Russian Duma Adopts Three Crypto Bills on First Reading

Russian Duma Adopts Three Crypto Bills on First Reading

Russian State Duma has approved its first reading of the long-awaited legislation package regulating crypto-related matters and activities. The legal texts, voted almost unanimously, will open the way for legalization of cryptocurrencies in the Russian Federation, including their exchange and circulation under certain conditions. Deputies now have about two weeks to propose amendments before they proceed to final adoption of the three bills.

Also read: Cryptocurrency is Property in Russia, Justice Minister Confirms

The Bills Regulate Crypto Assets, Crowdfunding and Digital Rights

The lower house of Russia’s parliament, the Duma, has accepted and approved on first reading three pieces of legislation tailored to regulate different aspects of the crypto ecosphere in the country. This week, the bills – “On Digital Financial Assets,” “On Attracting Investments Using Investment Platforms,” and “On Digital Rights” – hit the house floor. All of them were voted almost unanimously, the Russian Association of Cryptocurrencies and Blockchain announced on social media.  Some interesting ideas, like tax breaks, have been pitched already during parliamentary discussions.

Russian Duma Adopts Three Crypto Bills on First ReadingThe first two drafts were introduced on March 20 by a group of deputies led by the chairman of the Financial Market Committee, Anatoly Aksakov, while the third one, which amends the country’s Civil Code, was filed on March 26 by the speaker of the Duma, Vyacheslav Volodin, and the head of the parliamentary Legislation Committee, Pavel Krasheninnikov.

The new legislation incorporates legal concepts like “digital right” and “smart contract” and defines cryptocurrencies and tokens as property, not as legal tender. It establish the sequence of actions in a token sale and the rules governing ICO projects. The texts form the basis for legalizing crypto mining but the legal definition of this economic activity will be expanded and refined between the two readings. Other amendments may be introduced in the next couple of weeks. Some proposals, including a moratorium on the taxation of miners, have been discussed in parliament already.

Cryptocurrency Is Electronic Property, Not Legal Tender

The bill “On Digital Financial Assets”, № 419059-7, prepared by the Finance Ministry, was voted by Russian legislators with only one “nay”. It regulates the relations arising from the creation, issuance, storage, and circulation of digital financial assets. The draft also establishes the exact procedures for conducting crypto transactions and concluding smart contracts, including the exercise of rights and the performance of obligations.

Last week, Russian prime minister Dmitry Medvedev said that common words like “cryptocurrencies” and “tokens” will be replaced with the legal terms “digital money” and “digital rights” in the new legislation. The text of this particular draft, however, contains definitions of the original, colloquial terms. It reads: “Digital financial asset – property in electronic form, created using cryptographic tools.” It also says that property rights in this case are certified by making digital records in a register of digital transactions.

Russian Duma Adopts Three Crypto Bills on First Reading

“Digital financial assets include cryptocurrency, token,” the document states, emphasizing that these assets are not legal tender in the Russian Federation. According to the authors, tokens can have a single issuer, while cryptocurrencies can have multiple issuers, like the miners. Both can be exchanged with rubles and foreign currencies under rules determined by the Central Bank of Russia (CBR). They will not be considered a mandatory means of payment, account and transfer like the ruble, but individuals and businesses will be able to use them for payments within the frame of the law.

According to Russian media reports, the draft states that crypto purchases and sales should be performed only through providers of exchange services for digital financial assets – brokers, dealers, and corporate entities – acting as custodians. That includes cryptocurrency exchanges which will offer individual accounts and wallets to their customers. The rules governing these activities shall be developed by the Central Bank in consultation with the Council of Ministers.

Crowdfunding and Crowdinvesting Regulated

The bill also describes the sequence of actions involved in issuing digital tokens, stating that their release should be carried out through public offering. Entities behind initial coin offerings (ICOs) will be required to disclose detailed information about their projects. The organizers of token sales need to prove they control at least 5 million rubles (~$81,000) of capital. Banks and non-credit financial institutions won’t be allowed to conducts ICOs. The law also regulates crypto mining and implies that miners should register with the Federal Tax Service, as either individual entrepreneurs or legal entities, and pay taxes.

