on top of the losses they’ve taken so far. These losses get realised now. Everything is being cashed in, for what the fund administrators can get for it. So much for the choice I thought I had.

So I didn’t appreciate a) that Woodford wasn’t a specialist in this type of investment (tech/startup/lowcap companies), b) in lieu of this, I was using his previous reputation, which turns out to be mostly with largecap companies, c) I didn’t expect the problem to go as far as the fund being locked, and, d) I never even considered the possibilty that if things got really bad, the fund would just get closed and cashed in.

Naive.

I also don’t know who else lost money, because everyone I speak to tells me they “saw it coming” and got out!

Looks like it was just me :D

That’s the last time I digress. But, the reason I mention it is, to be perfectly frank, naivety and greed are, in no small part, things we’re using to our advantage here too.

But you’re not naive, you’re reading all this! And information makes a better (more perfect), market. We’ve covered this, yes?

Back to ITOs, tokens and smart-contracts!

Smart-contracts are programs: they contain instructions that you might consider as “clauses” in the contract - if we want to keep the metaphor.

These programs, whatever language they are written in, are compiled down into something known as bytecode, which the nodes (computers on the network), executing the contract (program), in addition to solving problems (to create blocks (see part 1)), can understand.

There are rewards for working on contracts too, but we’re leaving that alone - look up “Gas” if you are interested.

Smart-contracts have all the “clauses” included which will define what they will do over their lifetime.

Many people, wrongly believe that smart-contracts are immutable - and as permanent as the blocks and the blockchains that host them (actually even blocks and blockchains are mutable of a fashion - read up on the Ethereum DAO hack, when you get chance. It’s also outside of the scope of this post, but it’s the reason we have the altcoins, Ethereum and Ethereum Classic).

The behaviour of a smart-contract is defined by the contract’s code. What happens in the contract is immutable, and gets recorded on the blockchain, but that is not to say, the code can’t change things (mutate state).

You can’t edit the code of the contract once published, but you can add provision for the program to become redundant or defunct.

Programs mutate state.

Programs mutate state internally, by making assignments to variables and externally, through reading input and writing output.

Smart-contracts are programs. For instance, smart-contracts can be destroyed; they can be upgraded, so that another “new” contract effectively becomes the ruleset that determines the logic that applies going forward and; control of the smart-contract can be re-assigned.

Those are just three scenarios that spring to mind. For these scenarios to happen, provision for them needs to be written into the initial contract from the get-go, because you don’t get a second chance to publish, because the blockchain can’t (normally) be changed.

Sometimes a smart-contract is effectively closed-source for a layperson investor. All you can see is is an ABI or Application Binary Interface - the bytecode - but an ITO will typically provide a human-readable form of the contract, most likely in a language known as Solidity.

I say “human-readable”, but Solidity is a higher level programming language, a thing that compiles to the bytecode we mentioned; you still need to be able to read a program’s logic whatever the language.

If you don’t, or can’t, read the contract code, and you invest, that puts you in the naive category - information is out there, it’s telling us what we can expect. We can look at the contract - for things that allow mutability.

Blockchain and smart-contracts are fascinating stuff in my opinion. More detail is also beyond the scope of this post. But, you really should research it for yourself.

Important Project update

We’re altering the scope again, so we need to regroup, and extend the timeline. As your project team, you can trust me to get this done in a Part 4.

But I’ve realised we need to do something else to make this work properly.

Thanks for your understanding and continued support. We will get there.