An Ethical Approach for Crypto Projects and ICOs

Initial coin offerings (ICOs for short) have become one of the most widely used crowdfunding methods, allowing for ridiculous amounts of money to be collected sometimes in less than a day.

According to statistics published by icodata.io they are a multi-billion dollar industry, with over $6.1 billion raised in 873 ICOs during 2017.

That number was surpassed by the first quarter of 2018 alone; at this moment, investors have poured over $6.8 billion in a total of 1060 ICOs — and who knows what that number will be at the end of this year.

With ICO adoption on the rise, most companies are focused exclusively on making their technology successful and profitable. And while technology is certainly used to change the world for the better, it’s important to remember that it’s a two-edged sword.

In March of this year, a Vietnamese company called Modern Tech who had raised a total of $660 million in token sales for their crypto projects, pulled off an exit scheme upon arousing suspicion in their investors.

Pincoin was the first ICO project the company presented. It was introduced to the general public as an “online collaborative consumption platform” that promised its investors a monthly return of 40% and additional bonuses for bringing other people into the program. Sound familiar?

The return of investment was paid out in cash up until January of this year, when Pincoin began “rewarding” their investors with iFan tokens instead and preventing them from withdrawing a dime in fiat. iFan was advertised as a social network intended to help artists and celebrities connect with their fans; the network’s native tokens could be used to purchase tickets for live performances, buy exclusive merchandise and download music.

It wasn’t too long before people realized what had happened to their money, and they organized a demonstration outside Modern Tech’s headquarters in Ho Chi Minh City. The offices were, as you might expect, vacant. The ROI ponzi scheme left almost 32,000 gullible investors with empty pockets, and the Modern Tech executive team was nowhere to be found.

This is only one example of the scary reality everyday people encounter when they decide to try out a new piece of technology. The consequences they are facing are very real; at best, they’ll have their money taken — at worst, they’ll have their identity exploited. As a result, all innovators that are trying to take their technology off the ground, especially through an ICO, have to work harder than ever to best present the legitimacy of their project in the wary eyes of their potential users.

In this article we will try to help them to achieve exactly that – take a responsible approach towards designing and launching their crypto technology, and protect themselves and their potential users by implementing a few core ethical principles in the process.

Designing an Ethical Crypto Project

Image credits: Gytis Jonaitis

For this issue, we will refer to Ethical OS – a guidebook that helps tech companies anticipate the social impact that their technology will have on the long term, and prevent them from being blindsided by the tools of their own making. We recommend that you carefully read the toolkit first, and then go through the checklist to make sure your product or service is on the right track and make alterations to it if needed.

The toolkit contains a Risk Mitigation Manual, in which the authors have concisely classified the possible unwanted consequences of designing technology into the following 8 risk zones:

  • Truth, disinformation, propaganda

Deepfake videos are a thing now, and almost any piece of information can be altered or spun to the point of no return thanks to bots, fake news, and other information-disfiguring technological mechanisms. As a tech innovator, you should anticipate the possible ways in which your technology can be used to subvert the truth, generate or spread misinformation, undermine trust in legitimate institutions such as medicine and science, etc.

  • Addiction & the dopamine economy

The main reason we keep coming back for another scroll is the dopamine loop. It’s actually really simple: you open an app, thus engaging the loop. You reinforce it with every scroll and click that follows. You keep coming back until you’re satiated — if ever.

The authors of Ethical OS emphasize the responsibility you have towards your users in that regard. Do you benefit from maximizing user attention? If so, is that good for the mental and physical health of the people who use your tech? How could you design a system that encourages healthy use? These are just some of the questions you should ask.

  • Economic & asset inequalities

Technology has the potential to bridge the gap between people of different backgrounds and financial situations. In the process of designing your project, ask yourself: who will have access to it? Will people who don’t have access suffer setbacks compared to those who do? Are you, perhaps, offering a tool that might impact the economic stability of people by reducing the need for human labor?

  • Machine ethics & algorithmic biases

While machine learning is considered to be a generally unbiased approach towards building and training intelligent systems, it in itself is a tool designed by humans who are, by nature, biased.

If your technology relies on artificial intelligence, machine learning, or uses different algorithms to provide certain functionalities to your users, pay special attention to the team that’s in charge of designing those tools, as well as to the potential ways in which a malicious actor could use those biases to affect the content displayed to the end user.

  • Surveillance state

This issue needs no introduction as we’re becoming more aware by the day of the extent to which governments and military are using technology to achieve their goals, oftentimes with no regard to basic human rights.

Consequently, you should be wary of ways that your technology (or the user data that it gathers) could be used for surveillance, tracking, profiling and targeting of unsuspecting individuals, and think of ways in which you can protect your end users from the (un)lawful utilization of their data.

  • Data control & monetization

This risk zone logically encompasses the previous one and expands it outside the government’s scope. Remember the Cambridge Analytica scandal? Put yourself in Zuckerberg’s position. Does your project require you to collect information about your users? What are you using that information for?

Is it just to ensure the functionality of your technology, or are you maybe selling it to a third party for profits? If so, are you transparent about it, and do your users have the right to choose what portion of their data they are willing to share?