Russian Duma Adopts Three Crypto Bills on First Reading

The Law “On Attracting Investments Using Investment Platforms”, № 419090-7, regulates specifically crowdfunding and crowdinvesting in Russia. The draft reads that both legal entities and individual entrepreneurs can be involved in such activities and prescribes the norms that the organizers of digital fundraising should abide by.

According to its provisions, private citizens can participate in crowdfunding without any registration but the investment platform operators should be registered with the CBR. The bank will also determine the maximum amount an “unqualified investor” can spend on a single project as well as and the limit of their yearly investments in digital tokens.

Only Tokens with Economic Value to Be Recognized as ‘Digital rights’

Russian Duma Adopts Three Crypto Bills on First ReadingThe third draft passed on first reading, the bill “On Digital Rights” – № 424632-7, amends the Russian civil law. It introduces basic provisions allowing legislators to regulate the market of tokens and cryptocurrencies and creating conditions for digital transactions. The text develops the legal concept of “digital right” to define tokens.

According to the authors, only tokens with significant economic meaning will be recognized as digital rights, unlike loyalty points or virtual coins used in online gaming, for example. A holder of a “digital right” is described as a person with unique access to the coin’s digital code.

Besides regulating the circulation of tokens and the execution of token transactions, the law is also expected to ensure judicial protection for their owners. The introduction of digital rights creates a legal basis for taxation of economic activities related to token sales, as well.

Do you think the new legislation will open the way for mass adoption of cryptocurrencies in Russia? Tell us in the comments section below.


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Blockchain Skills? Hired! $120,000+ Plus Bonus!

Blockchain Skills? Hired! $120,000+ Plus Bonus!

Blockchain this and blockchain that might be so much hype, but no one can deny hundreds of millions of dollars, some say billions, sloshing around the ecosystem in search of advancing technology undergirding cryptocurrencies. There’s a battle in even the broader employment market as Facebook, Amazon, IBM and others search for blockchain development talent, pushing salaries and bonuses into the stratosphere.

Also read: CNBC Shows Bitcoin Cash (BCH) Love, Predicts Mooning

Blockchain Jobs Need Talent with Know-How

The Wall Street Journal recently profiled the booming blockchain industry, honing-in on the demand from employers for a seemingly small pool of qualified candidates. And basic economic theory holds when the supply is at a premium and being chased by more and more dollars, the relative price will inevitably increase.

Katheryn Griffith Hill of Blockchain Developers, a headhunter, confirmed, “We are seeing people who are making half a million dollars,” she’s quoted, adding those with as little as three years experience are fetching “definitely well over $120,000” to start. The Journal continues, “Some 4,500 job openings with the terms ‘blockchain,’ ‘bitcoin’ or ‘cryptocurrency’ in the title were posted on LinkedIn this year through mid-May, according to the company. That is up 151% over the total in all of 2017. Just 645 such job openings were posted in 2016.”

Blockchain Skills? Hired! $120,000+ Plus Bonus!

Blockchains are simply a spin on database technology, and really aren’t all that new or even novel. That they’re used as accountancy in distributed ledger form, and decentralized in the cryptocurrency context, makes them valuable when attached to a currency such as bitcoin cash (BCH). Within the crypto world, such ledgers act as payment settlement systems, and, in the case of BCH, have solved the notorious bugaboo of creating a digital currency: double spending. For years, inventors were foiled by this problem. Satoshi Nakamoto’s insight, then, was to make coins like bitcoin cash become not only a medium of exchange and store of value but also contain a payment system, allowing for relatively trustless transactions between private parties to occur all over the globe.

