Japanese cryptocurrency investors reacted negatively to photos from Cardano ICO business seminars, participated in by IOHK co-founders Charles Hoskinson and Jeremy Wood, with Cardano Foundation chairman Michael Parsons (front row)

In “Into the Ether,” Grayscale’s investment thesis for the Ethereum Classic (ETC) cryptocurrency platform, author Matthew Beck argued persuasively in favor of prioritizing good governance as a means of ensuring long-term financial viability for decentralized payment networks.

Beck asserted that the Ethereum Foundation had failed a critical test of good governance last July when the research organization led the community in executing a contentious hard fork, reversing a transaction on the ETH chain’s public ledger. The fork’s objective was to compensate stakeholders of The DAO — a virtual investment platform curated by members of the Foundation that had been compromised by a hacker.

Zamfir, a curator for The DAO, confronts formidable challenges amidst cryptocurrency culture wars

Acting as a trusted third party, the Foundation intervened to modify the transaction layer, having held a brief vote involving only 6% of ETH stakeholders. Opposition among dissenting miners and investors led them to support the immutable chain abandoned by the Foundation. The establishment of the ETC ecosystem, Beck asserted, was informed by demand for principles of responsible governance in the blockchain space.

“Into the Ether,” Page 5

As “Into the Ether” neared the date of its publication, the author of the investment thesis addressed Ethereum users on Twitter, asking if they had read “Principles” by influential hedge fund manager Ray Dalio. More recently, Grayscale partnered with third-party developer IOHK in representing the ETC platform at public events. This post is a response, and we expect it to be summarily dismissed by Grayscale and parent company Digital Currency Group. This would follow the example of the Ethereum Foundation’s choosing not to comment on statements critical of the DAO fork found in “Into the Ether.”

Thiel’s Law: A startup messed up at its foundation cannot be fixed

“Cardano makes people all over the world smile,“ reads advertising materials from IOHK’s crowdsale

“Into the Ether” page 5

In his book Zero to One, PayPal co-founder Peter Thiel reflected on the heady culture of Silicon Valley startups during the Dot-com bubble of the late ’90s. It was not unusual for companies that survived the ensuing market crash to have had inspirational origin stories, Thiel observed. More predictably, those startups that began as “messed up” simply could not be repaired, and were wrecked in the economic downturn. The Valley dubbed Thiel’s observation “Thiel’s Law,” asserting that a startup messed up at its foundation cannot be fixed.

Input Output Hong Kong got its start after co-founder Charles Hoskinson left Bitshares in late 2013, having joined in June to help craft the organization’s business plan. Upon the departure, Bitshares’ founder warned the public against trusting his business partner. Dan Larimar admitted to having been fooled by someone using flattery to establish false trust. For his gullibility, he was rewarded by this perceived friend secretly planning his project’s destruction. The specifics are obscured by a non-disclosure agreement, but what is written contributes toward a less-than-stellar origin story.

Larimar admits to falling prey to flattery in a 2014 post on Bitcointalk

Upon leaving Bitshares, Hoskinson partnered with Jeremy Wood to form IOHK. To secure funding, they designed an elaborate initial coin offering for their Cardano smart contracts platform. The ICO aimed at soliciting investments from Japanese businessmen. Attain Corporation of Japan joined as fundraising lead, stipulating that they would cut all ties to the project upon its scheduled Quarter 1, 2017 launch. Banking consultant Michael Parsons signed on as chairman of the Cardano Foundation.

Parsons presenting to prospective buyers in a photo uploaded March 28, 2016 by Attain Corporation

Attain partnered with cryptocurrency salesman Tadashi Izumi to host a series of closed-door business seminars to interest white-collar workers in funding Cardano. In his marketing materials, Izumi was known for promising cryptocurrency investors a “stressfree lifestyle.” This financial security could be secured by profiting off of the exciting gains made by Bitcoin and alternative Altcoin tokens. He employed a special hand sign, seen frequently in photographs of the public speaker, promoting confidence among investors seeking to attain the lifestyles of cryptocurrency elites.

Tadashi Izumi marketing material, promising his investors a “stressfree” lifestyle

A window into the stressfree lifestyle of the cryptocurrency elite, courtesy of Vlad Zamfir

To sell Cardano’s ADA coins, IOHK contributed its efforts toward Attain Corporation’s suggestive ad campaign. “Cardano makes people all over the world smile,” claimed ad materials, shown above. Hoskinson posed in photographs, marketed to Japanese businessmen as “genius mathematician.” His status as former Ethereum CEO, predating the financial success of the platform, figured in ads, encouraging prospective buyers to consider these numbers: Bitshares token price went 5.4x, and Ethereum went 60x.

