Think bitcoin is dead? Here's why it's making a ... - The Times of Israel
www.timesofisrael.com › Israel Inside
Jul 6, 2015 - So why is Israel's bitcoin community growing, and why are venture ... to Vitalik Buterin, the 21-year-old Russian-Canadian whiz kid who in 2013 ...Bitcoin and blockchain startups booming in Israel » Brave New Coin
https://bravenewcoin.com/news/bitcoin-and-blockchain-startups-booming-in-israel/
"Israel has the highest concentration of technical companies outside of Silicon Valley and the highest .... Regulation Awaits, Public Blockchain Not Wantedisrael, Vitalik Buterin,bitcoin fraud vs nasdaq 'public companies' coins securities exchange crowdfunding
https://www.bna.com/initial-coin-offerings-n73014453179/
An ICO is an offering of digital currency issued by a company rather than of conventional shares of equity. The company offers its own digital currency, created specifically for the ICO (an “altcoin,” short for “alternative currency,” a digital currency other than Bitcoin), directly to the public.
Advertising and releases of information occur on the company’s website and on online forums such as Bitcointalk and Reddit, with some offerings reported by cryptocurrency news websites. Investors purchase the altcoins with Bitcoins or other digital currency in most ICOs. Secondary markets for the altcoins exist on numerous digital currency exchanges, where altcoins can be bought and sold for Bitcoin, other altcoins, or fiat currency.
These characteristics have made ICOs especially useful to small blockchain startups. ...........
Any small startup familiar with digital currencies can create a digital currency, and selling them in ICOs has become a do-it-yourself method of raising capital. An ICO can serve a purpose similar to that of equity crowdfunding, as authorized in the U.S. by Title III of the JOBS Act and its implementing regulations issued by the Securities and Exchange Commission (SEC) in 2015.
The characteristics of ICOs also create downsides for offerors, however, since they result in regulatory uncertainty and lack of disclosure that have limited the appeal of ICOs outside of digital currency fanatics. An unresolved and looming issue has been whether the SEC will consider altcoins issued in ICOs to be securities and ICOs to be offerings of securities, which would subject ICOs to the requirements of the Securities Act of 1933 and secondary sales of their altcoins to those of the Securities Exchange Act of 1934.........................
Early funding from the ICO enabled the development of the Ethereum platform, which has become one of the leading platforms for development of blockchain applications by both startups and large established businesses. The Enterprise Ethereum Alliance, a nonprofit organization formed in March 2017 to facilitate the development of open source standards by Ethereum users, included Microsoft, Intel, JPMorgan Chase, Santander, and other leading technology and financial industry firms at its launch and has recently added 86 more members including Deloitte, the Illinois Department of Financial and Professional Regulation, ING, Mitsubishi UFJ Financial Group, National Bank of Canada, Samsung SDS, and Toyota Research Institute.
The largest ICO to date also involved Ethereum, but soon afterward it became the largest failure of an ICO. The fate of this ICO and the response to it demonstrate two significant problems inherent to ICOs and digital currency generally: the special vulnerability of blockchain-based financial transactions to cyberattack, and the arbitrary nature of the valuation of digital currency................
Israel's blockchain blockbuster - CNBC.com
www.cnbc.com/2017/06/16/israels-blockchain-blockbuster.html
Jun 16, 2017 - A record-setting round of fundraising by Israel-based blockchain startup Bancor ... chairman of the Israeli Bitcoin Association and a member of the ... in Israeli blockchain startup Colu with his VC company Aleph and now has ...
........................
http://www.cnbc.com/2017/06/16/israels-blockchain-blockbuster.html
A record-setting round of fundraising by Israel-based blockchain startup Bancor has focused international attention on the new and fast-moving technology in the country. Bancor on Monday (June 12) managed to gather around $150 million in what is called an ICO, an Initial Coin Offering, from a range of investors, accredited and non-accredited. It was one of the largest ICOs ever and was completed online in just a few hours.
Blockchain is a distributed and cryptographically secured database method best known for its use in Bitcoin and other more recent cryptocurrencies such as Ethereum's Ether. Bancor, which is still under development, sets out its business model in a 'white paper' on its website. Using its own tokens, it seeks to provide a method to easily switch between different cryptocurrencies, thus addressing the market's liquidity problems. It intends also to allow users to create tokens for use in their own projects, for example for their own ICO.
It's these virtual tokens that Bancor, which is registered in Switzerland, sold off this week to anyone who was interested. .........................................
..........................israel, Vitalik Buterin,bitcoin fraud vs nasdaq's, sec's 'public companies' coins securities exchange crowdfunding fraud
https://twitter.com/petertoddbtc/status/525609198764036098
Just watched Vitalik reading a Hebrew sign. Cyborg? Or human? (or totally normal eight year old kid?)
.....................................
The Uncanny Mind That Built Ethereum | WIRED
https://www.wired.com/2016/06/the-uncanny-mind-that-built-ethereum/
Jun 13, 2016 - Vitalik Buterin invented the world's hottest new cryptocurrency and inspired a ... For six months in 2013 he bounced around the world to Israel, ...
.........................
http://politicalandsciencerhymes.blogspot.com/2015/04/bitcoin-dea-agent-arrested.html
Bitcoin DEA Agent Arrested -Guns,Drugs,Thugs
.........................
http://politicalandsciencerhymes.blogspot.com/2015/04/bitcoin-dea-agent-arrested.html
Bitcoin DEA Agent Arrested -Guns,Drugs,Thugs
Bitcoin DEA Agent Arrestedd -Guns,Drugs,Thugs
http://arstechnica.com/tech-policy/2015/04/30/rogue-silk-road-dea-agent-arrested-with-go-bag-9mm-pistol/
http://arstechnica.com/tech-policy/2015/04/30/rogue-silk-road-dea-agent-arrested-with-go-bag-9mm-pistol/
Rogue Silk Road DEA agent arrested with “go bag,” 9mm pistol
Agent who aided Dread Pirate Roberts denied bail..............