  • Implicit trust & user understanding

Do you read the Terms of Agreement of the software you use? That’s right. Rest assured, neither do your users. Instead they, much like you, rely on the existence of implicit ethical principles that they assume have been incorporated into the agreement.

Therefore, you should make sure that your technology doesn’t exploit the users’ implicit trust, and that your terms of service are written clearly and unambiguously so that anyone is able to understand them without worrying about a hidden agenda.

  • Hateful & criminal actors

Social media and similar services connect you with other people, sure. But not necessarily with nice ones. Consider if your tech can be used to harass, stalk or even fraud other people. Maybe take some of the responsibility on your shoulders and go out of your way to further ensure the safety and well-being of your users.

For starters, filters against hate speech and the option to report discriminatory content can go a long way. Also examine the possibility of your platform being used to plan and organize illicit activities, and ways you can prevent that from happening.

Read the full manual to get a better understanding of the 8 risk zones of building technology, and you will be well on your way of designing a truly ethical product.

Launching an Ethical ICO

Image credits: Softnio

If you’ve decided to fund your project through an initial coin offering, you should be aware that your success is dependent on your community. Take every measure to protect it by making sure your ICO is compliant with some basic ethical principles. We’ve managed to narrow them down to the following 7 concepts:

  • Trustworthiness

People want to invest in an idea, but in order to do that they have to trust their money to an actual person. See your ICO through the eyes of your investors; who are they investing in? Does this person (or company) have a name, a face, a portfolio? How can they be certain that you’re not going to run off with their money?

Even if you don’t have any significant previous work to show off with, you can still leave a good impression by presenting yourself in a truthful and professional manner. Make your qualifications clear, and your vision clearer.

  • Attention to detail

Some (usually low-stake) investors don’t concern themselves with the technical details of the project they’re investing in. To the rest of them, though, your altcoin is more than just chips to gamble with. This is why you need to provide a solid whitepaper in which you explain your technology in great detail and provide answers to all the questions that might come to mind to the average user.

When push comes to shove, you need quality investors to actually believe in your technology, and you won’t achieve that by presenting them with an unclear and underdeveloped nugget of an idea. Be careful though, because the other side of the coin is an overly technical and utterly dull whitepaper that creates rather than clears up confusion.

  • Communication

Your community is not a homogeneous crowd, but rather a group of individuals with different, and often opposing voices. Some of them might want to participate in the growth of your project more than others, and it’s up to you to provide them with a platform on which they can discuss ideas and be more than just a pocket for you to reach in.

Don’t be afraid to ask for opinions. Keep the key values and the spirit of the project intact, but maintain an open communication channel and consult your users frequently about solving potential challenges that could disrupt the ecosystem; only in that way can you hope to build a technology that reflects the beliefs and principles of the people who support you.

  • Fairness

Early investors might hold a special place in your heart, but don’t forget that there are plenty of reasons why some people choose to hold off on buying tokens in the private sale or the pre-ICOs.

Most of the time it’s because they don’t like to jump in uncharted waters and, with all the unsuspecting and downright ridiculous scams around, can you blame them? If you have confidence in your project, you don’t have to rely on a single ICO round for funding; structure your expansion so that participation is lucrative for latecomers too.

  • Accountability

Set up a reasonable hard cap for your ICO and, once you’ve raised the necessary amount to get your project off the ground, be sure to spend it wisely. Make a financial plan in which you detail your expenses, as well as a rough estimate of the sum needed to cover each of them.

Don’t raise more money than you need just because the ICO method allows it, and follow through on the financial plan that you presented to your investors. Monthly budgetary reports, as well as reviews on the progress you’ve made with the project will be more than welcome with your users.

  • Affordability

Keep in mind that setting up minimum investment requirements raises the barrier to entry for smaller, retail investors. If you really want your cryptocurrency to take off, you need to make sure it gets in the hands of as many people as possible; make the initial coin offering affordable for everyone, and offer exclusive deals for investors that choose to put in larger sums.

  • Transparency

If crypto-history has taught us anything, it’s that secret meetings behind closed doors only lead to friction in the community and leave people feeling left out and used. If you’re planning on making advancements to your project, announce them in a timely manner and don’t surprise your users with any unwanted changes.

Conclusion

When it comes to the legal regulation of the cryptocurrency space, various mechanisms are being put into practice each day in order to protect both tech innovators and their customers.

Legal compliance, however, should come as a no-brainer and entrepreneurs in the cryptosphere must take a step beyond the legal positivism and concern themselves more with the ethics and morality of their crypto products.

The utter lack of integrity and good old-fashioned conscience in the crypto space slowly turned ICOs into a risky and unpredictable caricature of IPOs. The lack of regulation was, and probably still is regarded as a gap or a pass-card to be exploited in the get-rich-quick drag race.

It’s time for the relevant stakeholders in the cryptosphere to mature and get past the fast money paradigm; crypto assets are here to stay, and the only way we can collectively win the long race is by acting ethically and responsibly.

Crypto entrepreneurs should not see this or any other ethical guideline as a checklist to be implemented mindlessly as part of “doing business”; instead, they should understand the underlying issue and the absolute need for ethics in crypto, and only take this guide as a starting point and inspiration to create comprehensive ethical frameworks that are essential for the long-term success of their project.

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