DECENT - a torrent blockchain presale

Recently, I was contacted by a fellow Bitcoiner and informed about some possible shady goings-on on the DECENT platform. Reportedly, the platform has raised 5352BTC (3.2M USD equivalent) in its token presale, but the product appears to be on some shaky grounds. Lets have a look at what we can find out about the platform, the presale and have a look at whether there is something shady going on...

The Whitepaper

Any self-respecting blockchain project styles itself after Bitcoin and releases a whitepaper early on. Decent is no exception (#liberateyourself on every page...).

The paper starts with criticising Bitcoin for BOTH its low transaction throughput, and its large blocksize. Wouldn't it be nice if one could have a higher transaction throughput with a lower data footprint? Unless you start pruning old data, it won't happen. But that's apparently "some childhood diseases" Bitcoin has.

"Unfortunately, in spite of more than 6 years of its existence [Bitcoin] did not reach a position it could have attained mainly due to the imperfections in its architecture and design."

In comes Decent. Saving freedom of speech, solving the issue of authors having to figure out how to monetise their content, drive traffic to their sites, deal with Amazon's pay cut, etc. You can use it to publish "any text, picture, video or music content" (and even software) and "no third parties can control or influence the content".

The platform is characterised by being:

• Independent - owned by the users and "will never be affiliated with any economic, media, or political party"
• Borderless
• Stable - not dependent on any single server
• Fair - everyone starts at the same level and build up their reputation
• Profitable - users can buy content directly from the authors and there is no cut taken by Decent
• Spam Free - content publishing is expensive for spammers
• Secure & Anonymous - authors can publish the content anonymously
• Recommendations-enabled - readers that purchased the content can embed their feedback into the blockchain

While describing how the protocol works, we also learn that the application will be using the bittorent protocol with a distributed tracker to distribute its content. The torrent is downloaded by the "publishers" that charge a fee for storage and bandwidth. For encrypted content, the decryption keys are also distributed to the publishers.

Upon hearing what kind of content the platform will support, the cynic in me instantly reached two conclusions - a lot of the content, especially the movies and music, will be pirated like on current torrent websites, and a lot of the software content will contain malware. I somehow doubt I will be proven wrong...

So all in all, it looks like the system will use a blockchain to keep track of who paid for what content, while the actual content will be distributed over torrents. All in all, it looks like a poor man's version of MaidSafe or Storj, also somewhat similar to the Alexandria project. While those platforms focused on creating their own storage solutions paired with the blockchain, Decent appears to just mash Bitcoin and torrent technologies and produce something that's less than a sum of its parts.

A somewhat more usable solution would just focus on augmenting the torrent architecture without burdening it with a proprietary blockchain. You could use Factom or Ethereum to publish the magnet links, have some proof-of-payment solution to request the torrent data for paid content, or even just rely on donations from people that consume your content. Building one's own blockchain just to manage new tokens proves once again, a solution looking for a problem.

The token presale

Like a lot of projects in the crypto space, Decent is raising money through a token presale. To buy the tokens, you need to register an account on Decent's portal and pay bitcoins into a provided address. The tokens are distributed into the account and will later be available for withdrawal on the network proper. At the moment there doesn't appear to be an option of transferring the balance between accounts, so one is unlikely to be able to trade or sell the tokens before the network goes live.

Since it looks like Decent is handling all of the balances and not acting as a client-side wallet provider like Blockchain.info (that is, Decent probably handles all of the balances themselves), this can get really hairy for them from the regulators' perspective. Were they located in the USA, I would stay away from the service after what happened to Ripple Labs. Since the service does not seem to gather KYC information, it might be in a legal grey zone. Not being able to send the tokens around might actually be a benefit for the company - the token appears as a less of a security this way.