Chain Changer: Behind The Scenes at Ethereum With Vitalik Buterin ...
www.coinspeaker.com/.../chain-changer-behind-scenes-ethereum-vitalik-buterin-frien...
May 28, 2017 - ... of the demographic of the organization that Vitalik Buterin co-founded, ... of the United States to Israel and another three thousand or so miles ...Vitalik Buterin About Ethereum, Smart Contracts, and Himself | ForkLog
forklog.net/vitalik-buterin-about-ethereum-smart-contracts-and-himself/
May 17, 2016 - This week, Vitalik Buterin visited Russia to participate in Ethereum Russia ... Eventually, he found himself in Israel, where he met lots of people ...Bitcoin in Israel, Part 3: Interview on Alternative Currencies — Bitcoin ...
https://bitcoinmagazine.com/.../bitcoin-in-israel-part-3-interview-on-alternative-curren...
Bitcoin in Israel, Part 3: Interview on Alternative Currencies. Alternative ... Vitalik Buterin: Ron, could you talk a little about your business, Bitblu? Ron Gross: ...Bitcoin in Israel: Interview with Meni Rosenfeld and Ron Gross, Part 2 ...
https://bitcoinmagazine.com/.../bitcoin-in-israel-interview-with-meni-rosenfeld-and-ro...
Oct 23, 2013 - Vitalik Buterin: So what as the original idea behind the Israeli Bitcoin Foundation-Ethereum Creator Vitalik Buterin Reflects on Lessons from The DAO ...
https://coinjournal.net › Altcoin News › Ethereum News
Feb 23, 2017 - Ethereum creator Vitalik Buterin was interviewed on the most recent episode of Epicenter. During the interview, Buterin was asked for his ...Meet Vitalik Buterin, the 20-Year-Old Who Is Decentralizing Everything ...
www.shareable.net/.../meet-vitalik-buterin-the-20-year-old-who-is-decentralizing-ever...
Jul 31, 2014 - Just before last New Year's, 19-year-old Vitalik Buterin, a Canadian ... OpenGarden is trying on their own, and I think some group in Israel is ...Bitcoin's Jewish Whiz Kid – The Forward
forward.com/news/193160/bitcoins-jewish-whiz-kid/
Feb 23, 2014 - In fact, Israel has emerged as a center of the Bitcoin universe — a .... Bitcoin in Israel, this is an interview with Vitalik Buterin (of Ethereum) on ...How To Invest In The Blockchain Without Buying Bitcoin - Nasdaq.com
www.nasdaq.com/.../how-to-invest-in-the-blockchain-without-buying-bitcoin-cm772...
Apr 11, 2017 - Currently, there are several publicly traded stocks in blockchain companies trading on ... On the Australian Stock Exchange, there is the blockchain startup DigitalX. ... The crowdfunding platform BnkToTheFuture, for example, allows investors to ... Invest in New Blockchain Projects' Initial Coin Offerings.Hacking Venture Capital - Making Millions With Initial Coin Offerings ...
ianbalina.com › Money Hacks
Jump to How ICOs Are Disrupting Venture Capital and Crowd Funding - The market capitalization of ... or digital currency, such as Bitcoin or Ethereum, and ... forced to give up shares in the company just ... before they can become public.startup-stock-exchange-now-accepts-bitcoin - CryptoCoinsNews
https://www.cryptocoinsnews.com/startup-stock-exchange-now-accepts-bitcoin/
Apr 24, 2014 - A new start-up exchange, the startup stock exchange, now accepts bitcoin in exchange for company shares via GoCoin. ... easier for these investors to participate on our global market and invest in our public Startups. ... the effectiveness of crowd-funding, with the liquidity and versatility of a stock exchange.Meet The 'Assassination Market' Creator Who's Crowdfunding Murder ...
www.forbes.com/.../meet-the-assassination-market-creator-whos-crowdfunding-murd...
Nov 18, 2013 - As Bitcoin becomes an increasingly popular form of digital cash, the ... Meet The 'Bitcoin Goes Public | Crowdability
www.crowdability.com/article/bitcoin-goes-public
Sep 17, 2015 - Mt. Gox used to be the largest bitcoin exchange on the planet. ... a New York-Easiest Path to Riches on the Web? An Initial Coin Offering
New York Times-20 hours ago
Known as initial coin offerings, this latest twist in online fund-raising has made it ... “It's exploitative and abusive of the investing public,” Preston Byrne, ... Bitcoin and Ether, two of the most popular virtual currencies, have soared in ... An official with the Securities and Exchange Commission suggested at a ...
Why people are going crazy over bitcoin and other digital currencies
Washington Post-Jun 14, 2017
That means it doesn't have physical bank notes or coins and is not issued by a government ... Similar to a company issuing stock for the first time through an initial public ... The regulator initially rejected the application in March, citing a lack of regulation in the exchanges that are used to buy and sell bitcoin.
Cryptocurrency Trading Volume Hits $4.3 Bln, Nears Stock ...
CoinTelegraph-May 28, 2017
Some investment firms including Fidelity Investments are actively ... Furthermore, similar to the initial public offerings (IPOs) of public companies, Blockchain startups and commercial companies such as Kik have been launching initial coin ... The Gnosis token was listed on major US-based Bitcoin exchange ...
Initial Coin Offerings: A Growing Method For Blockchain Startup ...
Bloomberg BNA-Jun 13, 2017
He previously worked for the Securities and Exchange Commission and the ... An ICO is an offering of digital currency issued by a company rather than of ... currency,” a digital currency other than Bitcoin), directly to the public.
