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Should Cryptocurrencies Be Regulated like Securities?
By Diego Zuluaga
June 25, 2018
The rise of ICOs has raised the question of whether cryptocurrencies are securities.
Regulating cryptocurrencies as securities would affect who can buy, hold, deal in, and keep custody of cryptocurrencies, and require varying disclosures.
Regulatory uncertainty is chilling innovation and increasing volatility in cryptocurrency markets.
Regulators should provide clarity on how cryptocurrencies fit within existing laws by adopting a framework that makes a distinction between functional cryptocurrencies, such as bitcoin, which are not securities, and promises of cryptocurrencies, which may in some cases be securities.
Securities regulations should only apply to promises of cryptocurrencies that are marketed as investments and tradable on secondary markets before they are functional: those that meet the Howey test legal precedent for determining a security.
In less than a decade, cryptocurrencies have moved from the fringes of financial market activity to a $300 billion asset class traded on exchanges and owned by mainstream investors.1 The technology underlying Bitcoin and Ethereum has spawned more than 1,600 new platforms designed to compete with established providers.2
Yet a great deal of regulatory uncertainty still surrounds cryptocurrencies. An unresolved question that has recently gained prominence with the advent of ICOs (initial coin offerings) is whether new issues of cryptocurrency are disguised securities offerings operating outside of applicable laws.3 For example, one former regulator from the Commodity Futures Trading Commission (CFTC) has suggested that the second-most-popular cryptocurrency, Ethereum, is a security to which securities regulations should apply retroactively.4 However, this view has been recently contradicted by a top official at the Securities and Exchange Commission (SEC), who stated that the decentralized nature of the Ethereum network means its cryptocurrency does not fit the established definition of a security.5
Whether cryptocurrencies are securities affects who can buy and hold them, who can deal in them and keep custody of them, and what disclosure laws pertain to them. An overzealous application of securities laws to cryptocurrencies could raise barriers to investor access and capital formation, which would have a chilling effect on the development of cryptocurrency technology and markets. As a sitting regulator recently warned, cryptocurrencies’ many novel features can lead policymakers to focus excessively on their potential harm rather than on their likely benefits.6
A clear, reasonable, and appropriate definition of what qualifies as a security would allow the market for cryptocurrencies to develop while also enabling securities regulators to properly fulfill their mission to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation.7
This paper discusses how cryptocurrencies fit established regulatory practice as well as the negative consequences of excessive regulation of cryptocurrencies. It puts cryptocurrency volatility in the context of business and regulatory uncertainty. Finally, it proposes a framework to provide greater regulatory certainty to market participants and enable the growth of this new technology while fulfilling the policy objectives of the relevant regulatory agencies.
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How Cryptocurrencies Work
Bitcoin, the world’s first cryptocurrency, is the basis of a decentralized payments network.8 Traditionally, a payment going from A to B has required a central intermediary to collect the funds from A and pass them on to B. Bitcoin has no such intermediary, relying instead on profit-seeking users to confirm transactions. In exchange for using their computing resources to help verify that a transaction is truthful, these users (called “miners”) receive a transaction fee and newly generated bitcoins.9
Other cryptocurrencies use variations of this peer-to-peer incentive system to make exchange possible without a central counterparty. The crucial feature these currencies share is their reliance on a scarce digital token to carry out transactions and reward miners for validating them. Bitcoin is the token of the Bitcoin network, ether is the token of the Ethereum network, and so on. All cryptocurrencies are digital tokens.
Another feature common to cryptocurrencies is the use of a blockchain: a public ledger that contains the history of all transactions made in a cryptocurrency. The term blockchain refers to the fact that the ledger is a chain of transaction blocks, each validated by a miner.10 This ledger is immutable and available to all users of the cryptocurrency, which makes fraud more difficult and increases trust in the network.11
Digital tokens such as cryptocurrencies enable transactions to take place without intermediaries. They are the means for transferring funds between users and the reward that other users get for maintaining a truthful ledger in the form of the blockchain.
There is no telling to what extent decentralized networks such as Bitcoin and Ethereum will displace established intermediaries. Skeptics of blockchain technology argue that high transaction fees and long processing times make the Bitcoin payment system less efficient than PayPal or Visa.12 At any rate, regulation should not pick one technology over another but should instead let the competitive process determine which mode of transaction processing wins.
New Token Issues: The Initial Coin Offering
An initial coin offering, or ICO, is the exchange of funds for the promise of a digital token for future delivery. Those issuing the promise are typically developers who will use the funds to create an application on which the token will be useful. ICOs raised $7.1 billion in the first four months of 2018.13
The promise to deliver a digital token in the future is distinct from the token itself, as regulators, including SEC chairman Jay Clayton, have recognized.14 An analogy with traditional commodity markets can illustrate the difference: a contract whereby a coffee farmer promises the future delivery of coffee beans in exchange for money today is clearly distinct from the coffee beans themselves, once harvested and delivered.15
Why Cryptocurrencies Are Not Securities
In congressional testimony, the SEC chairman recently acknowledged that Bitcoin does not meet the definition of a security.16 Commissioner Brian Quintenz from the CFTC has also on several occasions spoken in support of the idea that cryptocurrencies, once in existence, are not securities but commodities.17 At the SEC, the director of corporation finance, William Hinman, expressed a similar view about ether in a June 14, 2018, speech, arguing that it is not a security in its present state, “putting aside the fundraising that accompanied [its] creation.”18
The question is not merely of scholarly interest; how it is answered will determine (a) which investors can buy and hold cryptocurrencies, (b) who can deal in and keep custody of cryptocurrencies, and (c) what disclosure and registration requirements cryptocurrency issuers must meet.
In general, it is understood that offering securities involves greater regulatory and compliance costs. Whereas firms have the option of privately offering securities as a way to reduce registration and disclosure requirements, such an offering is closed to investors with less than $1 million in net worth, or less than $200,000 in annual income.19
It is indeed difficult to justify a securities designation for Bitcoin, Ethereum, and other cryptocurrencies currently in circulation, as they fail to meet the definition of securities established by legal precedent. The 1946 Supreme Court ruling in SEC v. Howey defined a security as a contract involving (1) an investment of money (2) in a common enterprise (3) with the expectation of profits (4) from the efforts of others.20
As we have seen, Bitcoin and Ethereum are decentralized peer-to-peer networks. Buying bitcoin or ether may be an investment of money. It may even involve an expectation of profits if the intention of the buyer is to hold the cryptocurrency rather than to use it to buy goods and services.
However, one would be hard pressed to argue that a cryptocurrency network is a common enterprise when the roles and intentions of its users are so varied.21 The profits from holding and using cryptocurrencies, moreover, do not accrue from the efforts of others but rather from the cryptocurrencies’ usefulness on the network. Those who most obviously profit, namely the miners, do so from their own efforts at validating transactions.
In addition to the legal concern that cryptocurrencies fail the Howey test, the application of securities laws to cryptocurrency markets would harm their growth. Notably, it would preclude ordinary people from enjoying the benefits of holding and transacting in cryptocurrencies. Designating ether a security, as Gary Gensler, former CFTC chairman, has suggested doing, would also create substantial uncertainty on its own because many blockchain projects rely on the Ethereum network to function.22
Are ICOs Securities?
ICOs can allow startups to raise capital from investors or future customers. In certain circumstances, the promises of future tokens issued in an ICO may therefore meet the definition of a security.
The SEC has found that some recent token issues did meet the Howey test. In a report released in July 2017, it ruled that tokens issued by The DAO, a decentralized investment fund operating on the Ethereum platform, were in fact securities. The DAO operated as an investment platform, its tokens granting “holder[s] voting and ownership rights [ … ] proportional to the amount of ether transferred.”23
In December, the SEC announced that the Munchee token was also a security.24 Munchee, a restaurant review application in development at the time, had claimed that its tokens did not meet the Howey test because the tokens were meant to be used by restaurants and their patrons only and not as an investment vehicle. However, the SEC decided that, because Munchee’s marketing materials highlighted the tokens’ future appreciation and secondary trading, a broader clientele might be enticed to acquire them with a “reasonable expectation” of profit. Furthermore, the SEC noted that Munchee marketed principally to prospective investors rather than to potential reviewers.
The DAO and Munchee rulings offer insight into the circumstances that may lead the SEC to regard an ICO as an unregistered securities offering. However, these rulings concern only two cases among an estimated 586 ICOs between May 2017 and April 2018.25 Absent further evidence and statements about the remaining ICOs, the DAO and Munchee enforcement actions are aberrations rather than the norm. Indeed, it is puzzling that the SEC chairman has repeatedly claimed that all ICOs he has seen are securities.26 If that is the case, enforcement actions against ICO issuers may be expected to increase in the future.