Still other wags within the financial technology industry have seized on the neologism “blockchain,” a descriptive term to help explain how miners connect it all together, and stress the tech can solve virtually any problem. Animal spirits being what they are, the corporate world has dutifully swallowed the hype whole, and so nearly any company attaching itself to the mere mention of the word can sit back and watch their valuations climb.

Too Rich for Traditional Employment

Yuliya Chernova writes of a paradox as employers seek blockchain devs, describing how “many of the more experienced crypto developers already have made money trading bitcoin and Ethereum.” Indeed, hammering home the point Daniele Sileri, CEO of Blockchain Studios, insisted most “of the developers are millionaires already, so they don’t really care about money.”

Blockchain Skills? Hired! $120,000+ Plus Bonus!Initial coin offerings (ICOs) and venture capital have combined to lure many an accomplished dev away from traditional employment. Ripple’s David Schwartz underscores the fact “ICOs dumped a bunch of money on the industry,” to the degree that even money is “devalued” in the blockchain employment market, according to the Journal. Mr. Schwartz remarked how compensation has become “insane,” as he’s witnessed blockchain devs, at least two, receive “$1 million signing bonus offers,” the Journal notes.

Dearth of top dev talent is a global problem, and companies are struggling to distinguish themselves from the pack. Remote working arrangements, along with killer remuneration schedules, reveal work that “might have been free, there’s now a market for that work,” a dev at Augur said. Even “Augur itself has posted rewards of up to $100,000 for developers to complete certain tasks,” the Journal explained.

Do you think the blockchain employment market is overblown, or is it a good sign? Let us know what you think of this subject in the comments below.


Images via Pixabay.


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Bitcoin in Brief Monday: New EU Rules Kill Another Crypto Venture

Bitcoin in Brief Monday: New EU Rules Kill Another Crypto Venture

The upcoming implementation of a major regulatory push by the European Union to control how companies can operate on the Internet has killed another venture in the cryptocurrency sphere. This story, astrology-based financial investment, and many more feature in today’s edition of Bitcoin in Brief.

Also Read: Marvel, The Simpsons Go Crypto

Parity Shuts Down ICO Passport Service

Bitcoin in Brief Monday: New EU Rules Kill Another Crypto VentureThe team behind Parity Technologies, the developers of the Parity multi-signature wallet, have announced they are shutting down PICOPS, a service used by ICO campaigns to comply with KYC/AML regulations by validating that the owner of an Ethereum wallet has already passed an ID background check. The reason for the closure is a new EU dictate called the General Data Protection Regulation (GDPR), which is meant to bring a new set of “digital rights” for EU citizens and guard their personal data. The regulation that will come into force this Friday has already killed other services in the crypto space such as the P2P exchange Cointouch and has forced others to change the way they do business such as Localbitcoins.

The Parity team explained that: “GDPR creates new and untested challenges when storing personal information on the blockchain. These challenges make running a service like PICOPS more difficult. We are looking at ways of resolving the uncertainty and making PICOPS compliant with GDPR while keeping it useful. However, as things stand, the solutions we have identified restrict the service to a very limited set of features. Because of this, the significant resources required to make PICOPS GDPR-compliant, and the fact that PICOPS is not part of our core technology stack, we have decided to discontinue the service, despite overwhelming market needs and demand.”

Indian Ban Case Shifts to Supreme Court

The Supreme Court of India has taken over the cases of Coin Recoil and others challenging the Reserve Bank of India (RBI) ban on local banks from dealing with bitcoin companies. The next hearing of this now combined case is planned for July 20, 2018.

Rashmi Deshpande, Associate Partner at Khaitan & Co., commented: “The Supreme Court has recently transferred the entire batch of petitions pending at High Court level with respect to the contentious issue of RBI effectively banning transactions in cryptocurrencies. This decision highlights the importance of this issue at a national level from not just a legal, but also an economic standpoint. We strongly believe that the RBI’s circular to effectively discourage the business of cryptocurrency exchanges is an arbitrary decision against the freedom of the right to trade guaranteed by the Constitution. We are hopeful that justice will be meted out at the Supreme Court level.”