Bitcoin move over - there's a new kid on the blockchain
ABC Online-May 30, 2017
Unlike the IPO (initial public offering) of a company in the share ... there and releasing coins on the market using open source software," Mr Sammartino said. ... and Exchange Commission] and ASIC [Australian Securities and ...
The curious case of the missing Mt. Gox bitcoin fortune
CyberScoop-Jun 21, 2017
The blockchain is the distributed public ledger that tracks all bitcoin ... They sell their software to governments, cryptocurrency exchanges and ... Kim Nilsson, a security researcher at WizSec who has investigated the ... If Levin was simply saying companies know the transactions in which the Mt. Gox coins ...
Demand For Bitcoin is Rapidly Rising in Swedish Stock Market ...
CoinTelegraph-May 30, 2017
The Winklevoss twins' Bitcoin ETF COIN was officially rejected by the SEC on ... firms and individual investors have been purchasing Bitcoin. ... Bitcoin's liquidity remains high in both public markets and exchange markets.
Dogecoin Creator Jackson Palmer Is Concerned About Ethereum's ...
Bitcoin Magazine-Jun 21, 2017
In addition to Havelock Investments, public offerings for investment ... after raising funds through various bitcoin-based stock exchanges. ... “They launched a coin that was literally just a token to facilitate their Ponzi scheme,” said Palmer. ... so if these companies are raising $150 million in ether, that's locking ...
Blockchain Crowdfunding Is Attracting Hundreds Of Millions Of ...
Coin Idol (press release)-Jun 22, 2017
Coin Idol (press release)-Jun 22, 2017
4 Ways To Trade Bitcoin
Benzinga-Jun 13, 2017
For traders starting from scratch, here are four ways to trade bitcoin. ... ETF (COIN), were rejected by the Securities and Exchange Commission earlier this ... and opened the door for public comments on the original rejection. ... There are a handful of companies that are invested or involved with bitcoin or the ...
.................................
Easiest Path to Riches on the Web? An Initial Coin Offering
New York Times-20 hours ago
Known as initial coin offerings, this latest twist in online fund-raising has made ... But where some see a new method of crowdfunding online projects, critics ... Bitcoin and Ether, two of the most popular virtual currencies, have soared ... An official with the Securities and Exchange Commission suggested at a ...
Initial Coin Offerings: A Growing Method For Blockchain Startup ...
Bloomberg BNA-Jun 13, 2017
He previously worked for the Securities and Exchange Commission and the Department ... An ICO is an offering of digital currency issued by a company rather than of ... currency,” a digital currency other than Bitcoin), directly to the public. ... An ICO can serve a purpose similar to that of equity crowdfunding, ...
Blockchain Crowdfunding Is Attracting Hundreds Of Millions Of ...
Coin Idol (press release)-Jun 22, 2017
An ICO is a blockchain-powered crowdfunding campaign. ... In this instance, funding is most likely to come in the form of bitcoin or other cryptocurrencies. ... create their own tokens and trade them on a peer-to-peer exchange, as well ... the Cross Coin company in Singapore, managing Starta ICO campaign.
Can blockchain transform the world? 8 influencers weigh in on its ...
JAXenter-Jun 22, 2017
Can the technology behind Bitcoin transform the world or should we take it ... at IBM, responsible for bringing IBM Blockchain products to market. ... Stephen DeMeulenaere is one of the founders of Coin Academy. ... public or provide to companies in a more transactional manner than is currently the case.
Welcome to the Age of ICOs
Bitcoin Magazine-Jun 2, 2017
This new model of funding is called an initial coin offering, or ICO. ... ICOs function as a hybrid model of stock IPOs and crowdfunding ... Instead of a stock, these innovations offer cryptocurrency-based tokens to the public, specific to their ... In exchange for tokens, businesses generally receive either bitcoin ...
Blockchain in France: A Primer on an Emerging Market
CoinDesk-Jun 18, 2017
More recently, the Public Treasury has launched a public consultation ... an inter-company 'immediate' payment service, or the crowdfunding project mentioned above. ... and is known for the quality and security of its hardware wallets. ... €12m in less than three hours through an initial coin offering, or ICO.
The SEC in the US is scrutinising Initial Coin Offerings: report
MediaNama.com-Jun 15, 2017
The United States Securities and Exchange Commission (SEC) is ... financial instruments had pushed the value of bitcoins to $2,911.86 on Tuesday. The ICO is the cryptocurrency analogy for the Initial Public Offering. In an ICO investors get virtual coins or tokens instead of a share in a company or fund.
Inside the fundraising model that's about to open up a $1 Billion ...
Brave New Coin-May 30, 2017
Reddit Brave New Coin ... As Bitcoin dipped below $200 generalist VCs looked to other industries ... Enter the ICO, a crowdfund-based bridge that connects a previously disjointed ... By that time, those public companies must adhere to strict ... as defined by the Securities and Exchange Commission (SEC).
Bitcoin Experts to Congress: Overseas Exchanges Are Enabling ...
CoinDesk-Jun 9, 2017
Bitcoin Experts to Congress: Overseas Exchanges Are Enabling Cybercrime ... to explore the national security implications of new financial innovations. ... that only one verifiable public case of crowdfunding by a known terrorist ... in reality it's far from anonymous, and companies like Elliptic have assisted ...
Ether Thief Remains Mystery Year After $55 Million Digital Heist
Bloomberg-Jun 13, 2017
Rather than moving bitcoin from one user to another, the ethereum ... say, or ensure that pharmaceutical companies can authenticate the sources of their drugs. ... the DAO hack exposed the early frailties of smart-contract security and ... From April 30 to May 28, the DAO crowdfunding pulled in $150 million.