Those two rulings do, on the other hand, highlight the present uncertainty associated with digital token issues. In the absence of a federal policy, the state of Wyoming has sought to provide greater clarity by exempting new tokens that can be exchanged for goods and services and are not marketed as investments from state securities regulation.27
Yet one state’s actions, however timely and desirable, can have only a small effect when cryptocurrencies are traded across state and national borders. Furthermore, even if more states undertook measures similar to Wyoming’s, the prospect of a more restrictive policy from federal regulators would perpetuate policy uncertainty, as federal regulation could preempt lighter state-level regimes.
Existing cryptocurrencies are unlikely to meet the Howey test. Subjecting them to extensive disclosures and registration, as required by securities laws, would not only be inappropriate but also would hamper the growth of blockchain technology. Conversely, some ICOs may qualify as securities under certain circumstances. Clarifying what those circumstances are would have a number of benefits, including reducing price volatility induced by the lack of a stable regulatory framework for cryptocurrencies.
How Uncertainty Increases Cryptocurrency Volatility
Large fluctuations in the price of cryptocurrencies have prompted some to claim that token pricing is irrational.28 Yet business and regulatory uncertainty is at least partly responsible for the volatility observed in cryptocurrency markets.
Because cryptocurrencies are a recent phenomenon, their market value is subject to significant short-term changes in light of new information. For example, depending on one’s assumptions about the share of the global remittance market that the Bitcoin payment system might claim in the future, one bitcoin could be worth anywhere between $200 and $20,000.29 For comparison, the price of bitcoin as of mid-June 2018 was $6,700.
Rumors and announcements of changes in regulatory policy also affect cryptocurrency prices. For instance, when reports began to circulate that Chinese regulators would shut down the country’s cryptocurrency exchanges, the price of bitcoin declined by 10 percent within a day.30 A price decline of similar magnitude followed the official announcement of a ban five months later.31
Cryptocurrencies are a new and promising technology, the benefits of which remain little understood and hotly disputed. Policy uncertainty and ambiguous statements by financial regulators further complicate an assessment of the risks and rewards that ownership of this asset class can bring.
Yet, the answer is not to clamp down on cryptocurrencies. Volatility, as long as it is not caused by fraudulent or illegal market behavior, is not a regulatory concern. Rather, the goal of regulators should be to provide confidence in the stability of the regulatory framework by defining how cryptocurrencies fit within existing rules. Such regulatory certainty need not come at the expense of the accessibility of blockchain technology to firms and individuals.
A Clear Framework for Cryptocurrency Oversight
A crucial way in which policymakers could increase regulatory certainty for cryptocurrencies is by enshrining in policy the distinction between functional cryptocurrencies and promises to deliver cryptocurrencies.
Under this framework, cryptocurrencies already in circulation would qualify as commodities. For contracts promising the future delivery of a cryptocurrency, regulators should distinguish between the following:
Contracts marketed as investments and tradable on secondary markets before the associated applications are functional;
Contracts marketed as advance purchases of a commodity not tradable before the launch of the application and for which buyers would be refunded if the application failed to launch.
Contracts that meet the first set of criteria would appear to pass the Howey test and would therefore qualify as securities. Contracts that fit the second set of criteria would be closer to forward contracts because they would involve the physical delivery of the cryptocurrency to the contract buyer when the application became functional. They therefore would not qualify as securities.32
Conclusion
Policymakers’ concerns about fraudulent practices in cryptocurrencies can be addressed without shutting down this promising new asset class or subjecting it to onerous securities registration requirements. A balanced approach would avoid chilling innovation and putting cryptocurrencies out of the reach of retail buyers and startups.
Regulators can achieve their objectives by designating existing cryptocurrencies, such as bitcoin and ether, as commodities and by clearly describing the circumstances under which contracts for future cryptocurrencies will meet the Howey test. This framework would be consistent with legal precedent and with recent statements by the relevant agencies. It would also ensure that the technology associated with cryptocurrencies will survive to deliver the benefits that many people think it will bring.
Notes
1 As of mid-June 2018, the total market capitalization of cryptocurrencies was $292.9 billion. See Coin Market Cap, “Top 100 Cryptocurrencies by Market Capitalization,” https://www.coinmarketcap.com.
2 For a list of current applications using this technology, see State of the Dapps, “The Curated List of 1,519 Decentralized Apps,” https://www.stateofthedapps.com.
3 Jay Clayton, “Opening Remarks at the Securities Regulation Institute,” U.S. Securities and Exchange Commission (SEC), January 22, 2018, https://www.sec.gov/news/speech/speech-clayton-012218.
4 Annaliese Milano, “Everything Ex-CFTC Chair Gary Gensler Said about Cryptos Being Securities,” CoinDesk, April 24, 2018, https://www.coindesk.com/ex-cftc-chair-gary-gensler-on-tokens-securities-and-the-sec/.
5 William Hinman, “Digital Asset Transactions: When Howey Met Gary (Plastic),” remarks at the Yahoo Finance All Markets Summit: Crypto, June 14, 2018, https://www.sec.gov/news/speech/speech-hinman-061418.
6 Hester Peirce, “Beaches and Bitcoin: Remarks before the Medici Conference,” SEC, May 2, 2018, https://www.sec.gov/news/speech/speech-peirce-050218.
7 For background on the mission of the SEC, the primary U.S. securities regulator, see SEC, “What We Do,” June 10, 2013, https://www.sec.gov/Article/whatwedo.html#intro.
8 For additional details, see Satoshi Nakamoto, “Bitcoin: A Peer-to-Peer Electronic Cash System,” https://bitcoin.org/bitcoin.pdf.
9 Andreas M. Antonopoulos, Mastering Bitcoin: Programming the Open Blockchain, 2nd ed. (Sebastopol, CA: O’Reilly, 2017).
10 Antonopoulos, Mastering Bitcoin: Programming the Open Blockchain.
11 For a comprehensive discussion of the historical and economic role of ledger technologies, see Chris Berg, Sinclair Davidson, and Jason Potts, “Ledgers,” SSRN Electronic Journal (2018), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3157421.
12 Ryan Vlastelica, “Why Bitcoin Won’t Displace Visa or Mastercard Soon,” Marketwatch, December 18, 2017, https://www.marketwatch.com/story/why-bitcoin-wont-displace-visa-or-mastercard-soon-2017-12-15.
13 See the CoinDesk ICO Tracker, a database to “track and analyze the blockchain token sale and initial coin offering (ICO) movement as it grows and expands,” at https://www.coindesk.com/ico-tracker/.
14 Nikhilesh De and Mahishan Gnanaseharan, “SEC Chief Touts Benefits of Crypto Regulation,” CoinDesk, April 5, 2018, https://www.coindesk.com/sec-chief-not-icos-bad/.
15 Peter van Valkenburgh, “Framework for Securities Regulation of Cryptocurrencies,” Coin Center, January 4, 2017, https://coincenter.org/entry/framework-for-securities-regulation-of-cryptocurrencies.
16 Gerelyn Terzo, “SEC: ICO Tokens Should Be Regulated as Securities, Not Bitcoin,” Yahoo Finance, April 27, 2018, https://finance.yahoo.com/news/sec-ico-tokens-regulated-securities-205650102.html.
17 See Jerry Brito, “CFTC Commissioner: Tokens That Start as Securities May ‘Transform’ into Commodities,” Coin Center, October 20, 2017, https://coincenter.org/link/cftc-commissioner-tokens-that-start-as-securities-may-transform-into-commodities; and Gabriel T. Rubin, “CFTC Official Urges SEC to Clarify Ether’s Status,” Wall Street Journal, May 14, 2018, https://www.wsj.com/articles/cftc-official-urges-sec-to-clarify-ethers-status-1526328264.
18 Hinman, “Digital Asset Transactions: When Howey Met Gary (Plastic).”
19 Thaya Brook Knight, “Your Money’s No Good Here: How Restrictions on Private Securities Offerings Harm Investors,” Cato Institute Policy Analysis No. 833, February 9, 2018.
20SEC v. Howey Co., 328 U.S. 293 (1946), https://supreme.justia.com/cases/federal/us/328/293/case.html.
21 Peter Van Valkenburgh, “Framework for Security Regulation of Cryptocurrencies,” Coin Center Report (2016): 46-47, https://coincenter.org/entry/framework-for-securities-regulation-of-cryptocurrencies.
22 The Ethereum network allocates computing power to other decentralized applications, which require compatible tokens to function on the network. One of the most common Ethereum token standards is the ERC20 token, which is used by 487 different applications according to Etherscan, https://etherscan.io/tokens.
23 SEC, “Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO,” July 25, 2017, https://www.sec.gov/litigation/investreport/34-81207.pdf.
24 SEC, “In the Matter of Munchee Inc., Respondent: Order Instituting Cease-and-Desist Proceedings Pursuant to Section 8a of the Securities Act of 1933, Making Findings, and Imposing a Cease-and-Desist Order,” December 11, 2017, https://www.sec.gov/litigation/admin/2017/33-10445.pdf.