At any rate, the gathered bitcoins end up in 2-of-3 escrow with Coinbase. The three people responsible for handling the funds are:

• Matej Michalko, the founder and director of Decent. Also, a co-founder of five different Bitcoin conferences (I suppose that is a new, fancy term for "organizer" nowadays), and a co-founder of two other crypto-related companies
• Tibor Tarabek, reported to be the "Founder of Microsoft Slovakia", although his LinkedIn profile lists him only as a General Manager in years 1995-2000 (and also a "General Manager" of some "bitcoin, s.r.o." company between years 1992-1994, 16 years before Bitcoin was released!)
• Vasylchenko Alexander, former director of Mycelium in years 2012-2014

It is a bit strange that the founder of Decent is a co-signer of the escrow if you want to show that you can deliver on the project's promises. Find a few reputable Bitcoin people and use them for the entire escrow to show the release of funds is unbiased. Currently, all you need is one of the two extra people to co-conspire and you have full access to the 3.2M USD. While I might not know the reputation of mr Tarabek in the Slovakian Bitcoin space, his apparent lack of involvement with Bitcoin-related projects doesn't speak well to his ability to objectively judge a project like this.

Lastly, storing token presale funds in Coinbase, a company known for helping US authorities shut down torrent-related websites, doesn't bode well for the security of the funds. No KYC, token presales and US don't mix well...

All in all, I'm very dubious about how well the presale is handled. While it's not completely shady, I would not be surprised if the tokens get released before the project is finished or worse. To anyone that has purchased the tokens so far - hope for the best, prepare for the worst.

The Team

All in all, what makes or breaks a project is often the team. Let's look at who the Decent team is compromised of...

The Founders consist of:

• Matej Boda, who seems to be rather fresh out of university without much prior experience
• Matej Michalko, the aforementioned co-founder of a lot of crypto-related projects. He appears to be business-focused
• Wayman Kwan, a venture capitalist

So mostly business-focused founders. Let's look at the developers in the team:

• Josef Sevcik, with background in Business Administration, Informatics and telecommunication
• Bohdan Skriabin, a cryptographer still studying at a university
• Lubos Novotný, an UX / designer
• Stanislav Cherviakov, "a tech expert with a mathematical background" with experience in fintech, etc.
• Vladimir Dubinin, a mathematician with a computer science degree
• Anatoly Ressin, a programmer

And a lot of other advisers, ambassadors, etc. All in all, the development team is a bit mixed, having a few people that appear to have a lot of relevant experience, and some that are just starting out. The company also appears to be looking for a senior developer and a junior developer, both with a negotiable compensation payable in "other".

It looks like there are about 13 people making up the company proper. That can give the company a pretty high burn rate before any technical prototypes have been developed, but the costs may be rather low if the majority of the team is located in Slovakia.

Codebase

So far, Decent doesn't appear to be publicly owning up to any publicly available repositories on their website. However, the bitcoiner that prompted me to investigate the company pointed me in a direction of a github repository posted by Josef Sevcik, one of the developers on the Decent Team. It looks like a possible prototype of the Decent platform. The codebase appears to be based on Peershares with a small amount of changes (a few file diffs: 1, 2, 3).

Basing the codebase on proof-of-stakes based currency informs a lot of new things about the project that haven't really been mentioned on the project's website - the initial allocation of tokens (how much is being kept by the company and developers) can be really important when it comes to earning block rewards for example.

Conclusions

All in all, the Decent looks like an underwhelming solution looking for a problem. It is very unlikely the platform will solve all of the problems it sets out to fix - nobody will want to switch over to a new platform, use a new currency to get a glorified paywall. Focus on presaling the tokens doesn't seem to be improving the solution, as is often the case. Raising 3.2M USD before anyone has seen a prototype of the platform is similarly ludicrous. The tokens have little to no value during the presale - you can't trade them for speculation, you will only be able to use them once the platform launches, and there doesn't appear to be any special use for the tokens in the final system other than paying for things. I somehow doubt the platform will have 3.2M USD worth of content on it for years to come, so pre-purchasing a token now to be able to pay a movie for a few dollars or a blog article for a few cents a year down the line sounds like an awful proposition.