.............................
https://www.bna.com/initial-coin-offerings-n73014453179/
By Robert Kim
Robert Kim is a Legal Editor with Bloomberg BNA. He previously worked for the Securities and Exchange Commission and the Department of the Treasury's Financial Crimes Enforcement Network.
In 2017 there has been a rise in publicity on so-called “ICOs” (Initial Coin Offerings), a method for raising capital used by blockchain startups. These fundraising campaigns, whose name indicates their passing resemblance to IPOs, are sales of digital currency made directly to the public, using blockchain technology to bypass conventional capital markets and regulatory systems and requirements.
They are comparable to the use of blockchain technology for Bitcoin and other digital currencies, which bypass conventional financial institutions and fiat currencies. Like digital currencies in 2013-14, ICOs are currently growing in usage and public attention. They also carry considerable risk of frothiness and fraud and the likelihood of increasing regulator attention.
Advertising and releases of information occur on the company’s website and on online forums such as Bitcointalk and Reddit, with some offerings reported by cryptocurrency news websites. Investors purchase the altcoins with Bitcoins or other digital currency in most ICOs. Secondary markets for the altcoins exist on numerous digital currency exchanges, where altcoins can be bought and sold for Bitcoin, other altcoins, or fiat currency.
These characteristics have made ICOs especially useful to small blockchain startups. For startups unable to find an angel investor or venture capital firm interested in their business plans, and far from being able to consider the effort and costs of an IPO, with disclosure requirements and other obligations under securities laws and regulations, an ICO may be the best alternative.
Any small startup familiar with digital currencies can create a digital currency, and selling them in ICOs has become a do-it-yourself method of raising capital. An ICO can serve a purpose similar to that of equity crowdfunding, as authorized in the U.S. by Title III of the JOBS Act and its implementing regulations issued by the Securities and Exchange Commission (SEC) in 2015.
The characteristics of ICOs also create downsides for offerors, however, since they result in regulatory uncertainty and lack of disclosure that have limited the appeal of ICOs outside of digital currency fanatics. An unresolved and looming issue has been whether the SEC will consider altcoins issued in ICOs to be securities and ICOs to be offerings of securities, which would subject ICOs to the requirements of the Securities Act of 1933 and secondary sales of their altcoins to those of the Securities Exchange Act of 1934. Companies conducting ICOs have sought to avoid U.S. securities regulation by registering in foreign jurisdictions, among the most popular being Singapore, one of the first jurisdictions to adopt a regulatory sandbox and other regulatory relief initiatives for fintech companies, and Switzerland, whose “Crypto Valley” is a major center of blockchain startups, but foreign registration does not exempt offerors of securities to U.S. persons. Some have structured ICOs to fit within U.S. securities law exemptions, such as the Regulation D exemption for accredited investors and the Regulation S exemption for offshore investors. Regardless of legal status, disclosure in ICOs generally has been limited and lacking verification by disinterested parties.
As a result, liquidity in the market for ICOs has been limited, and ICOs have mostly been small. Before 2017, most ICOs were measured in thousands of dollars, and an ICO raising single digit millions of dollars was considered large.
The first ICO, which issued the altcoin Mastercoin, raised approximately $600,000 (5,122.08613664 Bitcoins) for a project to create a Bitcoin exchange and platform for other transactions. ICOs raised an estimated $25 million in 2014, then fell to $10 million in 2015 after the collapse of the price of Bitcoin in 2014. In 2016, ICOs rose to an estimated $225 million, after a resurgence in the price of Bitcoin and a surge in interest in blockchain and Fintech. (These figures are from the research firm Smith + Crown.)
A landmark ICO was that of Ethereum in 2014. The second largest ICO to date, it provided startup funding for the development of the Ethereum platform that has become a significant factor in the market for development of business blockchain applications. Ethereum originated from a white paper published in late 2013 by 19 year old Russian-born programmer Vitalik Buterin, who had dropped out of a university in Canada after receiving a Thiel Fellowship. The white paper proposed the use of blockchain for smart contracts, decentralized autonomous organizations (DAOs), and other applications beyond the initial usage for Bitcoin. Ethereum incorporated in early 2014 as Ethereum Switzerland GmbH and conducted an ICO issuing the altcoin Ether (ETH) from July 20-September 2, 2014, raising approximately $18.4 million (31,529.49 Bitcoins), the largest amount raised by an ICO up to then.
Early funding from the ICO enabled the development of the Ethereum platform, which has become one of the leading platforms for development of blockchain applications by both startups and large established businesses. The Enterprise Ethereum Alliance, a nonprofit organization formed in March 2017 to facilitate the development of open source standards by Ethereum users, included Microsoft, Intel, JPMorgan Chase, Santander, and other leading technology and financial industry firms at its launch and has recently added 86 more members including Deloitte, the Illinois Department of Financial and Professional Regulation, ING, Mitsubishi UFJ Financial Group, National Bank of Canada, Samsung SDS, and Toyota Research Institute.
The largest ICO to date also involved Ethereum, but soon afterward it became the largest failure of an ICO. The fate of this ICO and the response to it demonstrate two significant problems inherent to ICOs and digital currency generally: the special vulnerability of blockchain-based financial transactions to cyberattack, and the arbitrary nature of the valuation of digital currency.
In April-May 2016, an Ethereum-based project called The DAO conducted an ICO to capitalize what was intended to be an investment fund without a manager, in which all investors would participate directly in investment decisions using The DAO’s Ethereum blockchain application to communicate and coordinate – a DAO, as envisioned by Ethereum’s founder. The ICO raised approximately $150 million, the most by far of any ICO to date and approximately two-thirds of the estimated volume of ICOs in 2016. The funds raised represented approximately 15 percent of the then-market value of Ether in circulation, an indication of the significance of the project to Ethereum investors and adopters. Problems soon emerged by mid-June 2016 after a hacker exploited a software vulnerability in the smart contract of The DAO and succeeded in stealing over $40 million (3.6 million Ether) from The DAO. The theft brought the project to a halt and caused the value of Ether to plummet from over $19 to below $12 in four days.