25 See CoinDesk ICO Tracker.
26 Terzo, “SEC: ICO Tokens Should Be Regulated as Securities.”
27 Wyoming H.B. No. 0070, Sess. of 2018 (2018), http://www.wyoleg.gov/2018/Digest/HB0070.pdf.
28 Alan Greenspan, former Federal Reserve chair, is among them; see Sujha Sundararajan, “Greenspan Likens ‘Irrational’ Bitcoin to Revolutionary War Currency,” CoinDesk, December 7, 2017, https://www.coindesk.com/greenspan-likens-irrational-bitcoin-to-revolutionary-war-currency/.
29 Chris Burniske and Arthur B. Laffer, “Bitcoin: A Disruptive Currency,” white paper, ARK Invest Research, New York, August 1, 2015, https://cdn2.hubspot.net/hubfs/533155/1_Download_Files_ARK-Invest/White_Papers/Bitcoin-Disruptive-Currency-ARKInvest.pdf.
30 Josiah Wilmoth, “Bitcoin Price Crashes Below $4,000 as China Bitcoin Ban Rumors Intensify,” Altcoin News, CCN, September 13, 2017, https://www.ccn.com/bitcoin-price-crashes-4000-china-bitcoin-ban-rumors-intensify/.
31 Helen Partz, “Bitcoin Dips below $7k amidst News of China’s Full Ban of Cryptocurrency Exchanges,” Cointelegraph, February 5, 2018, https://cointelegraph.com/news/bitcoin-dips-below-7k-amidst-news-of-chinas-full-ban-of-cryptocurrency-exchanges.
32 Jerry Brito, Houman Shadab, and Andrea Castillo, “Bitcoin Financial Regulation: Securities, Derivatives, Prediction Markets, and Gambling,” Columbia Science and Technology Law Review 16 (2014): 164. “Forwards are non-standardized, do not trade on an exchange, and, perhaps most importantly, are intended by the parties to physically deliver the commodity as opposed to a cash settlement.”
https://www.cato.org/publications/cmfa-briefing-paper/should-cryptocurrencies-be-regulated-securities
What is a Reverse ICO?
Reverse ICO: Future Initial Coin Offering Fundraising Model for Companies
By Bitcoin Exchange Guide News Team - June 25, 2018
Many of us are astounded by the staggering amount of money generated by Initial Coin Offerings (ICOs). In just the first quarter of 2018, it is estimated that more than $6.3 Billion in funding was raised through ICOs.
Yet, on the horizon is a potentially even greater wave of ICOs. Call it “the reverse ICO,” where existing businesses realize that the best way for them to compete is by decentralizing themselves.
What Exactly Is Reverse ICO?
In a reverse ICO, an already-established and highly-centralized company issues tokens to decentralize their business. The company first offers tokens to the investors, as a replacement for their traditional shares.
Each token holder gets to share the company’s profits and become involved in their decision-making process. In essence, a reverse ICO is simply a traditional share allotment event, except for the fact that transactions are made in dedicated tokens over a blockchain network.
The benefits are two-fold. By doing an ICO you can raise more funds which can be used to revamp and expand the business. And you can also decentralize your infrastructure with a cryptocurrency. That puts the company in a better position to be part of the new token economy.
A Tokenized Future?
In the years to come, as the trend toward “reverse ICOs” increases, we will see new jobs such as “Tokenization Consultant” and new industry practices “reverse ICO departments” at law firms and management consulting firms.
It has profound impact for the stock market, IPOs, regulation, and community ownership as well as the jobs necessary to transition existing companies from the centralized paradigm to the decentralized paradigm.
Kik, the social media app with 300 million users and 15 million active users, was able to raise $98 million in its ICO last year. Only time will tell if the reverse ICO worked out, but so far so good. Then there’s Telegram which has raised an astonishing $850 million already.
https://bitcoinexchangeguide.com/reverse-ico-future-initial-coin-offering-fundraising-model-for-companies/
Intellectual Property: An Open Source Model for Idle IP
Intellectual property (IP) is a broad category that captures copyrights, trade secrets, and patents.
Many institutions manage IP generated by their faculty and staff. Usually, as part of an employment agreement, researchers are required to disclose inventions to the IP officer before public disclosure. Public disclosure usually takes the form of a journal publication.
There is an estimated $4 trillion in idle intellectual property around the world. This dormant and orphan IP is ideal for open sourcing.
“Open source” is a model used by coders and the software industry whereby:
"The open-source model is a decentralized software-development model that encourages open collaboration. A main principle of open-source software development is peer production, with products such as source code, blueprints, and documentation freely available to the public."[1]
If one is a scientist or inventor, why is open sourcing idle IP a good idea?
Enhancing International Scientific Collaboration
Most researchers recognize that collaborating with other researchers brings a number of benefits.
For example, many funders are now requiring a collaboration plan in the application to Request for Proposals (RFPs).
International collaboration makes inclusion and diversity more likely. Also, it is more likely interdisciplinary ideas may influence research.
Further, eventually it may be the case that citations ratings may include whether the journal article included international collaborations.
By breaking down silos of research, science can unify cultures and bring a sense of understanding that could reduce ethnocentrism. Scientists can lead their less educated populations to an appreciation of other cultures.
Some incentives for scientists to provide IP:
• Gives increased visibility to employers for employment and consulting opportunities; more dynamic than LinkedIn
• Increased visibility to other researchers for strengthening professional reputation similar to Github
• To gain co-authorships from other scientists moving the dormant/orphan IP forward
• Allows them the option of collaboration
• Gain sponsored research funding
• Access grant funding
• Help with gaining grants from funders that require open science and/or open access (Gates Foundation, Wellcome, etc.)
• Gain honoraria and speaking engagements from collaborators and industry
• Maintain knowledge leadership around the IP
• Proliferate their personally developed science
• Publish to preprint server where publishers compete for manuscripts
• Gain Helix tokens for contributing IP
Intellectual Property Office
Some IP offices push back. Why? Mostly because they think it is a lot of work to open-up idle IP. This is not the case. And quizzically, some even want to charge a licensing fee for opening up abandoned, dormant, and orphan IP. It is important to note that Knowbella Tech does not pass on a cost to the researchers, and as such, cannot pay a licensing fee to the IP office.
Instead, the IP office gains significant benefits:
• Knowbella Tech freely promotes the out-licensing portfolio
• May help increase the number of licenses by advertising and out-licensing the idle IP
• Bring sponsored research attention to the institution’s researchers
• Stimulates international collaboration between institutions
• Provides support to applications for increased funding
• Brings grant funding attention to the institution’s researchers
• Become a knowledge center using dashboard data
• Gain sponsored research
• In the case of public institutions and government, the orphan IP is not providing a return to the taxpayers
• Gain or maintain positive morale of the researcher, particularly when the IP is not moved to prosecution and is abandoned
• Brand enhancement
• Doing a social good
All of those benefits can be quantitatively worth value to the IP office if the office is inclined to convert them.
Idle IP can comprise dormant and orphan patents that are issued but not being maintained. In such a condition, a non-exclusive license template can be used to further make value of the IP. The license is extremely flexible to modification so long as the Creative Commons 4.0 (CC 4.0) and Copyleft aspects of the license are maintained.
In the case where the patents are abandoned, these do not need to be licensed, as they are freely open to the public. No researcher wants to work on free IP to then only have a cease-and-desist notice because not all the IP was licensed. We have a policy of seeking a non-exclusive license because the adopting researchers need comfort that trade-secret knowledge is not lingering behind the abandoned IP. Further, they need assurance that a Patent Cooperation Treaty (PCT) filing isn’t lingering and forgotten by the IP office to only create a problem later. However, like everything in the open world, flexibility can be had in the license, including no license. The license provides assurance to the researchers using the technology that there are no encumbrances on the IP and there is a complete freedom of use.
Whether one is a scientist wanting to contribute IP, or an IP office seeking to generate value from idle IP, contributing to open science and open access environments creates a pioneering impact.
[1] https://en.wikipedia.org/wiki/Open-source_model, accessed 19 June 2018.
https://medium.com/@knowbella_tech/intellectual-property-an-open-source-model-for-idle-ip-ba8b015cab31
How Cryptocurrencies Differentiate From Non-Cryptocurrency Tokens
“Cryptocurrency coin is a cryptographic token, but it’s never the other way around, meaning that not all cryptographic tokens are cryptocurrencies.”
https://bitcoinexchangeguide.com/how-cryptocurrencies-differentiate-from-non-cryptocurrency-tokens/
Congressman Warren Davidson ICO market needs...
“light touch” regulation on CNBC's Squawk Box today, June 21.
U.S. Representative Warren Davidson (R-Ohio) said the initial coin offering (ICO) market needs “light touch” regulation on CNBC's Squawk Box today, June 21.