Suggestive marketing materials for ADA coin offerings highlighted Ethereum token prices having gone 60x

Based on Hoskinson’s past performance, these materials suggested, ADA coins would likely balloon in price upon Cardano’s Quarter 1, 2017 launch. Throughout the ICO, Attain Corporation specified that in order to purchase ADA coins, investors were required to commit to a minimum lot costing 1,000 USD, using either a Japanese bank transfer or Bitcoins. A Bitcoin purchased on March 28, 2016, the date of the above photograph upload, would have been valued at roughly 420 USD. That Bitcoin held by ADA’s ICO organizers today would be valued at over 2,000 USD.

Attain marketed Hoskinson to prospective ADA coin buyers as a “genius mathematician”

Once the initial coin offering secured funding for IOHK, their staff ceased communicating with Japanese investors. While the culture self-enforced by most ICO organizers in the West requires frequent blog updates and a reliable Slack chat presence in order to facilitate communication with stakeholders, IOHK staff maintained that they had no obligation to touch base with their Japanese investors. Instead, Hoskinson took to the Ethereum Classic Slack channel, where he refused to comment on Cardano.

Attain Corporation’s contract expired in Quarter 1, 2017, and the company deleted the contents of their coin offering website, cardano.biz. Hoskinson’s jumping ship from ADA to ETC followed a pattern resembling Larimar’s warnings, issued during the Bitshares quarrel. Having befriended Japanese businessmen and earning their trust, the IOHK co-founder disappeared, leaving them with vouchers for ADA coins. These IOUs delivered by email are today worth nothing, as to this date the Cardano platform has not launched. The tokens themselves are undelivered.

If we are to observe Thiel’s Law as a truism, that a startup messed up at its foundation cannot be fixed, IOHK’s origin story exhibits many hues of the red flags of a lost cause. The attention Ethereum Classic was now receiving from the ADA ICO organizers could certainly have been interpreted by the community as an ominous presence. The entrance of unprincipled actors marked the starting point of ETC’s crisis of irresponsible governance.

Photographs from IOHK’s closed-door business seminars began leaking in Quarter 1, 2017

Unprincipled Governance Meets Inevitable Blowback

“Into the Ether,” Page 4

As Quarter 1, 2017 rolled around, comments from Japanese cryptocurrency enthusiasts began popping up on social media, weighing in on whether ADA coin was a sagi coin, or “scam coin.” A blog post titled “How to tell whether Cardano, ADA is a scam” concluded by recommending, “Judge for yourself whether it is a scam! If any doubt remains, do not participate.” Several of Hoskinson’s critics reached out to analyst AceOfWallstreet on Twitter, comparing IOHK’s ad campaign to the OneCoin Ponzi scheme’s.

Bitcoin entrepreneurs on Twitter requested that Westerners do research into the ADA/Cardano crowdsale

Japanese researcher Tetsu Bigstone Oishi serves as CSO of United Bitcoiners Inc., while Yoshimitsu Jimmy Homma oversees as CEO of the micropayment solutions company in Tokyo. Weighing in back in March, they asserted that IOHK had intentionally targeted the Japanese in order to avoid detection in the West. AceOfWallStreet contacted Hoskinson on social media, mentioning the comparisons drawn between the ADA marketing materials and the OneCoin scheme’s. (In April, eighteen OneCoin seminar organizers were arrested for running a “Ponzi scheme seminar,” reports Cointelegraph.) The IOHK co-founder responded by retreating to the Ethereum Classic Slack channel, complaining that “no one is fair to Charles.”

Diagram posted by AceOfWallStreet, detailing his interactions with Hoskinson

Hoskinson exhibited mild indications of anxiety while refusing to address the issue of Cardano’s ICO

Today, IOHK has yet to fulfill their obligations as delivery partner on the Cardano project, and undelivered ADA coins have a market value of zero. The price of Bitcoin since March of 2016 is approaching 5x, making Attain Corporation’s talk of exciting returns entirely accurate, but only for those who passed on ADA coin and held onto their Bitcoins. As 1,000 USD was the minimum allowable investment for ADA coins, the losses to date of Izumi’s followers who bought into the crowdsale are severe. ADA’s coin offering organizers specified a launch date that has passed, and about which Hoskinson refuses to comment. Attain, naturally, erased their website.