Since Ethereum was a significant venture whose digital currency was at the time second largest in total market value behind only Bitcoin, it undertook corrective action to enable investors in The DAO to recover their funds. In July 2016, Ethereum executed what was called a “hard fork,” which replaced the original Ethereum blockchain with a new blockchain which reversed the theft. The original blockchain remained in existence, however, and many continue to consider it to have value and hold and trade it under the name Ethereum Classic. The “hard fork” split the Ethereum community and a minority of the community continue to support Ethereum Classic and give it value. The original Ethereum continuing to have market value even after its creators discontinued it is an extreme example of the arbitrary nature of digital currencies and their valuation, already demonstrated by the more widely known wild volatility of Bitcoin in 2013-17 .
Despite the issues demonstrated by The DAO, ICOs surged in 2016 and have advanced further in 2017. As of mid-May, ICOs raised more than $150 million in 2017, according to Smith + Crown. Moreover, more established and sophisticated issuers and investors have become involved in them in 2017.
Blockchain Capital, a small venture capital firm founded in 2013 that specializes in blockchain projects, used an ICO to capitalize a new investment fund in April 2017. Blockchain Capital conducted a $10 million sale of an Ethereum-based digital currency named BCAP on April 10, to fund the Blockchain Capital III Digital Liquid Venture Fund, named for the ability of investors to liquidate their investments by selling BCAP through digital currency exchanges. Showing a higher level of awareness of U.S. securities laws and regulations than most predecessors, Blockchain Capital designed its offering to ensure that it would be exempt from registration with the SEC, making it to U.S. investors under Regulation D and to offshore investors under Regulation S.
Tezos, started in 2014 to create a blockchain competing with Ethereum by Arthur Breitman and Kathleeen Breitman, formerly of Goldman Sachs, Morgan Stanley and Bridgewater Associates, is planning an ICO after already obtaining venture capital funding several months earlier. Polychain Capital, an investment fund focused on blockchain ventures started in 2016 that received $10 million in funding from Andreessen Horowitz and Union Square Ventures in December 2016, announced an investment in Tezos in February 2017. Tezos then planned an ICO of its digital currency Tez (XTZ) which was scheduled to launch on May 22.
Venture capitalist Tim Draper of Draper Fisher Jurvetson and Draper Athena, an early investor in Skype, Baidu and other successful tech startups announced in early May that he would participate in the ICO as a purchaser of Tez, an announcement that generated considerable media attention. Tezos announced on May 22 that it was delaying its ICO until June because of issues created by overwhelming demand at the regulatory authority of the Switzerland-registered Tezos Foundation, so the results of this ICO remain to be determined.
As a result of these trends, ICOs have placed high valuations on some startup companies that appear arbitrary and disconnected from any actual economic value of the startup – classic behavior in a bubble. For example, these ICOs in the second quarter of 2017 each raised over $10 million in a single day for a company with a questionable value proposition, with the amounts raised escalating:
Possibly further increasing valuation risks in some ICOs is that the value of a digital currency does not always correlate to the value of a company and its blockchain. Altcoins issued in ICOs are not shares of ownership in the company, like conventional equity, and they vary considerably in how they relate to the company and its blockchain, as shows by the examples of Gnosis and Aragon. The impacts of variations in equity ownership structures are familiar and understood, but how variations in digital currencies relate to their worth is a risk factor that is new and not well understood.
The apparent frothiness has occurred while conventional investments in blockchain startups have risen. Venture capital investments and acquisitions by technology giants such as IBM and Microsoft and large international banks such as JPMorgan Chase and Santander are making ICOs less necessary for many startups with commercially viable projects. This trend may make ICOs attractive more to startups on the fringes of digital currency fanaticism and economic viability, with a high likelihood for value destruction.
To address the regulatory uncertainty surrounding digital currency and blockchain technology, in March 2017 a broker-dealer/fintech company submitted a request to the SEC that it clarify its position on the regulation of issuers of digital currency that may be deemed to be securities. The SEC has not yet responded to this request.
Blockchain startup companies generally are aware of the possibility of regulatory scrutiny of ICOs. As a result, digital currency issuers often avoid calling their actions ICOs and instead call them “crowdfunding,” “token sales,” “presales” or other names that do not suggest activity similar to that of regulated financial institutions. Mere terminology would not protect them from scrutiny in the event of interest from the SEC or other regulators, however, so taking into account U.S. securities laws continues to be a necessity whenever U.S. persons are either issuers or buyers in an ICO.
Startup companies using ICOs have only begun to figure out their regulatory risks and how to address them. In April 2017, Blockchain Capital used the approach of designing its ICO to make it eligible for the Regulation D and Regulation S exemptions to the Securities Act of 1933. The applicability of these exemptions and other provisions of the securities laws and regulations to differently structured offerings remains to be determined.
How ICO issuers address the possibility of regulatory scrutiny, and how they and buyers react to the market correction that is likely to be inevitable, will in large part determine whether ICOs become a significant factor in raising capital for technology startups or prove to be a fringe and possibly short-lived development. As long as the risk that digital currency may be considered to be securities exists, issuers of digital currency in ICOs will have to take precautions in order not to risk potential liability under the securities laws of the U.S. and other countries. Moreover, ICOs have yet to demonstrate that they can raise large amounts of capital without the currently rising and apparently artificially high valuations of Bitcoin, Ethereum and other digital currencies used in them. The resolution of these issues will determine whether ICOs end up being a short-term fad or a long-term development.