When asked about cryptocurrency regulation, Davidson argued that the “big thing” the market needs is a “light touch regulatory framework” which, according to the congressman, would provide more certainty.
Davidson stressed the necessity of defining the status of cryptocurrencies, pointing out the recent announcement of the U.S. Securities and Exchange Commission (SEC) that the top altcoin Ethereum (ETH) will be considered a commodity rather than a security. He added that the government still “[has not] put together” a coherent regulatory framework, claiming that there’s still “arbitrage going on.”
“You don’t really know when somebody does an ICO, whether they are really launching this great distributed ledger product that is going to be a security or if it looks a little different, like [Ethereum] and [Bitcoin] determined to be essentially commodities.”
Davidson stated that a lightweight regulatory framework could provide more clarity to investors without encumbering projects with undue regulations. He said that a clear regulatory framework would save companies from the bureaucratic difficulties of navigating myriad different court decisions at varying levels.
The congressman further explained that the lack of regulatory certainty made the ICO market risky and potentially unsafe, as fraudulent ICO projects could take advantage of investors. He advocated for the proper application of know your customer (KYC) and anti-money laundering provisions to “make sure we protect ourselves.”
When asked why crypto is the “currency of choice” for people engaged in illicit activities, Davidson responded:
“I’m not sure that it would be considered the currency of choice, but it is easy to transmit through time and space, and its distributed, you don’t need a central clearing house… but if you look at how cases like Mt. Gox have been solved, there are ways to trace who is the beneficial owner...”
Davidson said that crypto asset flows are “more trackable than cash,” and “certainly more open than hawala network, and both those things are still legal.”
Yesterday, Nasdaq CEO Adena Friedman claimed that ICOs pose “serious risks” for retail investors and highlighted that the ICO processes have “almost no oversight.” from the SEC in comparison with initial public offerings (IPOs).
On June 19, CBOE Global Markets President Chris Concannon claimed that the ICO market could soon face a two-fold regulatory “reckoning,” should the SEC classify ICOs as unregistered securities.
https://cointelegraph.com/news/us-congressman-says-ico-market-needs-light-touch-regulation-to-provide-certainty
Bitcoin, Satoshi and the Mystery Twitter Is Obsessing Over
21e800: Bitcoin, Satoshi and the Mystery Twitter Is Obsessing Over
#00000000000000000021e800c1e8df51b22c1588e5a624bea17e9faa34b2dc4a
This is a hashtag, but not just any hashtag. In all likelihood, it's the longest and most confusing one you'll ever come across trending in the crypto community.
Posted on June 19 by Mark Wilcox, the hashtag actually represents a cryptographic code known as a hash that's produced each time new transactions are validated and written onto the bitcoin blockchain. There are several of these written each day, so at first glance, it seems strange that this particular one produced on Tuesday at 19:32:37 (UTC) would be of any groundbreaking importance.
That's where you'd be wrong.
Well, actually, that's where you might be wrong.
Some background: There is a theory in physics that attempts to explain the interactions and dynamics of all forces in the universe with one simple mathematical structure known as the E8. Presented in a paper titled, "An Exceptionally Simple Theory of Everything" by Garrett Lisi in 2007, it still remains unproven.
Couple the unsolved status of the E8 theory with the equally unsolved mystery of the exact identity of the person(s) who invented bitcoin – with its supply cap of 21 million coins – into existence, and you get the hypothesis that "21e800" isn't just some random string of numbers and value. In fact, the theory seems to suggest, it is a "vanity hash" purposefully placed by the creator of bitcoin himself/herself/themselves, Satoshi Nakamoto.
Starting to get goosebumps yet?
If this hash is indeed a "vanity hash" or, in other words, one deliberately created as some kind of sign, the computing power to create it is not only magnitudes greater than is currently capable by the average computer, but the time needed to create it is somewhat jaw-dropping, as shown in a chart posted by developer Andrew DeSantis.
So for all these reasons and a few more (which we'll get to shortly), several people on Twitter are raving about the sheer impossibility of the existence of this hash, if indeed it was created and purposefully marked by an unknown person(s).
The impossibility of it all has led others to assert that perhaps the true identity of the creator of bitcoin is really something out of this world.
The impossibility of it all has led others to assert that perhaps the true identity of the creator of bitcoin is really something out of this world.
Hold your horses
But before we go jumping to any more wild conclusions, it is important to note the possibility that perhaps this string of characters is just random and simply the output of an ordinary hash function – not engineered by a hidden mastermind.
As Cornell University professor and blockchain researcher Emin Gün Sirer explains, the string of characters "21e8" isn't all that "magical" and actually occurs about once a year.
To this point, many others have also refuted the idea of a "vanity hash" entirely.
Instead, they see the more likely idea being that "21e8" isn't anything special and might even be a complete hoax.
What's keeping the magic alive?
What's clear from the day's social chatter is that the mystery behind this hash value is closely linked to the mystique – and fascination – with Satoshi Nakamoto and the creation story of bitcoin itself.
Indeed, a post on the Bitcoin Talk forum highlights how today's viral mystery is actually a rather old one.
Begun back in 2013, a post dubbed "A mistery[sic] hidden in the Genesis Block" on bitcointalk.org questions the creation of the first verified transaction using bitcoin.
As you may have heard, mining, the activity that verifies or "unlocks" blocks on the blockchain to write in new transactions is getting progressively harder. However, back in bitcoin's early days, the computing power required to process a block was comparatively lower – and at the same time, the computing processors in use weren't as powerful as today's power-hungry ASICs.
To put things in perspective, from unlocking Block 0, the genesis block, to Block 1, the approximate time to transpire was 6 days.
But according to calculations that have to do with the size of nonces – which are basically the additional data values added by miners to the hash function in order to get the appropriate hash value validating the next block – the approximate time to unlock Block 0 was only 4.2 minutes.
How is that possible?
Alas, that mystery persists. Perhaps, as in the words of @nondualrandy, these are all a series of "easter eggs" strategically planted to keep the magic behind bitcoin alive.
Ready to go hunting?
https://www.coindesk.com/apple-blocks-crypto-mining-apps-products/
Is it arrogant to think cryptocurrencies will fail?
Goldman Sachs CEO: It’s ‘Arrogant’ to Think Cryptocurrency Won’t be Successful
Lloyd Blankfein, the CEO of Goldman Sachs, one of the biggest investment banks in the global finance sector valued at $87 billion, has criticized skeptics that believe Bitcoin and cryptocurrency do not have a future.
Open-Minded and Forward Thinking
Since early 2017, Blankfein has stated that he is not yet convinced the cryptocurrency market has become a major asset class. But, he has frequently emphasized that investors must consider cryptocurrencies like bitcoin as an emerging asset class and acknowledge the potential of the cryptocurrency and blockchain sector.
At the Economic Club of New York conference, Blankfein said:
“If you go through that fiat currency where they say this is worth what it’s worth because I, the government, says it is, why couldn’t you have a consensus currency?”
Previously, during an interview with CNBC’s Kayla Tausche, Blankfein echoed a similar sentiment regarding Bitcoin, describing a period in the US history during which the US government abruptly abolished the gold standard and replaced it with a currency with no value, the US dollar.
At the time, US-based businesses, individuals, and investors had difficulty accepting and embracing the US dollar, a form of paper money, as an alternative to gold, which has been the standard of money for centuries.
Similar to how paper money was forced to become the natural progression from gold, Blankfein explained that Bitcoin could one day become the natural progression from fiat money to digital money, and thus, although he does not fully understand cryptocurrency and is not convinced that Bitcoin will soon become a reserve currency, Blankfein said he is open-minded about the cryptocurrency market as an emerging asset class.
“A five dollar gold coin was worth five dollars because it had five dollars worth of gold in it. Then they issue paper money that is backed by gold in the treasury. Then one day, they issue paper money that does not have the backing of gold. There was no pledge that if you turn it in, I’ll give you five dollars of gold. It is fiat money. I say this piece of paper is worth five dollars and so therefore it is five dollars and a lot of people did not take that for a long time. But, now they do without question. You move a little bit further and you get bitcoin that is not a fiat currency so I don’t trust, it and I don’t like it. On the other hand, if it works, I say maybe it was a natural progression from hard money to digital money, said Blankfein.
Goldman Sachs is Operating a Cryptocurrency Trading Desk
Earlier this week, for the first time in the bank’s history, Goldman Sachs chief operating officer David Solomon confirmed the rumors that Goldman Sachs has been working to establish a cryptocurrency trading desk beyond futures.
Apart from clearing Bitcoin futures, Solomon said that the bank has been very cautiously testing cryptocurrency trading and launching a proper cryptocurrency trading desk for its clients in the near future.
