What Are Bounty Programs?
Bounty programs are incentives offered to an array of participants for various activities associated with an initial coin offering (ICO). The participants are spread across various stages of an ICO and range from investors to ICO promoters and developers.
The incentives can take the form of cash rewards (usually rare) or free (or discounted) tokens which can be cashed in later when the tokens are listed on an exchange.
The collapse of the ICO market in late 2018 and 2019 has dramatically reduced active bounty programs. Furthermore, bounty programs that are focused on marketing were used during the heyday of the crypto bubble to promote fraud, which should make crypto-coin developers wary of using them.
- Bounty programs are used by crypto-coin developers to incentivize actions before the initial coin offering (ICO) by developers and marketers.
- After an ICO, bounty programs may be used to get feedback on the project's code from external developers or to reward promoting the coin in media channels.
- Bounty programs operate in a legal gray area between marketing and pyramid-scheme-style fraud. The SEC has used ICO bounty programs as proof of criminal wrongdoing.
Understanding Bounty Programs (ICOs)
Broadly, there are two stages to an ICO: pre- and post-ICO.
In the first stage, which is also known as pre-ICO, the offering is marketed to prospective investors and people willing to do tasks to make the ICO possible including programmers, social media influencers, blog writers, marketers, and other interested parties.
After the ICO, coin's community, which is sometimes a large collective and sometimes a small group like an executive board, bounty programs can be used to incentivize developers to find bugs or give feedback on other design elements.
The focus after an ICO shifts to fine-tuning the released blockchain. Bounty rewards are offered to translators, who help ensure a global reach for the blockchain by translating documents associated with development and marketing.
Rewards are also offered to coders who test and detect flaws in the blockchain. The latter type of reward is known as a bug bounty. In practice, it is similar to rewards offered to hackers by the likes of Facebook and Google.
Bounty Programs for Developers
Developers receive a sizeable chunk of tokens as payment for their participation in coding the project. These tokens can be redeemed for fiat currency when the tokens are listed on an exchange. For example, Ethereum and Zcash both had substantial bounty campaigns in place for developers who helped set up the blockchain.
Bounty Programs for Marketing
Social media influencers and blog writers make videos, write articles, or spread the word about the ICO on popular platforms. They get paid based on their content’s engagement with the audience. Bitcointalk Signature Bounty marketers are members of bitcointalk, a popular discussion forum for crypto enthusiasts.
They are required to post a signature with the ICO’s details in it and are rewarded with tokens from the sale based on their seniority in the forum. The channels form an outreach to multiple kinds of investors, from lay to institutional. At this stage, the content mostly deals with an analysis of the blockchain and its merits and demerits.
This approach has obvious problems, especially in the wake of the bursting of the bitcoin bubble in 2018, because of its similarity to pump-and-dump schemes in over-the-counter (OTC) stock markets. Pretending to be a disinterested party promoting the value of an investment of any kind while being secretly paid for that promotion is unethical, even if it isn't illegal.