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
.............................
https://www.bna.com/initial-coin-offerings-n73014453179/
Initial Coin Offerings: A Growing Method For Blockchain Startup Financing
All Banking Law, All in One Place. Bloomberg Law: Banking is the comprehensive research solution that powers your practice with access to integrated banking-related legal news, analysis,...
Digital Currency
By Robert Kim Robert Kim is a Legal Editor with Bloomberg BNA. He previously worked for the Securities and Exchange Commission and the Department of the Treasury's Financial Crimes Enforcement Network.
In 2017 there has been a rise in publicity on so-called “ICOs” (Initial Coin Offerings), a method for raising capital used by blockchain startups. These fundraising campaigns, whose name indicates their passing resemblance to IPOs, are sales of digital currency made directly to the public, using blockchain technology to bypass conventional capital markets and regulatory systems and requirements.
They are comparable to the use of blockchain technology for Bitcoin and other digital currencies, which bypass conventional financial institutions and fiat currencies. Like digital currencies in 2013-14, ICOs are currently growing in usage and public attention. They also carry considerable risk of frothiness and fraud and the likelihood of increasing regulator attention.
Also available on Bloomberg Law
Bloomberg Law®, an integrated legal research and business intelligence solution, combines trusted news and analysis with cutting-edge technology to provide legal professionals tools to be proactive advisors.Characteristics of ICOs
An ICO is an offering of digital currency issued by a company rather than of conventional shares of equity. The company offers its own digital currency, created specifically for the ICO (an “altcoin,” short for “alternative currency,” a digital currency other than Bitcoin), directly to the public.Advertising and releases of information occur on the company’s website and on online forums such as Bitcointalk and Reddit, with some offerings reported by cryptocurrency news websites. Investors purchase the altcoins with Bitcoins or other digital currency in most ICOs. Secondary markets for the altcoins exist on numerous digital currency exchanges, where altcoins can be bought and sold for Bitcoin, other altcoins, or fiat currency.
These characteristics have made ICOs especially useful to small blockchain startups. For startups unable to find an angel investor or venture capital firm interested in their business plans, and far from being able to consider the effort and costs of an IPO, with disclosure requirements and other obligations under securities laws and regulations, an ICO may be the best alternative.
Any small startup familiar with digital currencies can create a digital currency, and selling them in ICOs has become a do-it-yourself method of raising capital. An ICO can serve a purpose similar to that of equity crowdfunding, as authorized in the U.S. by Title III of the JOBS Act and its implementing regulations issued by the Securities and Exchange Commission (SEC) in 2015.
The characteristics of ICOs also create downsides for offerors, however, since they result in regulatory uncertainty and lack of disclosure that have limited the appeal of ICOs outside of digital currency fanatics. An unresolved and looming issue has been whether the SEC will consider altcoins issued in ICOs to be securities and ICOs to be offerings of securities, which would subject ICOs to the requirements of the Securities Act of 1933 and secondary sales of their altcoins to those of the Securities Exchange Act of 1934. Companies conducting ICOs have sought to avoid U.S. securities regulation by registering in foreign jurisdictions, among the most popular being Singapore, one of the first jurisdictions to adopt a regulatory sandbox and other regulatory relief initiatives for fintech companies, and Switzerland, whose “Crypto Valley” is a major center of blockchain startups, but foreign registration does not exempt offerors of securities to U.S. persons. Some have structured ICOs to fit within U.S. securities law exemptions, such as the Regulation D exemption for accredited investors and the Regulation S exemption for offshore investors. Regardless of legal status, disclosure in ICOs generally has been limited and lacking verification by disinterested parties.
As a result, liquidity in the market for ICOs has been limited, and ICOs have mostly been small. Before 2017, most ICOs were measured in thousands of dollars, and an ICO raising single digit millions of dollars was considered large.
The Rise, Fall, and Rise of ICOs
The first ICO occurred in August 2013, during the period when Bitcoin first rose in price to over $200 and emerged as a subject of mainstream media attention, and the use of ICOs has risen and fallen following the value of Bitcoin and the trendiness of investing in blockchain ventures.The first ICO, which issued the altcoin Mastercoin, raised approximately $600,000 (5,122.08613664 Bitcoins) for a project to create a Bitcoin exchange and platform for other transactions. ICOs raised an estimated $25 million in 2014, then fell to $10 million in 2015 after the collapse of the price of Bitcoin in 2014. In 2016, ICOs rose to an estimated $225 million, after a resurgence in the price of Bitcoin and a surge in interest in blockchain and Fintech. (These figures are from the research firm Smith + Crown.)
A landmark ICO was that of Ethereum in 2014. The second largest ICO to date, it provided startup funding for the development of the Ethereum platform that has become a significant factor in the market for development of business blockchain applications. Ethereum originated from a white paper published in late 2013 by 19 year old Russian-born programmer Vitalik Buterin, who had dropped out of a university in Canada after receiving a Thiel Fellowship. The white paper proposed the use of blockchain for smart contracts, decentralized autonomous organizations (DAOs), and other applications beyond the initial usage for Bitcoin. Ethereum incorporated in early 2014 as Ethereum Switzerland GmbH and conducted an ICO issuing the altcoin Ether (ETH) from July 20-September 2, 2014, raising approximately $18.4 million (31,529.49 Bitcoins), the largest amount raised by an ICO up to then.
Early funding from the ICO enabled the development of the Ethereum platform, which has become one of the leading platforms for development of blockchain applications by both startups and large established businesses. The Enterprise Ethereum Alliance, a nonprofit organization formed in March 2017 to facilitate the development of open source standards by Ethereum users, included Microsoft, Intel, JPMorgan Chase, Santander, and other leading technology and financial industry firms at its launch and has recently added 86 more members including Deloitte, the Illinois Department of Financial and Professional Regulation, ING, Mitsubishi UFJ Financial Group, National Bank of Canada, Samsung SDS, and Toyota Research Institute.