“We are listening to our clients and trying to help our clients as they’re exploring those things too,” said Solomon.
https://www.ccn.com/goldman-sachs-ceo-its-arrogant-to-think-cryptocurrency-wont-be-successful/
Cboe President Explains What Happens If the SEC Declares an ICO Is an Unregistered Security
Chris Concannon, the president and CEO of Cboe Global Markets recently was interviewed by Quartz, and he was asked to comment on the speech given on 14 June 2018 by William Hinman, the director of the Division of Corporation Finance at the U.S. Securities and Exchange Commission (SEC). In that speech, William Hinman talked about the "Howey Test" and how the SEC is considering applying it to cryptoassets in order to determine which ones are unregistered securities. It is important to note that Concannon worked as a staff attorney at the SEC in the Division of Market Regulation from 1994 to 1997, and so it is safe to assume that he is quite knowledgeable about U.S. federal securities laws.
In this article, we are going to highlight parts of Concannon's comments regarding the SEC.
Concannon started by saying what he thought was the most significant part of Hinman's speech.
The SEC doesn’t think ether is a security at this point in time. Now, what was interesting is Mr. Hinman did talk about how they also recognize that some coins that were originally securities can transform to non-securities at a later date. I think that was the more important macro statement within the speech.
Here, it seems that Concannon is referring to the part of the speech where Hinman made the following remarks:
"And putting aside the fundraising that accompanied the creation of Ether, based on my understanding of the present state of Ether, the Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions... Over time, there may be other sufficiently decentralized networks and systems where regulating the tokens or coins that function on them as securities may not be required. "
The fact that the SEC seems to have forgiven Ethereum, which started life as an ICO (according to CryptoCompare, the ETH token sale was held between 20 July 2014 and 2 September 2014), suggests that the SEC might be willing to take a similarly understanding approach to other cryptocurrencies that have become much more decentralized over time.
Next, Concannon started talking about what happens if the SEC decides to declare that a particular token/coin is an unregistered security.
The SEC has been quite clear that many of these ICOs are unregistered securities offerings. It presents a real problem for anyone involved in the trading of an unregistered securities offering, even if it’s a coin. There are real legal liabilities that can develop for anyone—not only are you an unregistered broker dealer but you can also be deemed an unregistered underwriter. And that can create quite sizable liabilities if you’re not careful about how you go about things. If you’re broadcasting on your platform an unregistered security that is part of an offering, one could argue that you’re an unregistered underwriter and you could be liable for any part of that offering.
This means that the SEC could potentially go after every non-registered U.S. exchange that has ever offered on its trading platform a token (excluding ETH, of course) that was initially sold as part of an Initial Coin Offering (ICO); an example of such an exchange is Poloniex, which its parent company, Circle, is hoping to get registered as an Alternative Trading System (ATS) as soon as possible to avoid legal trouble.
It creates a very large legal liability before you even get to the steps that regulators could take against you. Registering as a broker dealer or ATS [Alternative Trading System]—that solves your go-forward liability from a regulatory perspective, but it doesn’t solve your look-back liability from a legal perspective.
Concannon seems to be saying that even if a crypto exchange gets Broker-Dealer and ATS licenses from the SEC and FINRA, it could still face prosecution for violations of federal securities laws during the period that it was not registered (and therefore, not authorized to allow trading of securities on its platform). However, perhaps, Concannon is being a bit too pessimistic here since it does not make much sense for the SEC to approve an exchange's application for these licenses and then try to put that exchange out of business.
It becomes complex for everybody in the chain of that offering, from the original issuer of that coin, to everyone who participated and really to the end user, whether it’s a retail user or some other holder. What can they possibly do with that coin? Where can they hold it? Firms can’t take the coin because of fear of being deemed to be holding an unregistered security or being in the securities business as an unregistered broker dealer.
It is easy to understand why the original issuer of a token would be in legal trouble. But is he right about the difficulties that holders of that token would face? Well, they could move those tokens either to a hardware wallet (e.g. if they are planning to HODL), or they could move them to an SEC-regulated crypto exchange within United States (currently, there are no such exchanges, but after Coinbase's recent acquisitions, it seems poised to become the first SEC-registered U.S. crypto exchange), or possibly to a crypto exchange outside the U.S. that does not care what the SEC thinks (although, there are likely to be very few major such exchanges).
https://www.cryptoglobe.com/latest/2018/06/cboe-president-explains-what-happens-if-the-sec-declares-an-ico-is-an-unregistered-security/
Another reason for STOs instead of ICOs
Nasdaq CEO: ICOs Pose ‘Serious Risks’ for Retail Investors Due to Lack of Oversight
Nasdaq CEO Adena Friedman recently claimed that initial coin offerings (ICOs) pose “serious risks” for retail investors, CNBC reports June 20.
Speaking at the Future of Fintech conference in New York on Wednesday, Friedman expressed “real concern” about ICO projects, saying that they can seriously defraud retail investors. Friedman said this is mostly the result of insufficient public information, as well as a lack of transparency, regulation, and accountability.
"To make it no rules at all, when companies can just willy-nilly take people's money and offer no information at all, with no governance, that sounds to me like you're taking advantage of people."
Friedman emphasized that ICO scam victims are usually beginner investors that have almost no access to information. According to Friedman, while the U.S. Securities and Exchange Commission (SEC) requires firms to provide retail investors with the same data as banks in Initial Public Offerings (IPOs), the ICO processes have “almost no oversight.”
"In ICO space none of that is available, and it's all being bought by retail. ...I have real concern on lack of transparency, oversight, and accountability that these companies have as they're going out to raise capital through an ICO."
Friedman also said that she sympathized with the SEC’s claims that ICOs are securities offerings adding, “ I support the SEC on that."
Recently, CBOE Global Markets President Chris Concannon claimed that the ICO market could soon face a two-fold regulatory “reckoning,” should the SEC classify ICOs as unregistered securities. The first “wave” would come when a slew of ICO projects would be deemed in violation of existing securities laws and investors’ holdings would be “rendered valueless.” Subsequently, said investors would file class actions lawsuits against the ICO operators.
On June 19, crypto evangelist John McAfee announced that he will stop promoting ICO projects due to supposed threats from the SEC. McAfee, who revealed his second run for president in early June, claimed that he charges $105,000 per tweet to promote cryptocurrency projects and products.
https://cointelegraph.com/news/nasdaq-ceo-icos-pose-serious-risks-for-retail-investors-due-to-lack-of-oversight
Five SEC-Compliant Reg A+ STOs Worth Watching
Security or utility token? It’s one of the big questions to dominate the ICO market in 2018, especially for any company based in the US. In a recent interview with CNBC, SEC Chairman Jay Clayton was utterly emphatic on the subject: “If it’s a security we are regulating it,” he explained, “A token, a digital asset, where I give you my money and you go off and make a venture, and in return for giving you my money [you] say ‘you can get a return’?—?that is a security.”
Under that broad definition almost all ICOs conducted in the US fall under the securities umbrella. With the SEC clearly setting out its position, companies are confronted with the fact that the only safe path is within the regulatory framework. That established, now is a good time to look at some of the companies already attempting to play within the rules and conduct an SEC-compliant STO. Specifically we’ll look at those firms which are filing or intend to file under Reg A+ which means that non-accredited investors can participate.
Gab
The free speech frog is probably one of the highest profile companies to announce a compliant token offering. Gab hope to raise $10 million with CEO Andrew Torba clear on their plans. On Gab’s Startengine page he states: “Our goal is to offer one of the first fully compliant Regulation A+ STO’s with American funding laws.”
The Gab social network must still plow a difficult furrow, blocked from both Google and Apple stores, but Torba remains defiant of what he views as clear censorship from the internet giants. “Our pursuit is noble, and in the tradition of American Free speech standards.”
It remains to be seen what impact a mere $10 million will have on their attempts to take on Twitter, Facebook and other more established social networks, but free speech advocates will be certainly be interested in how this story progresses.
Knowbella Tech
Knowbella Tech is a Cincinnati-based company leveraging blockchain technology to create a platform for open science and scientific collaboration. Their mission is to connect global researchers to the $4 trillion of idle intellectual property and knowledge languishing in institutions, universities and companies across the globe. The company aims to raise a cool $50 million through their STO which, for the moment, is the current funding cap for Reg A+ compliance.
As described by CEO Mark Pohlkamp, completing the regulatory groundwork for an STO is “longer, more expensive, time-consuming and painful,” than an ICO, but the return in investor confidence and safety more than makes the effort worthwhile. With Knowbella Tech one of the first companies to file under Reg A+ rather than Reg D, crypto investors will watch this space with interest to see how this trailblazer fares through the SEC process.
RideCoin
RideCoin is a blockchain alternative to Uber and Lift and market themselves as the next step in the disruption of the taxi marketplace. RideCoin promise to cut out the middleman, allowing drivers to work for themselves and passengers to pay less. It’s essentially a taxi bounty system where those in a rush offer more money for faster service, and those in not so much of a hurry can offer less.