Written in the Stars

Bitcoin in Brief Monday: New EU Rules Kill Another Crypto VentureAstrology-based financial investment is apparently a thing, and many practitioners are using it to navigate the tumultuous seas of the cryptocurrency markets. This is according to a Marketwatch report that cited a number of astro-investors and even a professional astro-analyst talking about the practice as well as their predictions.

This matter came into the forefront recently after ex-NFL star Ricky Williams shared his use of the of study of celestial objects with CNBC. “When I look at things, I tend to look at astrology to get insight. The insight that got me interested in Bitcoin was the planet Uranus is about to enter into Taurus,” he explained.

Roboforex to Compete with Wallets

Roboforex, an IFSC (International Financial Services Commission of Belize) licensed financial firm offering crypto CFDs, has introduced a new service for its clients to buy BTC with fiat directly from the broker. The company believes that its regulated status will convince users to use their accounts over existing wallets.

Denis Golomedov, Chief Marketing Officer at Roboforex, said: “Providing the ability for clients to deposit into their accounts in Bitcoin is not only an additional service, which expands clients’ opportunities, but also a standalone product, which significantly dominates over its market counterparts. Security has become very significant issue recently, as more and more information appears about hacking cryptocurrency exchanges and stealing users’ assets. Using the cryptocurrency is much more convenient and safer for clients within the framework of their trading and investment activities, using products and services provided by a regulated broker”.

What do you think about today’s news updates? Share your thoughts in the comments section below. 


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Coingeek Conference 2018: Bitcoin Cash Innovation Shines in Hong Kong

Coingeek Conference 2018: Bitcoin Cash Innovation Shines in Hong Kong

On May 18, 2018, the blockchain firm Coingeek hosted its inaugural Coingeek Conference held this year in Hong Kong. The event was filled with movers and shakers from the Bitcoin Cash (BCH) ecosystem, alongside hundreds of BCH supporters looking to change the way the world’s money works.

Also Read: 5 Years Ago You Should Have Bought Bitcoin, Not Altcoins

Coingeek Conference 2018: Spreading the Word of Bitcoin Cash Adoption in Hong Kong

Coingeek wrapped up its Bitcoin Cash-focused conference that aimed at spreading the message of the many benefits BCH has to offer. The event was held in Hong Kong, at the luxurious Four Seasons Hotel, and had a wide variety of industry innovators from company’s like Purse.io, Bitmain, Yours, Centbee, Handcash, Nchain, Lokad, Bitcoin.com, and more. Moreover, attendees listened to keynote presentations from Ryan X Charles, Jihan Wu, Dr. Craig Wright, Roger Ver, Joannes Vermorel, Vin Armani, Steven Bower, and Jimmy Nguyen among many special guests.

Coingeek Conference 2018: Bitcoin Cash Innovation Shines in Hong Kong
Lorien Gamaroff CEO of Centbee discusses better wallets and payment solutions. What consumers and merchants need for a Bitcoin Cash world.

Bitcoin Cash Powering Online Commerce

The event kicked off with Nchain’s Jimmy Nguyen who discussed the latest Nchain BCH-focused endeavor called ‘Bcommerce.’ Nguyen’s talk called ‘A Bcomm World: How Bitcoin Cash will Power the future of ‘Bcommerce,’ got the crowd fired up over how BCH proponents plan to spread mass adoption. The concept of Bcommerce aims to provide a global payment system on-chain, with low commission fees, and fast transactions. Nguyen details how the firm is researching and developing on-chain techniques for Bitcoin Cash, security improvements, better user interfaces and APIs, and most of all merchant adoption.

