Why You Should Beware the Altcoin Rebrand

While  Union Square Ventures, Coinbase, and blockchain pundit William Mougayar  are quick to herald in the age of the appcoin model of software design,  no one has yet sat down and taken an honest and sober look at the  proposition of these coins and their impact on product development  incentives. The exuberance of finding new software paradigms in the space seems  to be drowning out any measurement of past lessons that have been  learned, and cogent examination seems to have fallen to the wayside. Fortunately, we do have similar development models that have preceded  these new initiatives, and, their outcomes would suggest a murky future  on the endeavors of initial coin offering (ICO) proponents, at best. 

A new process

Let's start by taking a short trip into the Stone Age of software  design. Back in the ’70s and ’80s, project management philosophy was  largely borrowed from electrical engineering and construction management  techniques. During this era, projects were drafted by committees of  developers, and project managers who were at best tangentially related  to the actual software users themselves. Program design goals were whiteboarded and typed into design  documents, the purpose of which was to serve as a blueprint for the code  that would be later produced. This technique was officially labeled the  “waterfall” method of development, and is still used today in some  sectors, most notably government procurement. However, software is very different than construction, and the faults of this methodology were immediately obvious. Software is unlike most engineering efforts in that it's a constantly  evolving structure. Whereas a car engine or a building structure is  built once and left alone, the only software that is ever “completed” is  the software that is no longer used. Projects designed upfront, and without usage feedback, typically  reflected little consideration for the ways in which people actually  used the software. In waterfall methodologies, there are few concessions  given to the development of updates to the published code outside the  initial specifications. Once produced, and pushed onto the consumer, the  process typically led to buggy products that were out of touch with the  performance, user interface and the safety concerns that would become  apparent once users started to actually use the code. Over the years, such metrics became the most important part of the  modern development process, with “iteration” and “responsiveness” being  primary goals of building a modern software platform. Fast forward to the ’90s: as web-based platforms allowed for  continuous deployment, "agile" and "lean" methodologies arose which  resulted in greater quality and success by minimizing "Big Design Up  Front", and by prioritizing quick, lean, and constant iterations to the  production of code. With agile development methodologies, a “minimally viable product” is  created with the only the minimum amount of features implemented. This  allowed a product to be quickly released to the market, where user  feedback could be received more easily. With usage statistics in hand,  iteration could proceed in a path that most closely resembled the needs  of users. This methodology is the preferred mechanism of developing software in  the modern era. Countless successful modern startups constitute the  proof that a "start to finish" approach is far less desirable than a  "start and continuous iteration" approach. 

Bold claims for appcoins

So, what does this history have to do with appcoins? Well, with  appcoins, the primary audience isn't users, but speculators. And for  this market, minimalism is not a virtue. Sweeping, bold claims are the way to get funding, for a fixed scope  of work. Sound familiar? Big Design Up Front is once more the operative  mantra, and a quick read of nearly any ICO white paper would draw sharp  references to the early, buggy days of software development. A case in point of this shortcoming in ICO practice could be levied  at ethereum's lack of an address checksum in its value sending  interface. Countless ethereum users have sent money to mistyped addresses, only  to see that this money will never return. The address checksum feature  that exists in bitcoin has saved countless users from mistakenly sending  money to invalid addresses. With Ethereum, though, there was little incentive to design this  feature, when crowdfunding obligations incentivize development goals  that match the initial promise list. As such, address checksums would  not appear to be an important feature to implement for the project, with  more dubious goals of switching away from proof of w0rk-based consensus  mechanisms seemingly taking a priority. 

Speculation-based economy

So why are developers, and now VC's, soliciting funds with tokenization strategies? While some are suggesting that such tokens are necessary for this new  age of software development, tokenization has preceded the innovation  of blockchain since... well, forever.  Many offline businesses issue  tokens in the form of gift certificates and coupons, and there are  similar parallels online. Social media sites commonly issue 'upvote  karma', and in-game assets and currencies are very common in video  games. The blockchain is a largely unnecessary innovation for the mere  declaration of a redeemable token. Crowdfunding certainly isn't new  either, with Kickstarter and Indiegogo being in common use today for  many software development projects. ICO proponents target the decentralized markets because there are  secondary markets where investors can offload their holdings onto  greater fools, and where there's a culture of 'getting rich' that (thus  far) brings out greater returns from unqualified investors in the  market. It would appear, that for these proponents, a blockchain solves  the regulatory arbitrage need in enabling a securities model to exist,  where there previously would have existed an enforcement structure  designed to curtail reckless speculative investment activity. Particularly damning in the ICO market is the general lack of  blockchain and product usage by funders. Most ICO funders never even  bother to take their tokens out of exchanges, or use the software that  they funded. The quality of the software is largely irrelevant, because  the only ones to actually use this software are the exchange operators  themselves, who employ it for inter-exchange settlement. With proclamations that an 'ICO season' is upon us by industry magazines such as Brave New Coin,  it would seem that the proliferation of these ICOs is being fueled by  predatory marketers who seek to find project leaders to take stewardship  and liability of these projects, so that the marketers themselves can  pump the prospect to investors and dump their holdings to these  investors after launch. It has yet to be seen if any of these tokens projects will create a  non-speculation-based economy, but if the recent history is any  indication, the potential for this methodology to create much besides  'baghodlrs' would appear to be highly dubious. 

Sustainability vs speculation

In the year 2016, we have a very efficient model with which to create  useful and sustainable infrastructure software. That model is the  open-source model, with software incentives tied to continuous feedback  from programmer and user concerns – not tied to fleshing out the  requirements of speculator's funding goals. As for the model to produce commercially successful software, it  would appear that the creation of a minimal product – say, the broadcast  of 140 character messages (Twitter), or community building tools aimed  at college students (Facebook) – and a further iteration thereafter  would produce the most responsive and useful programs from which large  companies can be scaled. With the exuberance of easy money pitches that has always fueled  altcoin speculation, many of the ICO proponents are quick to suppress  analysis of those drawing obvious analogies. But the demise of countless  altcoins in the recent years would attest that very little is new about  the ICO pitch, other than a new coat of paint in the branding of  altcoins as "ICOs", and new round of predatory behavior from endless  fuel of speculatory greed that has always powered the engine of  blockchain fever. Perhaps there's something new in the ICO pitch worth examining. But,  given the complete lack of reservation, and a persistent desire to  chastise those who question incentives, it's far more likely that  there's very little that's new here in the ICO space. Except of course, for a new brand market over the tarnished brand of  'altcoin', and a new round speculators, with fresh hopes of striking it  rich.