Ethereum Classic’s Impending Crisis of Irresponsible Governance

IOHK staffed up following their ADA coin crowdsale, turning their attention from the Cardano centralized smart contracts platform to Ethereum Classic’s decentralized smart contracts platform. The company set out to develop for both simultaneously, deciding not to openly discuss their contractual obligation to ADA coin holders through the year 2020.

Hoskinson began by hiring ETC “community managers” to promote protocol changes and “manage” stakeholders on social media. IOHK’s Christian Seberino submitted a proposal titled ECIP-1020, seeking to make mandatory use of a pyramid symbol as the ETC monetary unit. The core developers from ETCDEV, responsible for maintaining the ETC core clients, rejected the proposal, and it was delisted from Github. IOHK’s only stab to date at an ECIP submission remains only as an archive.

IOHK’s only ECIP improvement proposal submission to date sought to make mandatory usage of “⟠”

Pictured right of Tai Zen, Leon Fu’s February blog post claimed ETC was centrally controlled in secret by IOHK

In February, Hoskinson partnered with Leon Fu, co-host of Tai Zen’s Cryptocurrency Market on YouTube, on a series of exclusive video interviews. In return, Fu claimed in a blog post that their guest had secretly gained control of the Ethereum Classic platform’s governance, mirroring the centralized model of the Ethereum Foundation. Fu claimed that, contrary to what most stakeholders believed, Hoskinson was not “simply part of the larger ETC community collectively making decisions together.” “All of this is good news for ETC investors,” he claimed, not minding the clandestine nature of IOHK’s supposed takeover.

Leon Fu argued for centralized governance for ETC, following discussion with Hoskinson

Meanwhile, Hoskinson derided ETC core developers at ETCDEV, responsible for maintaining core clients. When Igor Artamonov and Elaine Ou opposed IOHK’s proposal to add a protocol-layer capital reallocation system — like the DAO in concept, but directly siphoning funds that were normally reserved for miners securing the network — Hoskinson responded publicly with ad hominem. “Let me be blunt,” he wrote. “Taking someone else’s code, making some modifications does not make you a core developer of a project.” He continued: “To me, the worst thing we could do is be overly conservative.”

IOHK’s proposal initially attempted to inflate the monetary supply by 20%. If opposed, they sought to alter ETCDEV’s ECIP-1017 monetary strategy to inflate the token supply, despite their having signed a Joint Statement with industry stakeholders approving its terms. The ideal beneficiaries of the capital reallocation scheme, he said, were his employees — explicitly mentioning ECIP-1020 author Seberino — “exactly the type of roles that a treasury could eventually cover.” Hoskinson suggested miner rewards be reinterpreted as “inflation pie,” so that his employees be carved a slice.

IOHK’s treasury proposal dated February 15 sought to inflate the monetary supply by 20% per year

IOHK’s revised draft from March 7 threatened to alter the ECIP-1017 monetary policy to inflate token supply

In a pattern observed previously by critics of Bitshares’ and ADA coin’s funding, Hoskinson had now set about targeting Ethereum Classic miners, ETC investors and the core developers. IOHK staff members have attempted block reward confiscation, inflation of the monetary supply, and issued derogatory remarks undermining the status of ETCDEV. As Grayscale presents to us this company as a presumed representative of Ethereum Classic’s principles, the architects of the Cardano crowdsale attempt to chip away at the platform’s decentralized governance structure.

Dalio’s Principles: Dealing with reality to get what you want out of life

“Principles” by Ray Dalio, Page 7

In “Principles,” Dalio argued that understanding each other’s principles — our ways of dealing with reality to get what we want — should be facilitated through dialog. While using “Principles” as a marketing technique might be an effective way to draw disaffected investors away from the Ethereum Foundation, for Grayscale and the author of “Into the Ether” to pay no mind to principles themselves is to squander their ethical legitimacy.

There is something particularly upsetting about the underlying premise to this partnership with a company engaging in unethical practices overseas. There is a racial component to the ADA coin deception that resonates with history in ways that Grayscale has failed to reflect upon. For the ETC community to mitigate damage associated with an impending crisis of irresponsible governance, Grayscale and Digital Currency Group must not be permitted to cover up for their business partner’s unprincipled actions.

If you wish to see Ethereum Classic’s foundational principles preserved, we can. But only so long as we fight.