Compared to Swift — It is Wonderful to Use Cryptocurrencies as a Payment Method

After Nguyen’s speech on Bcommerce, the Coingeek crowd was greeted by the CEO of Bitmain Technologies Jihan Wu. Mr. Wu’s presentation called “The Future of Crypto Economy and Bitcoin Cash,” described how proponents can further bolster BCH adoption. Mr. Wu also discussed the subject of initial coin offerings (ICOs) likely in part because BCH may have the ability to produce colored coins soon. Mr. Wu detailed to the attendees that ICO’s have become a “buzzword” and some for the wrong reasons.

Coingeek Conference 2018: Bitcoin Cash Innovation Shines in Hong Kong
Bitmain Technologies CEO Jihan Wu talks about the future of the crypto economy and Bitcoin Cash.

Furthermore, Mr. Wu said many ICOs are misleading and the cryptocurrency industry should “work closely with regulators instead of working closely with lawyers.” Moreover, Mr. Wu joined a panel with Bitcoin.com’s Roger Ver, and Nchain’s Dr. Craig Wright and explained how a giant tech company like Bitmain found significant flaws with the Swift banking system. As far as customers using digital assets for payments Mr. Wu thinks it is great and far more efficient than Swift.    

“It is very wonderful to use cryptocurrencies as a payment method — Basically our customers go to the banks and say they want to wire $1 million dollars to Bitmain and they can say no — You need to give them a reason, you need to give them a contract, and this and that,” explains Mr. Wu.   

But with Bitcoin Cash you can wire the money as you wish as long as you control the private key — And the money arrives instantly and we can ship out the next day.

Bitcoin ABC’s Amaury Sechet: Working to Increase Scaling Further

Following the discussion with Mr. Wu, the Coingeek crowd was greeted by the Lead developer of Bitcoin ABC, Amaury Sechet, who detailed his technical vision for a global payment system. Sechet explains how Bitcoin Cash is continuing towards the original roadmap that Satoshi Nakamoto laid out in his original white paper.

Coingeek Conference 2018: Bitcoin Cash Innovation Shines in Hong Kong
Bitcoin ABC’s lead developer, Amaury Sechet discusses continued BCH scaling.

The developer continues by explaining how BCH can already handle Paypal scale volumes, and for cheap network fees. After the BCH developers completed a successful upgrade just a few days prior, Sechet reveals to the Coingeek audience that they are “working to increase scaling further.”

Coingeek Conference 2018: Bitcoin Cash Innovation Shines in Hong Kong
Bitcoin Cash follows the roadmap laid out in the original whitepaper.

Purse is Launching a New Bitcoin Cash Implementation Called ‘Bcash’

Attendees at the inaugural Coingeek conference also heard from Nchain’s Dr. Craig Wright who talked about new ways to sell and trade goods with BCH in a presentation titled ‘Bitcoin’s Atomic Age.’ Participants heard from Centbee’s CEO Lorien Gamaroff and the exciting BCH wallet they are working on. Joannes Vermorel the founder of Lokad told the crowd about how proponents can overcome eCommerce hurdles with Bitcoin Cash.

Coingeek Conference 2018: Bitcoin Cash Innovation Shines in Hong Kong
Purse.io announces native BCH support.

Additionally, Coingeek attendees heard a panel on BCH use cases from industry leaders such as Alex Gut of Handcash, Vin Armani of Cointext, Angela Holowaychuk of Ncrypt, and Steven Bower from Purse.io.

Coingeek Conference 2018: Bitcoin Cash Innovation Shines in Hong Kong
Purse.io also announced a new BCH implementation called ‘bcash.’

Bower told the crowd about a new Bitcoin Cash client that will be released shortly called ‘Bcash’ that’s similar to implementations like the ABC, BU, or XT clients. Alongside this, the crowd was pleased to hear Purse.io is using BCH for native support. Overall the spirit was high in Hong Kong at the 2018 Coingeek event, and everyone who attended was quite optimistic after the successful fork a few days ago.

Did you attend the Coingeek Conference 2018? Let us know your thoughts on this event in the comments below. 