The largest ICO to date also involved Ethereum, but soon afterward it became the largest failure of an ICO. The fate of this ICO and the response to it demonstrate two significant problems inherent to ICOs and digital currency generally: the special vulnerability of blockchain-based financial transactions to cyberattack, and the arbitrary nature of the valuation of digital currency.
In April-May 2016, an Ethereum-based project called The DAO conducted an ICO to capitalize what was intended to be an investment fund without a manager, in which all investors would participate directly in investment decisions using The DAO’s Ethereum blockchain application to communicate and coordinate – a DAO, as envisioned by Ethereum’s founder. The ICO raised approximately $150 million, the most by far of any ICO to date and approximately two-thirds of the estimated volume of ICOs in 2016. The funds raised represented approximately 15 percent of the then-market value of Ether in circulation, an indication of the significance of the project to Ethereum investors and adopters. Problems soon emerged by mid-June 2016 after a hacker exploited a software vulnerability in the smart contract of The DAO and succeeded in stealing over $40 million (3.6 million Ether) from The DAO. The theft brought the project to a halt and caused the value of Ether to plummet from over $19 to below $12 in four days.
Since Ethereum was a significant venture whose digital currency was at the time second largest in total market value behind only Bitcoin, it undertook corrective action to enable investors in The DAO to recover their funds. In July 2016, Ethereum executed what was called a “hard fork,” which replaced the original Ethereum blockchain with a new blockchain which reversed the theft. The original blockchain remained in existence, however, and many continue to consider it to have value and hold and trade it under the name Ethereum Classic. The “hard fork” split the Ethereum community and a minority of the community continue to support Ethereum Classic and give it value. The original Ethereum continuing to have market value even after its creators discontinued it is an extreme example of the arbitrary nature of digital currencies and their valuation, already demonstrated by the more widely known wild volatility of Bitcoin in 2013-17 .
Despite the issues demonstrated by The DAO, ICOs surged in 2016 and have advanced further in 2017. As of mid-May, ICOs raised more than $150 million in 2017, according to Smith + Crown. Moreover, more established and sophisticated issuers and investors have become involved in them in 2017.
Blockchain Capital, a small venture capital firm founded in 2013 that specializes in blockchain projects, used an ICO to capitalize a new investment fund in April 2017. Blockchain Capital conducted a $10 million sale of an Ethereum-based digital currency named BCAP on April 10, to fund the Blockchain Capital III Digital Liquid Venture Fund, named for the ability of investors to liquidate their investments by selling BCAP through digital currency exchanges. Showing a higher level of awareness of U.S. securities laws and regulations than most predecessors, Blockchain Capital designed its offering to ensure that it would be exempt from registration with the SEC, making it to U.S. investors under Regulation D and to offshore investors under Regulation S.
Tezos, started in 2014 to create a blockchain competing with Ethereum by Arthur Breitman and Kathleeen Breitman, formerly of Goldman Sachs, Morgan Stanley and Bridgewater Associates, is planning an ICO after already obtaining venture capital funding several months earlier. Polychain Capital, an investment fund focused on blockchain ventures started in 2016 that received $10 million in funding from Andreessen Horowitz and Union Square Ventures in December 2016, announced an investment in Tezos in February 2017. Tezos then planned an ICO of its digital currency Tez (XTZ) which was scheduled to launch on May 22.
Venture capitalist Tim Draper of Draper Fisher Jurvetson and Draper Athena, an early investor in Skype, Baidu and other successful tech startups announced in early May that he would participate in the ICO as a purchaser of Tez, an announcement that generated considerable media attention. Tezos announced on May 22 that it was delaying its ICO until June because of issues created by overwhelming demand at the regulatory authority of the Switzerland-registered Tezos Foundation, so the results of this ICO remain to be determined.
Risks of ICOs
The rise in ICO investments and publicity about them has begun to evoke comparisons to the 1999-2000 dotcom bubble, but that concern may greatly understate their risks. The overvalued IPOs of that period had at least some grounding in existing financial industry business practices and securities laws and regulations, while ICOs fundamentally depart from them. As a result, ICOs have recapitulated the risks that the U.S. financial industry has spent over 80 years addressing since the Securities Act of 1933, with additional risks created by their unique characteristics. They include:Frothiness
The rapid rise in ICOs in 2016-17 shows some of the typical characteristics of a bubble, with a rising pool of assets chasing investments whose actual value often is difficult to determine and may often prove to be nonexistent. Two trends have converged during this period to drive up the number of ICOs and the assets invested in them:- Rising interest in blockchain technology development in the financial industry and other economic sectors, accompanied by regulatory sandboxes and other regulatory relief initiatives in the United Kingdom, Singapore, and other jurisdictions, has increased the number of blockchain startup companies seeking funding for the early stages of their development.
- Bitcoin and other digital currencies rose in market value, increasing the value of assets likely to be invested in blockchain startup ICOs. The market price of Bitcoin rose from below $450 to over $1,000 from January 1, 2016 to March 31, 2017. Ether, despite the crisis and “hard fork” resulting from The DAO, rose in market price from 95 cents to over $45 per Ether during the same period. Each has soared further since March 31, with Bitcoin exceeding $2,400 and Ether rising above $220 by June 1. These rising values, possibly bubbles themselves, have greatly inflated the dollar-denominated value held in digital currencies that is likely to be re-invested in blockchain startup company ICOs.