RideCoin is one of a growing number of STOs hosted on the Startengine platform. They plan to issue two tokens, one a security and the other a utility, with the security token being SEC compliant. As RideCoin CEO Jimmy Gorham states, “Raising funds to launch a project via ICO is an investment contract, and ought to be monitored by the government. I believe in this authority, and agree with the classification.”
dexFreight
dexFreight are a business to business marketplace for domestic and international shippers, freight forwarders, and carriers. The worldwide logistic industry in which they will compete is an absolute behemoth, and there have already been a number of ICOs to attempt to tackle it. Where dexFreight differ to their competition is in the fact that they are the first logistics firm to pursue Reg A+ compliance.
As a transport company dexFreight understands the importance of reaching their destination in timely fashion. In the words of CEO Rajat Rajbhandari, “dexFreight looks forward to completing one of the earliest STOs under Reg A+ and being a model for other companies to follow.”
By 2023 the worldwide logistics industry is estimated to be worth $15 trillion, so the open-source dexFreight platform could be a highly profitable proposition, especially if it can be the first to arrive.
Mandala
Mandala is a digital asset exchange based in the Cayman Islands which plans to use two different arrangements: Reg A+ and Reg S. The first will be Reg S which is a “safe harbor” exemption, only available to firms outside America. In tandem with Reg S fundraising, the company also seeks to file under Reg A+ allowing it to seek investment from America. Mandala will therefore prove to be an interesting test case for Reg A+ since the company is in another jurisdiction and because their token offering will already be well underway by the time the SEC considers their Reg A+ filing.
With securitized tokens still in their infancy, the fate of these test cases will likely dictate what happens to future STOs and have repercussions that will be felt throughout the crypto space. For that reason these five pioneers are certain to capture the attention of crypto investors, like-minded companies and anyone else involved in blockchain. Right now we are at the dawn of a new era in SEC compliance. What the day will hold remains to be seen.
About the Author: Robert D. Knight is a copywriter and content marketer specialising in blockchain, cryptocurrency and ICO/STOs.
https://hackernoon.com/five-sec-compliant-reg-a-stos-worth-watching-1027ed9d6c53
With an STO you can ask tough questions and verify the answers
Mulling an ICO? Look Beyond Glitzy Ads, Ask Tough Questions
It’s fair to say there’s been a huge swell of investor interest in Initial Coin Offerings (ICOs) – from crypto enthusiasts and retail investors, increasingly through even to institutions. These ‘token sales’, involving the sale of newly minted coins based on Ethereum, saw businesses raise $6.3 billion in the first three months of 2018 – more than in the whole of 2017 – according to industry data.
Unfortunately, this rapid growth came at a cost. Like any new industries, early problems with transparency and scams gave the ICO process a bad name, and made it hard for investors to really know whether their money was safe. As volumes of funding keep rising, now is the time for investors to get savvier, look beyond the glitzy marketing and start asking the right questions.
As we build out our own methodology for helping evaluate ICOs, here are the hard facts and key criteria that prospective investors need to know before participating in an ICO.
"... this rapid growth came at a cost. Like any new industries, early problems with transparency and scams gave the #ICO process a bad name, and made it hard for investors to really know whether their money was safe"
1) Does this ICO really need the blockchain?
Investors must look beyond the promotional hype and take a close look at the startup’s business model. The blockchain is viewed by some as a fundamental society altering structure as democracy or the computer processing chip.
Nevertheless, the excitement surrounding the new possibilities that this technology brings has created a window for startups to jump on the bandwagon with business models that at best offer a superfluous use case for the blockchain.
It is essential for investors to carefully study an ICO’s whitepaper and evaluate the platform offered by the startup to assess if it adds value or has a real use case. Investors who are still left puzzled about how the project actually works after reading the white paper should remember that Albert Einstein famously said: “If you can’t explain it to a six year old, you don’t understand it yourself.” Those who are still unsure if the startup offers a genuine use case for the blockchain can obtain a second opinion from experts that share their views on sources such as Reddit.
the excitement surrounding the new possibilities that this technology brings has created a window for startups to jump on the bandwagon with business models that at best offer a superfluous use case for the #blockchain
CLICK TO TWEET
2) Check the structure: capped or uncapped, soft cap or hard cap
It is important to check up on how an ICO is structured. To get this right, retail investors must familiarise themselves with the terminology. For example, in a capped ICO there is a budget plan set by the development team while an uncapped ICO has an unquantifiable budget and goals. A hard cap ICO outlines the maximum amount a crowd sale will obtain while soft cap sets a target amount of funding by which the project will be deemed a success. If this target isn’t reached, prospective investors will be able to withdraw from participating.
Retail investors should also take a close look at the mining structure of the ICO that they are interested in participating in. If an ICO includes a pre-mine, tokens will be allocated to a group of developers before the public launch.
3) Do some research on the project team
We live in an age where information is ubiquitous. Investors should never blindly put their cash into an ICO without doing their homework on the project’s team. A careful examination of the biographies displayed on the startup’s website is essential. Look for signs that the venture is mimicking an established outfit by giving the false impression that the team is working together under one roof when in fact the team is composed of people working remotely.
Digging further may reveal that some of the team are at best loosely connected with the venture and may have other professional priorities. Prospective investors should also do a LinkedIn search on the project’s team and check their social media feeds such as Facebook and Twitter. Any signs that the project’s team members or founders have a questionable history should be a clear red flag.
4) Keep track of announcements
Investors should closely monitor the various channels where annoucements about an ICO are made. Bitcoin forums such as Bitcointalk.org and BitcoinGarden.org host active discussions about forthcoming ICOs. These forums offer a valuable insight into the sentiment of the cryptocurrency community towards the venture.
5) Consult independent sources
It’s hard to come across – but try to find genuinely independent, unbiased sources of expertise and advice. That means objective sources that offer no on-the-side consulting, no trading, no advisory and no ICO-as-a-service – the classic add-ons that many ‘ratings’ and advice service providers offer, as extra ways to make a quick buck. That means you should be particularly careful with the latest wave of ‘ratings providers’ who claim to categorise and rate ICOs, but are often being paid to give some projects improved ratings or coverage.
Having been involved in the cryptocurrency and ICO market since 2015, I have observed and experienced so much fraud and scam – that I cannot overstate the importance of backing up your investment decisions with reliable third-party advice. It may be a democratised, brave new world of investing – but it’s still your money, so take your time and invest in the right projects for the right reasons.
https://www.crowdfundinsider.com/2018/06/135072-mulling-an-ico-look-beyond-glitzy-ads-ask-tough-questions/
How to make science diplomacy work
International stakeholders give their views on what the EU should do to foster international cooperation in research and innovation in Horizon Europe
Open science, open innovation, open to the world – for the past four years this has been the mantra of EU research commissioner Carlos Moedas.
To realise the first two elements of this catchphrase, the commissioner wants to make the outputs of European science openly available for all and to support scientific collaboration across the continent in a European Open Science Cloud (EOSC), and has pushed for the creation of what is trumpeted as the world’s first agency for open innovation, the European Innovation Council (EIC).
Both are due to be set up in Horizon Europe, the EU’s next research programme, running from 2021 – 27.
But what of the third element of the mantra – open to the world?
A full 80 per cent of global R&D investment, 73 per cent of scientific publications, and 70 per cent of patent applications happen outside of the EU. Given this, it is important Europe has, “Access to the world’s best talents, expertise and resources,” said Signe Ratso, deputy director general, DG Research and Innovation at the European Commission, speaking at the Science|Business annual conference on June 4.
International cooperation in research is, “an instrument of soft power” Ratso said. It supports EU’s trade and development policies.
Want more details?
Read the full statements
from our speakers here.
International stakeholders at the conference debated how Europe can best foster international cooperation in research and innovation, allowing the EU to access the latest knowledge and the best talent from across the world.
Here’s a list of the necessary ingredients:
Flexibility
Horizon Europe needs faster more flexible rules and procedures in certain programmes, according to Michael Makanga, CEO of the European and Developing Countries Clinical Trials Partnership. His organisation brings together institutions in Europe and countries in sub-Saharan Africa to fund clinical research and trials of treatments for poverty-related diseases. But progress has been slowed by rigid rules under Horizon 2020. “We can do a lot better,” Makanga said.
EU research funding is based on competing for grants through calls for proposals. But this does not necessarily fit with the support needed when working on drug development with partners in industry and government. For example, providing additional funding for promising clinical programmes requires quick decision making. “Have a space for looking at what is promising,” said Makanga.
With Horizon 2020, the EU has worked to position itself as a lead player in international research and has made significant investment in developing therapies and associated infrastructure development, including establishing large networks, Makanga noted, “It is important that this initial investment is not [wasted],” he said.