The escrow holing the coins doesn't appear to be following the industry's standards. It is not completely shady, but it could inspire more confidence.

The team behind the project looks fine - no "blockchain rockstar" stands out, but it seems to have everything needed. It is good that the company advertises its contact information, including physical addresses.

From the rumours I heard from a few fellow bitcoiners closer to the project, the company seems to be aggressively pushing for its presale with just a forked open source repo to back it up.

So in conclusion, the project doesn't look like it can live up to its own hype. The approach is rather naive, even if it can be fully realised. I see no reason to back it financially, and for anyone that has - I would like to know why? The token can't be traded, sold, speculated on until the project launches, which makes it a rather risky proposition.

The Bitcoin Bullshit List

Your Crypto Idea Will Not Work

Your post advocates a new:
(x) Altcoin
(x) Wallet
(x) Distributed data storage

Your idea will not work.  Here is why it won't work.

(x) Your target audience is too small to support the project
(x) There is already a product on the market that does exactly what you’re doing, but ( ) faster / (x) cheaper / (x) better / (x) is more established / ( ) ______________
(x) Your project will not be compliant with the current (x) KYC / ( ) AML / ( ) gambling / (x) DMCA regulations
(x) Your solution is worse than general-purpose computing hardware / software
(x) Your presale tokens have no economic value

Specifically, your plan fails to account for:
(x) The existing regulations
(x) Public reluctance to accept weird new forms of money
(x) The known security exploits of the existing Internet services
(x) The human factor
(x) The problem of distinguishing between a human and a bot

and the following philosophical objections may also apply:
(x) Nobody likes DRM
(x) Ideas similar to yours are easy to come up with, yet none have ever been shown practical
(x) Feel-good measures do nothing to solve the problem
(x) I don’t trust YOU with the money

Furthermore, this is what I think about you:
(x) Sorry dude, but I don't think it would work.

Bitcoin Bullshit Tier

You are advertising a new Bitcoin / crypto related project. Based on the information provided, you have reached the Bullshit Tier of 3 for the following reasons:

Bitcoin Bullshit Tier 1 - marketing babble, technology misunderstanding
(x) “Blockchain”
(x) “As good as / better than Bitcoin”

Bitcoin Bullshit Tier 2 - willful misinformation, bait and switch
(x) Claiming your project can accomplish something hard without a clear explanation of how to do so

Bitcoin Bullshit Tier 3 - Many red flags
(x) Token IPO

On FinCEN fines and regulations - the fate of token IPOs

Yesterday the news about Ripple Labs being fined by FinCEN for their sale of XRP without an MSB license came out. While some have rejoiced in this development since Ripple has been getting some bad press lately (1, 2), some of us are weary of what precedent this might set for other token IPOs. Lets ponder some of the possibilities.

(Disclosure: I am not a lawyer, nor do I have any formal education in law-related fields. I am a software developer, so take anything stated here with a grain of salt)

FinCEN regulations

FinCEN came out with some definitions and regulations back in 2014. Some of the most important parts of that document are:

• "FinCEN's regulations define currency (also referred to as "real" currency) as “the coin and paper money of the United States or of any other country that [i] is designated as legal tender and that [ii] circulates and [iii] is customarily used and accepted as a medium of exchange in the country of issuance.”"
• "In contrast to real currency, “virtual” currency is a medium of exchange that operates like a currency in some environments, but does not have all the attributes of real currency. In particular, virtual currency does not have legal tender status in any jurisdiction."
• "The guidance addresses “convertible” virtual currency. This type of virtual currency either has an equivalent value in real currency, or acts as a substitute for real currency."
• "An exchanger is a person engaged as a business in the exchange of virtual currency for real currency, funds, or other virtual currency. An administrator is a person engaged as a business in issuing (putting into circulation) a virtual currency, and who has the authority to redeem (to withdraw from circulation) such virtual currency."
• "The guidance makes clear that an administrator or exchanger of convertible virtual currencies that (1) accepts and transmits a convertible virtual currency or (2) buys or sells convertible virtual currency in exchange for currency of legal tender or another convertible virtual currency for any reason (including when intermediating between a user and a seller of goods or services the user is purchasing on the user’s behalf) is a money transmitter under FinCEN's regulations, unless a limitation to or exemption from the definition applies to the person."