As a result of these trends, ICOs have placed high valuations on some startup companies that appear arbitrary and disconnected from any actual economic value of the startup – classic behavior in a bubble. For example, these ICOs in the second quarter of 2017 each raised over $10 million in a single day for a company with a questionable value proposition, with the amounts raised escalating:
- Gnosis, on April 17, raised $12,250,000 for development of an Ethereum-based platform for prediction markets, selling Gnosis tokens (GNO) whose purpose is to generate Wisdom tokens (WIZ) by locking GNO tokens into a smart contract, with the Gnosis platform to accept payments in WIZ, Ether and Bitcoin.
- Aragon, on May 17, raised $24,750,000 for development of an Ethereum-based system for managing decentralized organizations in a decentralized jurisdiction, that will “disintermediate the creation and maintenance of companies and other organizational structures” and eliminate “intermediaries and third parties such as governments” that “decrease the output of those organizations by imposing restrictions and creating complex regulatory frameworks.” Aragon Network Token (ANT) holders will be able to participate in decision-making by the Aragon DAO.
- Basic Attention Token, on May 31, raised $35 million in under 30 seconds for an Ethereum-based digital advertising platform, using Basic Attention Tokens (BATs) as tokens for obtaining services on the platform.
Possibly further increasing valuation risks in some ICOs is that the value of a digital currency does not always correlate to the value of a company and its blockchain. Altcoins issued in ICOs are not shares of ownership in the company, like conventional equity, and they vary considerably in how they relate to the company and its blockchain, as shows by the examples of Gnosis and Aragon. The impacts of variations in equity ownership structures are familiar and understood, but how variations in digital currencies relate to their worth is a risk factor that is new and not well understood.
The apparent frothiness has occurred while conventional investments in blockchain startups have risen. Venture capital investments and acquisitions by technology giants such as IBM and Microsoft and large international banks such as JPMorgan Chase and Santander are making ICOs less necessary for many startups with commercially viable projects. This trend may make ICOs attractive more to startups on the fringes of digital currency fanaticism and economic viability, with a high likelihood for value destruction.
Fraud
ICOs have unsurprisingly proven to be subject to the same flaws of human behavior that gave rise to the characteristics of existing financial markets and their regulations. Lack of disclosure and reliable information is a significant issue, with offerings announced and advertised on unsupervised online forums in which potential buyers can have little confidence in the reliability of information. Fraud has inevitably become part of the ICO market, with accusations of inaccurate information and false promises following some ICOs. As a result, there has been at least one instance of a digital currency exchange emulating a stock or commodity exchange by “delisting” an issuer accused of fraud.Cybersecurity
Cybersecurity, of increasing concern to all businesses, is an especially significant problem for ICOs. The ICO of The DAO is the most noteworthy example, involving the loss of approximately $40 million worth of digital currency and an existential crisis for Ethereum as a result of security weaknesses in the smart contact of The DAO, not in the Ethereum platform itself. The lesson of this experience may be that ICOs avoided exploitation of their vulnerabilities while they were small, but becoming large enough to be worth the attention of cyber criminals makes their inherent reliance on technology into a potentially significant liability that requires a high level of security precautions and auditing that will drive up the cost of larger ICOs.Regulatory Risk
Regulatory risk is a further concern for ICOs. ICOs have not been the subject of any actions by the SEC or other regulators, but scrutiny by regulators in the United States or abroad is likely, especially if ICOs continue to grow in scale or cases of alleged fraud emerge. ICO sales of digital currency may fall under the Securities Act of 1933, and the ability to resell them on digital currency exchanges could invoke the Securities Exchange Act of 1934. The Investment Advisers Act and Investment Company Act of 1940 may be relevant in the event of investment company involvement in ICOs. The SEC and FINRA, among others, have issuedwarnings about the risks of investments in Bitcoin and other digital currencies; , and they and other regulatory and law enforcement agencies may decide to focus on ICOs if they become a significant part of the market for investments and a triggering event occurs. Companies issuing digital currency in ICOs, digital currency exchanges, and investment companies attempting to invest in ICOs all could become subject to regulatory and enforcement action.To address the regulatory uncertainty surrounding digital currency and blockchain technology, in March 2017 a broker-dealer/fintech company submitted a request to the SEC that it clarify its position on the regulation of issuers of digital currency that may be deemed to be securities. The SEC has not yet responded to this request.
Blockchain startup companies generally are aware of the possibility of regulatory scrutiny of ICOs. As a result, digital currency issuers often avoid calling their actions ICOs and instead call them “crowdfunding,” “token sales,” “presales” or other names that do not suggest activity similar to that of regulated financial institutions. Mere terminology would not protect them from scrutiny in the event of interest from the SEC or other regulators, however, so taking into account U.S. securities laws continues to be a necessity whenever U.S. persons are either issuers or buyers in an ICO.
Startup companies using ICOs have only begun to figure out their regulatory risks and how to address them. In April 2017, Blockchain Capital used the approach of designing its ICO to make it eligible for the Regulation D and Regulation S exemptions to the Securities Act of 1933. The applicability of these exemptions and other provisions of the securities laws and regulations to differently structured offerings remains to be determined.
How ICO issuers address the possibility of regulatory scrutiny, and how they and buyers react to the market correction that is likely to be inevitable, will in large part determine whether ICOs become a significant factor in raising capital for technology startups or prove to be a fringe and possibly short-lived development. As long as the risk that digital currency may be considered to be securities exists, issuers of digital currency in ICOs will have to take precautions in order not to risk potential liability under the securities laws of the U.S. and other countries. Moreover, ICOs have yet to demonstrate that they can raise large amounts of capital without the currently rising and apparently artificially high valuations of Bitcoin, Ethereum and other digital currencies used in them. The resolution of these issues will determine whether ICOs end up being a short-term fad or a long-term development.
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
No comments:
Post a Comment