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Meeting the Russians Who Hope to Strike It Rich on ICOs

OPINION

Meeting the Russians Who Hope to Strike It Rich on ICOs

Our reporter went to a meetup in Saint Petersburg. Here are his observations.

“7… 00… 9… 0…  183.” I type in the secret code as printed on the flyer that I found at the Blockchain & Bitcoin Conference in Saint Petersburg the day prior. But to no avail. The steel gate to the inner-city courtyard won’t open, and the buttons I’m pressing seem like some kind of doorbell system rather than a lock anyway.

As I’m about to give it a second try — against my better judgement — two more guys show up. They want to enter too and apparently actually know how to do it. Pressing the right buttons, one of them unlocks the gate and lets me in as well. “Are you going to the Crypto Friends ICO Meetup?” I ask. The guys nod.

I try some small talk as we move our way into the courtyard.

“So, what brings you guys here. Are you investing in ICOs?”

One of them answers. His Russian accent is thick, but his English is good. He says he actually works at a company that helps businesses set up ICOs. His job is to get the message out about a new ICO, as far and wide as possible via forums, chat groups, news sites, whatever it takes. PR, basically.

“The return on investment in these ICOs is insane,” he enthuses. “Put in $10,000, and you can end up a millionaire.”

The two lead me around a corner to an inconspicuous door with another lock. Here they type in the code on the flyer: 70090183. The door opens, and we step into a small, somber hallway. A doorman sort of guy is sitting in an even smaller room to the left of us. He doesn’t look up. An elevator waits on the opposite side of the hall. We get in, and one of my companions presses the button with a five on it. It takes us to the top floor.

“Have you heard of EOS?” the other guy now asks me. I have but don’t know much about it. I tell him I know that the founder is supposed to be controversial; but I don’t know the details.

“I think it could be the next big thing,” he tells me. I nod, noncommittally. I don’t usually put money in these things.

On the top floor is another hallway. I notice that the green rubber floor is covered with arrow-shaped stickers. “Crypto friends meetup,” they read. Seems like we made it to the right place indeed. The stickers bring us to the next door. One of the guys knocks, the door opens.

A bit to my surprise, we now step into a luxurious restaurant. The light-filled rooms with big windows are decorated with antique furniture, and large framed paintings hang on the walls. The restaurant itself is relatively empty, but people have gathered in a bar area in the corner.

cryptofriends.jpg

The Deal With ICOs

In case you are that one person who hasn’t heard of the phenomenon yet: ICOs — short for Initial Coin Offerings — have been the crypto-rage for most of 2017. They are essentially tradable digital tokens, sold as some type of company stock, but issued on a blockchain. And without most of the legal guarantees that actual company stock provides — assuming these coins can even be considered company stock at all. Maybe they’re more like gift vouchers… or something. Often, no one really knows.

Either way, companies have been issuing these ICOs to raise funds for their venture. Lots of funds. ICOs have become somewhat notorious for selling tens of millions of dollars worth of tokens within minutes, earning startups — often with little more than a whitepaper to show for themselves — valuations more appropriate for C-series funding rounds.

The phenomenon has been catching on in Russia as much as anywhere else. Some of the most successful ICO projects are being developed by Russians — although they are often officially based abroad to avoid legal trouble. MobileGo is one of them, the mobile gaming platform that raised over $50 million. Another is Waves, itself a platform for ICO tokens, which raised over $16 million. It’s Waves, founded by Moscow-based Sasha Ivanov, that is sponsoring today’s event.

Crypto Friends

Mild electronic music fills the bar area, and small groups of people — perhaps two dozen in total — stand scattered throughout, chatting. Most have a drink in their hands: beer, wine and, in particular, cocktails.

I take a seat at one of the two tables that seems reserved for the event. One other fellow is sitting at the table. He’s wearing a hoodie and shorts, even though the Saint Petersburg summer is not all that warm. He has his laptop open, his eyes focused on the screen. He looks up after a couple of minutes, so I once again try to make some small talk. He tells me he works in fintech. “Real fintech,” he emphasizes. He develops trading apps for investing.

“What we’re seeing here is a mania,” he says when I ask him about ICOs. “There is no underlying value in any of these projects. They better resemble multi-level marketing schemes than proper investments.”

He’s clearly not a fan. So I ask him why he showed up at all.

“Maybe in five months or so, it could develop into something useful,” he says. “The concept has potential, but it needs to grow into something more serious. It could potentially be an interesting mix between crowdfunding and Initial Public Offerings. Eventually.”

Another guy joins the table but doesn’t sit down. He seems to be in his thirties, casually dressed as most people are: a landscape architect, he tells me when I ask him. “I invest but only a little. To make some money on the side,” he says. “Mostly in mobile platforms or apps.” His English is a bit shaky. As a friend of his shows up, he bids me goodbye.