Fund travel expenses
Researchers need flexibility, according to Alexander Cooke, Australia’s Counsellor for Europe, Industry, Innovation and Science. Australia has the longest standing industrial treaty with the EU – in existence since 1994 - and Australian institutions are partners in 160 projects under Horizon 2020. But EU funding for international partnerships does not cover the costs of travel for researchers and these partnerships are hindered by, “a resounding lack of small amounts of funding,” said Cooke. It’s “the biggest impediment” for those working in Australia and wanting to travel to Europe. “Give our researchers more flexibility,” he said.
Devise more forms of cooperation
For Maryline Maillard, counsellor for science and technology at the mission of Switzerland to the EU, the way for the EU to foster more international research is through, “Simpler, more visible, varied multilateral forms of international cooperation, with instruments such as Eurostars-2 and GlobalStars initiative.”
Diego Fernandez Prieto, head of research and development for Earth observation programmes at the European Space Agency, suggested Horizon Europe should define more effective mechanisms for launching large coordinated co-funded activities. That would enable, “Funding and actions from FP9 and other non-European programmes [to] serve a common purpose in a coordinated manner, under a large multilateral science endeavour.”
Include more third countries
Horizon Europe should also be, “More flexible in allowing third-country project participants,” said Cooke. The EU should loosen the criterion specifying that the participation of a third country needs to be “essential” to a project. Instead, it should permit ‘excellence’ or ‘impact’ criteria to govern the selection of third countries.
In addition, the rules for the selection of third countries are not consistent across the programme, Makanga noted. “I don’t understand the rules on how to be classified as an essential partner in Horizon 2020,” he said. “It’s a loophole, not clear enough, and not consistently applied throughout the programme.”
As things stand, it is easier for third countries to do bilateral collaboration with individual member states, rather than participate at an EU level, said Cooke.
Michael Leskiw, international senior contract administrator at the Office of Sponsored Programs, International Coordinating Committee, Massachusetts Institute of Technology, noted that currently researchers in the US have to comply with both US and EU rules. When these rules conflict, US universities will not take part in EU projects. Leskiw suggested the EU should adopt a version of the Model Grant Agreement, which has terms specifically designed for universities and research institutions in third countries.
Clarify rules for associated countries
Under Horizon Europe, those countries like Switzerland with long-standing association agreements should not see their terms of participation disadvantaged as the EU starts adding other international partners, said Maillard. “Keep participation attractive also to associated countries,” she said.
Should the EU decide to apply restrictions to associated countries, “The criteria should be clear, transparent and fair,” said Maillard. “[Restrictions] should be used only in exceptional cases, and for a marginal part of the programme, and should in no way infringe the scientific code of conduct or research integrity.”
EU should also avoid excluding countries because they are perceived as lacking capability. “These countries should not be viewed as though they have nothing to contribute,” said Andrew Cherry, ?senior scientific officer at the Association of Commonwealth Universities.
For example, many African countries aspire to participate in EU research programmes but their participation is limited by their scarce resources and capacities. That is generating what Cherry described as “enormous disempowerment.”
In excluding these countries, the EU is excluding a significant proportion of the global talent pool. “If Horizon Europe is about exploiting talent, we are doing ourselves injustice if we do not empower those [whose countries] do not have the capacity,” said Cherry.
A document with the full statements of international stakeholders is available here.
https://sciencebusiness.net/framework-programmes/news/how-make-science-diplomacy-work
Advancing open access and open data in higher education
June 20, 2018
Jaime Adams and Anne Mims Adrian, PhD shares their views on advancing open access and open data in higher education
Every year, the U.S. Government provides billions of dollars to U.S. universities to conduct scientific research. In 2013, the U.S. Government began the process to increase public access to the results of research funded by the federal government, to ensure these results were made available to the American taxpayer. Opening research results may lead to many advancements, including accelerating scientific discovery, stimulating innovation, reducing duplication of effort and enhancing economic growth and job creation.
As the U.S. Government continues to fine-tune open access requirements, many universities are finding themselves at a crossroads. U.S. universities often receive funding from various sources including the U.S. Government. Many funders are instituting open data requirements, which often vary creating a very challenging situation. To explore the issue further, a consortium of universities from around the world known as Presidents United to Solve Hunger – or PUSH – conducted a study assessing open access and open data policies and practices.
Opportunities for new knowledge, more informed decisions, predictions and innovations are created when data collected throughout the research process are shared. Open data policies that balance the requirements from funders and researchers on standards and practices are needed for successful and effective data exchange and use.” Open data practices are currently driven by funders’ requirements, yet very few universities have policies and procedures to address these requirements. Scientific disciplines like biomedicine, veterinary medicine and pharmacy have established standards and repositories open to the research community but lack the infrastructure to freely share research data with the public.
In a recent PUSH study, no PUSH member universities have open data policies and only 15% have open access policies. Many participants believe that clarity must be given to data ownership before developing open data policies. This report, released in June 2018, also provided several recommendations to advance open data implementation to include greater alignment between funders’ expectations and universities’ capabilities, by including costs of sharing and maintaining data sets in project budgets and delineating standards and protocols.
In a separate Global Open Data for Agriculture and Nutrition (GODAN) study, researchers found that funders recognise that cost and lack of infrastructure and standards are preventing data to be shared in ways that are free, accessible, interoperable and re-useable.
In both studies, it is evident that there is a growing need for standards, common language (ontologies) and protocols to make data discoverable and useable. In November 2017, the Association of American Universities (AAU) and Association of Public and Land-grant Universities (APLU) released the Public Access Working Group Report committing to a set of shared principles and minimal levels of standardisation across institutions and agencies to ensure access to publicly funded research.
Open data practices are currently driven by funders’ requirements, yet very few universities have policies and procedures to address these requirements. Scientific disciplines like biomedicine, veterinary medicine and pharmacy have established standards and repositories open to the research community but lack the infrastructure to freely share research data with the public. Opportunities for new knowledge, more informed decisions, predictions and innovations are created when data collected throughout the research process are shared. Open data policies that balance the requirements from funders and researchers on standards and practices are needed for successful and effective data exchange and use.
https://www.openaccessgovernment.org/advancing-open-access-and-open-data-in-higher-education/46826/
Knowbella Tech podcast 1
https://www.linkedin.com/feed/update/urn:li:activity:6415203313473634304
Inside the crypto world’s biggest scandal - Tezos
https://www.google.com/amp/s/www.wired.com/story/tezos-blockchain-love-story-horror-story/amp
ICOs Have Raised Billions — But Now VCs Are Swooping In
June 12, 2018
Share ICOs Have Raised Billions — But Now VCs Are Swooping In on Facebook Share ICOs Have Raised Billions — But Now VCs Are Swooping In on Twitter Share ICOs Have Raised Billions — But Now VCs Are Swooping In on LinkedIn Share ICOs Have Raised Billions — But Now VCs Are Swooping In via Email
The line between ICOs and equity financing is blurring, as traditional equity investors use non-traditional methods to invest in blockchain companies.
Bypassing the skepticism and more onerous process of traditional VC financing, blockchain teams raised more than $18B over the past year through initial coin offerings (ICOs), often with little more than a white paper.
Some high-profile ICOs have raised hundreds of millions — even billions — of dollars before proof of a viable product. Filecoin, a blockchain data storage startup, raised $257M, while EOS, which is building a “world computer,” raised over $4B in its year-long ICO.
TRADITIONAL INVESTORS GET IN BEFORE ICOS WITH PRIVATE TOKEN SALES
Traditional investors are acquiring tokens outright via pre-sales, SAFT contracts, and regulatory compliant offerings — something that seemed out of the question just months ago. In other cases, traditional investors are taking equity stakes in blockchain companies before an impending ICO.
Pre-sale rounds are held before larger, public ICOs and don’t follow a uniform structure. In some cases, pre-sales offer discounted tokens to early investors (accredited and unaccredited). In others, teams sell small equity stakes in exchange for runway before an ICO.
ICOs are expensive, and often incur legal, marketing, and advisory expenses. Venture-funded pre-sales could cover expenses before an ICO infuses cash into the company.
In other cases, accredited investors buy tokens via cryptocurrency purchase agreements. A common version of this is the SAFT (Safe Agreement for Future Tokens).
A SAFT acts as a forward contract for tokens, with the contract converting upon deployment of a functioning network. Thus, startups aren’t selling equity stakes, but the rights to some of the tokens it will use as part of its network. A conversion might happen years after the initial sale.
The rise of pre-sales and SAFTs reflects venture funds’ desire to cash in on the token economy. Notably, the median time between first funding and IPO for VC-backed tech companies that went public in 2017 was about 9 years. In comparison, tokens trade on exchanges (often before the network launches) and provide near-immediate liquidity. With a SAFT, a token conversion could happen within one or two years, also providing quick liquidity to venture investors.