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SEC Commissioner Cautiously “Open” to Regulatory Sandbox for ICOs

SEC Commissioner Cautiously “Open” to Regulatory Sandbox for ICOs

United States Securities and Exchange Commission (SEC) Commissioner, Hester Peirce, delivered a speech before the Medici Conference earlier this month discussing many issues pertinent to ICOs. Mrs. Peirce indicated that the SEC is open to discussion of developing a regulatory sandbox for ICOs, however, expressed a number of concerns surrounding the legislative model. The commissioner also warned of the potentially stifling effect of applying “blanket” classifications to the emerging field of cryptocurrencies.

Also Read: Robinhood App Valued at $5.6 Billion – Now Available in 10 US States

SEC Commissioner Welcomes Discussion of Regulatory Sandboxes

SEC Commissioner “Open” to Regulatory Sandbox for ICOsCommissioner Peirce opened her speech by stating that “Back in Washington, DC, there has been a lot of talk about regulatory sandboxes,” adding that “A number of forward-looking regulators, both here and abroad, have created regulatory sandboxes.”

Mrs. Peirce cites a number of examples of effective regulatory sandboxes, including the United Kingdom – where the Financial Conduct Authority governs a sandbox that “allows businesses to test innovative products, services, business models and delivery mechanisms in the real market, with real consumers,” and Singapore – where the Monetary Authority of Singapore uses regulatory sandbox apparatus to “encourage[e] more Fintech experimentation so that promising innovations can be tested in the market and have a chance for wider adoption, in Singapore and abroad.”

“The motivating notion behind a regulatory sandbox,” Mrs. Peirce asserts, “is that the regulator in a sense sits in the sandbox with the innovator. Not only is she right there to make sure that nobody gets hurt, but she has a front-row seat on the innovative process. She sits at the entrepreneur’s shoulder as he thinks through how to address structural and aesthetic weaknesses in his sandcastle.”

“Talk of sandboxes is welcome, and my fellow regulators’ sandboxes have already yielded great dividends,” Mrs. Peirce added.

Concerns Surrounding Regulatory Sandbox Approach

SEC Commissioner Cautiously “Open” to Regulatory Sandbox for ICOsDespite expressing her openness to discussion surrounding regulatory sandboxes, the commissioner outlined a number of qualms held regarding the legislative model.

Mrs. Peirce states that “The regulator may insert itself inappropriately into the creative process,” stressing that “The regulator should be careful not to try to control the development of new technologies. Not only is it outside the regulator’s proper function, but such micromanagement can result in the regulator forcing new technology to fit existing—and familiar—regulatory frameworks regardless of whether those frameworks are appropriate.”

“The law deserves respect, but technological progress should not be bound by the limits of the regulator’s lawyerly imagination,” added Mrs. Peirce.

Commissioner Peirce also outlined concerns that regulatory sandboxes create “the temptation […] for regulators […] to substitute their own judgement for that of consumer and investors,” emphasizing that “Regulators do not need to take on the impossible task of deciding what products and services will win over consumers. The market is efficient at signaling which products and services people want in their lives and which they would rather do without.”

Regulation as Instrumental in Defining the Future Direction of Innovative Technology

SEC Commissioner “Open” to Regulatory Sandbox for ICOsMrs. Peirce stated that “The world of tokens and ICOs is still in its infancy,” emphasizing that “Determining the appropriate regulatory regime also will mean determining the shape these transactions will take as they mature.

The commissioner added that “While it’s tempting to envision what might come to pass if these concepts were free to develop in whatever way the market dictated, without being pinned down with a label […] there comes a point where regulatory uncertainty is a greater roadblock than confinement within a particular regulatory regime.”

Commissioner Peirce “Wary of any Blanket Designation for all ICOs”

SEC Commissioner Cautiously “Open” to Regulatory Sandbox for ICOsMrs. Peirce expressed caution regarding regulators seeking to hastily create a broad label for the dynamic and still emerging ICO sector.