I watch the two of them walk away, and it’s only now that I realize that in the back of the bar area, hidden behind curtains next to the bar itself, is another doorway.

The Actual Crypto Friends

Probably at least a hundred people sit around on sofas throughout this next large, round room, filled with the fruity smoke odor of water pipes. The glass ceiling is covered with cloth to keep some of the light out, and Russian finger food is laid out on coffee tables. The walls around us are covered with paintings, books and even some handcrafted art.

Apparently the bar was just for drinks. This is where the actual meetup is. I take a seat on one of the sofas.

There’s no stage. Instead, a guy with a neat, buttoned-up shirt is standing in the middle of the room with a microphone. He’s giving what seems to be an elevator pitch. Within five minutes, the next speaker is up. And the next one some ten minutes after that.

The unofficial MC of the night has a spot on a comfortable chair in the middle of the room. Three others are sitting close him: a sort of literal inner circle. They lead the charge in asking questions after each talk. I don’t understand any of it; it’s all in Russian, of course.

During the smoke break — we’re back in the courtyard — I walk up to the MC, and ask him if he’s the organizer. He quickly turns me over to Daria, a dark-haired girl in her twenties. I had noticed her pacing around the meetup area during the talks. I learn that she has put together today’s event.

“The speakers today cover just about anything there is to know about ICOs,” she explains, when I ask her what the purpose of the meetup is. “The potential, the risks, the legal aspect of it.”

“So why are people here?” I try. “What do you think, if you’re being honest? Is it just to make a quick buck?”

“It differs,” she says. “The crowd is diverse. We’ve got programmers, professional investors, hobbyists and more.”

Though, she clearly agrees that at least some people are here just to make some easy money.

“Sure, some projects are more valid than others. And yes, there’s lots of hype. But it’s a bit like the early days of Kickstarter. Over time the hype will calm down, and this method of fundraising will prove valuable.”

Anton

As the smoke break ends, Daria and the others head back to the big round room. I decide to stick to the bar area this time. At least in there I can chat a bit.

Having bought a beer for some $7— surprisingly expensive by Russian standards — I’m killing some time on my phone when a blond man joins me at the bar. His name is Anton. He has a British accent, picked up from his studies in the U.K., he says.

“I see this as Russia’s chance to take on a leadership role in the technology sector. We’ve been trailing the U.S. and Europe too much,” he tells me, after I ask him my by-now standard question: Why are you here?

Anton is very clearly speaking from a place of passion. He stands close to me, speaking a bit too loudly. He believes in what he says.

“But we’re not just here to make money, man,” he emphasizes after I tell him I work for Bitcoin Magazine. “I don’t want you to see it like that. Blockchains are about much more than that. We’re here to transform society. And that’s important to remember.”

Anton tells me about the potential of blockchains. The typical buzzwords. Transparent. Immutable. Censorship resistant.

I feel almost nostalgic, listening to the way Anton explains himself. I remember a similar vibe from back in 2013, when I visited my first Bitcoin meetups. The air was filled with excitement. Andreas Antonopoulos’ talks were going viral for the first time. Bitcoin was gonna change the world in every imaginable way.

“Blockchain technology has the potential to make an end to corruption,” Anton says. “It can make votes impossible to forge, for example.” He says he believes the Russian political system has been rigged for decades. “Now, we can have provably fair elections.”

But it also makes me slightly uneasy to watch Anton’s enthusiasm, with the ICO bubble that I’ve witnessed being built up.

The Bubble… and the Potential

And it is a bubble. The valuation of many of these projects is far beyond reason, and the evidence that many of the investors have no idea what they’re putting money into is abundant. And that’s without even getting into some of the outright fraudulent claims.

In addition to that, the legal status of this whole concept is unclear. There are good arguments to be made that ICOs are really just unlicensed securities, specifically designed to skirt existing regulation. As such, regulators are bound to step in at some point — else they may as well close shop and find new careers. And when they do step in, it could mean that the ICO party is over very quickly.

At the same time, some of the genuine enthusiasm I encounter in Saint Petersburg makes me wonder if I’ve just grown cynical over the past couple of years. The cryptocurrency and blockchain space has been exhausted by scams, failures and toxicity. It’s had a bit of a disheartening effect on many, including myself.

But perhaps there’s more to this phenomenon than just scams. Who knows? Maybe the ICO strategy can break down barriers, allowing the common man to access investment markets more easily. Perhaps projects can better raise funds without caring about international borders, restrictions and regulations.

Indeed, perhaps ICOs could at one point be a fruitful “mixture between Kickstarter and IPOs.” If nothing else, the phenomenal valuations suggest that there may be untapped liquidity markets.

“In Russia we have the developers, we have good ideas, and we have the talent,” as one of the meetup attendees tried to explain. “It’s money, funding that’s hard to come by. ICOs are a chance to realize that part of the puzzle.”

Note: Some names have been changed to protect privacy and anonymity.


Aaron van Wirdum retouched

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