Which seems to be pretty straightforward - cryptocurrencies without a fiat peg are virtual currencies and doesn't appear to fall under FinCEN's regulation. Cryptos with a fiat peg, such as Tether or various Ripple IOUs are convertible virtual currencies and therefore fall into this category.

However, if we look at "Statement of facts and violations":

• "From at least March 6, 2013, through April 29, 2013, Ripple Labs sold convertible virtual currency known as “XRP.” "

I don't know about you, but the last time I checked XRPs were a free market currency like Bitcoin (minus being "premined" and mostly owned by a single entity). This might indicate that any virtual currencies sharing the characteristics of XRPs might be under scrutiny soon...

Token IPOs - are the days numbered?

In our short crypto history, there have been a few notable token presales / IPOs (and a lot more less notable ones). We had:

• Mastercoin raising ~$0.5M
• MaidSafe raising ~$6M
• Ethereum raising ~$12.7M
• etc.

All of those presales have been done in a similar fashion - people could freely send their coins to a given Bitcoin address and they would in turn receive the tokens they paid for. Fast, easy and hassle-free - an elegant solution for the Internet age.

Now, imagine if those companies had to account for every token sold and verify each of their customers. People would have to sign up for some services, verify their identities and so on. In essence, an elegant presale would turn into something akin to going onto an exchange - more centralized and not as frictionless.

So the question remains - are those tokens virtual currencies, or convertible virtual currencies? If the former, the presales might continue unhindered. If the latter - the current IPO model might need to change...

Conclusions

Whether you like or hate Ripple Labs, there appears to be much more at play here than just the fine imposed on one company.

The paradox of presales - pondering Gems

A few weeks ago during one of the Vancouver Bitcoin Meetups, we were introduced to the Gems platform. Gems is a social messaging app that allows the users to talk with other people securely and send them crypto tokens easily. Another big feature of the platform is that people can get paid to receive ads in the application straight from the advertisers, creating a new kind of relation between them and the consumer. The topic that sparked the most interest and a heated discussion, was the token presale and a small paradox it created.

Gems platform is issuing its own currency in a form of 100 million gems. Some of those tokens will be airdropped over the course of a few years, some will come in form of bounties, and a number of them will be sold during the presale to fund the project. The gems will have value on the platform because they will be used to create and pay for ads that will be displayed on the Gems network. In other words, advertisers will have to buy gems so they can pay people to view their ads. Seems simple enough.

However, as is usually the case with token presales, the first thing people ask is "why would I want to use gems if I can just use bitcoins?". The change would be simple enough from a development perspective - if a network can handle payments in gems, it should also be able to handle payments in bitcoins. Starting from this assumption, gems are an unnecessary level of abstraction - most people will prefer to be paid in Bitcoin, and most advertisers will be able to pay them in Bitcoin, so going in and out of gems just to display the ads seems unnecessary.

However! There is a third side to this coin. The most basic function of any presale is to earn money for the developers to be able to actually create the product. As such, if the Gems platform did not use gems instead of bitcoins, the developers wouldn't be able to keep the current platform design and still have money to build it. By introducing the gems, the developers can sell the tokens to raise the money to build the Gems platform.

And here lies the paradox of (a lot of) presales. In order to create a compelling product through a presale model, a developer needs to create a new token and integrate it with the platform. However, by the simple fact that the platform uses a new token rather than Bitcoin, it becomes less desirable to the end users. Without the token, there can't be a presale and thus the end product might not be made.