After arguing that the majority of “tokens or coins used in initial coin offerings […] look the most like securities,” the commissioner stresses “This is not to say that all ICOs must be deemed securities offerings. Given the undeveloped nature of this area, I am wary of any blanket designation for all ICOs. Instead, the best path forward, at least for the time being, is to evaluate the facts and circumstances of each offering.”

Commissioner Peirce also implied that the SEC will develop a unique apparatus of ICOs deemed to fall under the regulator’s purview, stating “For those ICOs and tokens that do come under the SEC’s jurisdiction, it will fall to us to devise an appropriate regulatory structure for these new types of deals.“

The Regulatory Challenge of Innovation

SEC Commissioner Cautiously “Open” to Regulatory Sandbox for ICOsMrs. Peirce stated that “Innovation is always a challenge for regulators. We are used to the way things have been done. Our rules have grown up in response to past technologies. Figuring out whether and how they apply to new ideas is difficult.”

Commissioner Peirce also warned that regulators “must be careful not to let our lack of familiarity with new technology breed anxiety and therefore bad regulation,” adding that “There is a risk, when something truly innovative comes along, that regulators will focus only on the harms the innovation may bring and miss entirely the opportunity it presents to improve people’s lives.”

At the speech’s conclusion, Mrs. Peirce stated that “The best path forward is for regulators to approach ICOs and tokens with intense curiosity. We must put in the effort to learn about these new technologies and employ the staff necessary to support our understanding.”

“My hope is that we can navigate these new waters collaboratively. The SEC’s role is not to hand out permission slips for innovation. Innovation happens—organically through private decisions and irrepressible human creativity. We at the Commission have a role to play in protecting investors and market integrity by deterring and punishing fraud and setting clear rules. As we sit atop our lifeguard’s stand and survey the beach, however, let’s not lose sight of the benefits new technology can provide in the area of capital formation, market efficiency, economic growth, and overall societal well-being.”

Do you think that a regulatory sandbox for ICOs is a good idea? Share your thoughts in the comments section below!


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What’s In a Name? The Identity Crisis for Initial Coin Offerings

What's In a Name? The Identity Crisis for Initial Coin Offerings

Aaron Kaplan, securities attorney and COO of Prometheum, is guest author for this Opinion/Editorial. 

Initial Coin Offerings (ICOs) have become the investment du jour while the understanding of what ICOs are has become desperately convoluted. Every huckster, scammer and opportunist has tried to hop on the bandwagon. (I’m talking to you, Casey Ryback) Many of these ICOs were a means for scammers to raise money over the internet from unsophisticated investors whose “FOMO” outweighed the obvious red flags associated with such offerings.

Also read: Ver’s Sci-Fi Novel Life, Voorhees Buys Tucker’s Tie for $27k

Identity Crisis for Initial Coin Offerings

The rapid growth of the ICO industry ($6+ billion) and the inherent scams and related investor losses forced the SEC to consider ICOs in the context of the Federal Securities Laws (FSLs).  The SEC’s recent broad subpoena sweep marked the SEC’s official declaration that ICOs are securities. Now that ICOs must comply with the FSLs, it should come as no surprise that a new type of trickster is trying to hijack the innovation through either a) selling illiquid tokens to wealthy investors or b) selling traditional securities that are registered on a blockchain.

To set the record straight, and provide much needed clarity, here is a condensed description of ICOs and their intended benefit. ICOs are an innovative means of capital formation. Issuers offer a securitization of user interest in an ecosystem as an investment to the general public. Assuming the issuer has reasonable token economics, then the greater the user interest in the ecosystem, and the utility of the underlying token, the more the value of such token should increase. It’s supply and demand, but the price is not reflected in the common stock; rather, it is reflected in the cryptographic token representing the user interest. 

What's In a Name? The Identity Crisis for Initial Coin Offerings
Aaron Kaplan

Furthermore, an ICO should have two key features:

1. It should be available to the general public, and

2. It should be able to freely trade on the secondary market when the token is issued.

The securities of ICOs to date have not and cannot achieve both those goals. Such securities are illiquid and only available to accredited investors/institutions.

As the industry matures through compliance with all relevant rules and regulations, I fear we are losing the spirit of ICOs, which some argue may not be sustainable under the FSLs.

Issue 1: Reg D/SAFT ICOs

The Filecoin Reg D token offering in mid-2017 was an important point for honoring the Federal Securities Laws. Reg D ICOs raise capital with proper offering documents (a requirement under the FSLs) by selling tokens that have proposed utility in an ecosystem. While such ICOs are legal by nature, companies conducting ICOs in a Reg D (or a SAFT) offering forgot how an ICO was supposed to function.

These Reg D and SAFT ICOs inherently contradict the spirit of an ICO- a token sale that should be open to all investors (both accredited and non-accredited), and freely trading in the secondary market. Reg D and SAFT issuers’ token sales are only open to accredited investors (i.e. wealthy individuals and institutions) and are restricted securities (meaning they can’t trade freely on the secondary market until the issuer files current public information and essentially registers such securities with the SEC).

What's In a Name? The Identity Crisis for Initial Coin Offerings

These issuers, while understanding that ICOs are securitizations of user interest, missed the mark. Their ICOs are illiquid and limit participation to the wealthy. Investors won’t have the ability to trade those tokens, and are stuck with illiquid (untradeable) securities that have the same issues as those associated with traditional venture funding – waiting for a buyout event or going public (which is extremely rare) before investors can realize a return on their investment.

Issue 2: ICOs vs. Traditional Securities Issued Over a Blockchain

Opportunistic companies are also trying to use the concept of an ICO, turning an innovative method of monetizing an ecosystem into a cheap marketing ploy. The most frustrating example of this practice are companies who say they are raising capital for an ICO, but in reality they are just issuing traditional equity or debt securities that are represented by a cryptographic token. These aren’t ICOs, but rather traditional securities registered (like a transfer agent’s log) over a blockchain. While many (including me) believe blockchain securities are the future of securities ownership, a preferred equity token is not an ICO. It is a traditional security that is issued over a blockchain.

What's In a Name? The Identity Crisis for Initial Coin OfferingsSecurities issued over a blockchain MUST be distinguished from ICOs. An appropriate definition of an ICO in 2018 is the following: an ICO is a securitization of user interest. It is not a debt or equity security, but rather a new type of security – an investment whose value is related to the user’s interest in an ecosystem and the utility of the actual token in that ecosystem. It is essential that the industry understands the difference.

In late March, a company tried to issue a blockchain security for a building. Such cryptographic tokens represent ownership in the building and trade over blockchain. That is a traditional Reg D security, and not an ICO. The company received news coverage for being the first company to sell interests in a building using a blockchain. However, many companies have sold interests in real property online. This company is doing the same thing – basically putting lipstick on a pig.

So how do we define an ICO?

ICOs are innovative ways to unleash/monetize potential value from the user interest in an ecosystem. ICO tokens represent a new type of security whose value is related to the user appetite in that ecosystem (daily average use, recurring use, etc.). Ideally, an ICO should be available to all types of investors (accredited and non-accredited) and be freely tradable when the underlying network goes live.

With ICOs officially coming under the FSLs regime, the industry should take a moment to reflect on what an ICO is and will be under the FSLs before it morphs from a genuine innovation into a marketing ploy.

This is an Op-ed article. The opinions expressed in this article are the author’s own. Bitcoin.com does not endorse nor support views, opinions or conclusions drawn in this post. Bitcoin.com is not responsible for or liable for any content, accuracy or quality within the Op-ed article. Readers should do their own due diligence before taking any actions related to the content. Bitcoin.com is not responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any information in this Op-ed article.


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