Many venture firms have mandates that require them to invest in specific asset classes — namely, private companies. SAFTs and certain pre-sales might be a way to invest in tokens while still conforming to this asset class requirement, whereas buying tokens via an exchange or directly via an ICO likely would not meet those requirements.
Data indicates a shift toward pre-sales, with venture rounds trending up and pure play ICOs trending down.
In February, ICOs raised almost 60% of their capital in private rounds and pre-sales, according to TokenData. Some of that data is captured below, with “other” VC equity deals up considerably as a share of blockchain deals. These include some private rounds and pre-sales.
WITH MORE PRE-SALE CAPITAL, BLOCKCHAIN COMPANIES RELY LESS ON ICOS
Since then, pure play ICO deals have trended down. In April 2018, 129 ICOs closed for about $600M, down from 215 and $1.2B in December 2017.
In terms of dollars raised, we see a similar downward trend (excluding Telegram‘s private sale and the year-long EOS ICO). As a caveat, these numbers are somewhat lagging indicators — we only count completed ICOs, not those that are still ongoing.
WITH MORE PRE-SALE CAPITAL, BLOCKCHAIN COMPANIES RELY LESS ON ICOS
Since then, pure play ICO deals have trended down. In April 2018, 129 ICOs closed for about $600M, down from 215 and $1.2B in December 2017.
In terms of dollars raised, we see a similar downward trend (excluding Telegram‘s private sale and the year-long EOS ICO). As a caveat, these numbers are somewhat lagging indicators — we only count completed ICOs, not those that are still ongoing.
WITH MORE PRE-SALE CAPITAL, BLOCKCHAIN COMPANIES RELY LESS ON ICOS
Since then, pure play ICO deals have trended down. In April 2018, 129 ICOs closed for about $600M, down from 215 and $1.2B in December 2017.
In terms of dollars raised, we see a similar downward trend (excluding Telegram‘s private sale and the year-long EOS ICO). As a caveat, these numbers are somewhat lagging indicators — we only count completed ICOs, not those that are still ongoing.
WITH MORE PRE-SALE CAPITAL, BLOCKCHAIN COMPANIES RELY LESS ON ICOS
Since then, pure play ICO deals have trended down. In April 2018, 129 ICOs closed for about $600M, down from 215 and $1.2B in December 2017.
In terms of dollars raised, we see a similar downward trend (excluding Telegram‘s private sale and the year-long EOS ICO). As a caveat, these numbers are somewhat lagging indicators — we only count completed ICOs, not those that are still ongoing.
WITH MORE PRE-SALE CAPITAL, BLOCKCHAIN COMPANIES RELY LESS ON ICOS
Since then, pure play ICO deals have trended down. In April 2018, 129 ICOs closed for about $600M, down from 215 and $1.2B in December 2017.
In terms of dollars raised, we see a similar downward trend (excluding Telegram‘s private sale and the year-long EOS ICO). As a caveat, these numbers are somewhat lagging indicators — we only count completed ICOs, not those that are still ongoing.
In one notable example of the trend toward pre-sales, Telegram held such a large pre-sale that it no longer has plans for a public sale. The encrypted messaging service raised $1.7B from 175 private investors in two separate private rounds, selling “purchase agreements for cryptocurrency” (not equity).
Another blockchain team, Basis (fka Basecoin), raised $125M from 225 investors via a SAFT sale that took place starting at the end of Q1’18. Basis is building a “stablecoin” that is intended to be less volatile than other cryptocurrencies.
With all this, pre-sales are a mixed bag. On the one hand, they’re still relatively risky, and regulators still haven’t fully weighed in on them. On the other, they shift risk onto accredited and venture investors, a good thing for consumers and regulators.
As regulators continue to crack down on public ICOs, we expect this shift toward pre-sales and private sales to continue.
https://www.cbinsights.com/research/blockchain-ico-equity-financing-vc-investments/
Out with ICOs and in with STOs
JOHN MCAFEE QUITS PROMOTING ICOS ‘DUE TO SEC THREATS’
It appears the days of John McAfee promoting initial coin offerings (ICOs) are over. In a tweet on June 18, 2018, McAfee announced his decision to no longer work with ICOs.
MCAFEE BACKS OUT OF ICO PROMOTIONS ‘DUE TO SEC THREATS’
McAfee’s tweet was a response to a question posed by one of his followers, asking him to recommend a viable ICO investment. McAfee responded by stating he would no longer promote any ICO “due to SEC threats.” He warned others still promoting and endorsing ICOs that they were risking arrest in doing so.
This latest development is a sequel to McAfee’s June 14 tweet on the SEC’s labeling of ICO tokens as securities. While promising that he would fight the Commission “with every last breath,” McAfee did say that he would submit to the law.
Earlier in June, he challenged SEC chairman, Jay Clayton, to a debate over the status of ICO tokens.
The SEC previously issued warnings to celebrities who endorse cryptocurrency ICO projects. According to the regulatory agency, such endorsements might be unlawful — especially in the absence of full disclosure of direct/indirect compensation on the part of the celebrity in question.
During the ICO boom of 2017, celebrity endorsement of ICOs became a regular feature among movie stars and musicians. Figures like actor Jamie Foxx, music producer DJ Khaled, and boxer Floyd Mayweather offered their endorsements to various ICO projects. In April, the SEC indicted the founders of the DJ Khaled and Floyd Mayweather-backed ICO with fraud.
It's the SEC Stupid…
WORKING ON A NEW CRYPTOCURRENCY FUNDRAISING PARADIGM
McAfee also announced in the tweet that he was currently writing an article on a new cryptocurrency fundraising paradigm. According to him, the SEC will be unable to “touch” this new ICO alternative.
Predicting prices and promoting projects were the two main focal points of McAfee’s involvement in the industry. Reports emerged earlier in the year that the internet security expert and cryptocurrency enthusiast was charging six-figure sums for ICO endorsement tweets. McAfee would later confirm the story saying that he charged $105,000 per tweet. In the May, this figure had risen to $500,000.
Despite being a polarizing and controversial figure, McAfee is a major figure within the industry. According to his “cryptocurrency team,” McAfee’s ICO endorsement tweets are prolific, with only one tweet capable of attracting millions of dollars in investments.
http://bitcoinist.com/john-mcafee-says-he-is-no-longer-promoting-cryptocurrency-icos/
Do dissertation committees serve as an assessment to newly minted PhDs?
Competency-based assessment for the training of PhD students and early-career scientists
Michael F Verderame Is a corresponding author , Victoria H Freedman, Lisa M Kozlowski, Wayne T McCormack Pennsylvania State University, United States; Albert Einstein College of Medicine, United States; Thomas Jefferson University, United States; University of Florida Health Sciences Center, United States
Abstract
The training of PhD students and early-career scientists is largely an apprenticeship in which the trainee associates with an expert to become an independent scientist. But when is a PhD student ready to graduate, a postdoctoral scholar ready for an independent position, or an early-career scientist ready for advanced responsibilities? Research training by apprenticeship does not uniformly include a framework to assess if the trainee is equipped with the complex knowledge, skills and attitudes required to be a successful scientist in the 21st century. To address this problem, we propose competency-based assessment throughout the continuum of training to evaluate more objectively the development of PhD students and early-career scientists.
https://elifesciences.org/articles/34801
Friends of Friends Can Reveal Hidden Information about a Person
Stanford scientist Johan Ugander explains his research on dissimilarities in social networks
By Andrea Anderson on June 14, 2018
People generally spend time with others who are like them, making it easy for data scientists to infer individuals’ attitudes or personality attributes by analyzing their online and real-world social networks. Researchers call this tendency to seek out like-minded people “homophily.” Think of the old adage “birds of a feather flock together,” says Johan Ugander, a management science and engineering researcher at Stanford University, who studies this topic.
But in a twist on the topic, Ugander and his graduate student Kristen M. Altenburger have found that some people are consistently drawn to those with certain dissimilar attributes. The researchers call the variation introduced by this phenomenon “monophily.” Scientists previously assumed that heterogeneity would make it harder to draw conclusions about people based on friend networks. But Ugander and Altenburger’s research demonstrates that monophily produces an effect whereby a person’s friends of friends are similar to them in ways that immediate friends may not be. This could make it easier than anticipated for scientists to infer personal characteristics that might otherwise remain hidden—and is one more way for data miners to trace personal information.
In a study published online in March in Nature Human Behaviour, Ugander and Altenburger analyzed three different types of networks: an online social network, a network of political blogs and a well-studied terrorist communication network. Scientific American spoke with Ugander about the research and its implications for individual privacy. An edited excerpt follows.
Did the idea that “opposites attract” lead you to study monophily?
What led us to this project was the basic puzzling fact that there is barely any gender homophily, or consistent gender clustering, in online social networks. There is a lot of age clustering. The fact that there is almost no gender homophily has consequences for information diffusion and also for data privacy. It turns out that you can still predict people’s gender based on the gender of their friends of friends by harnessing variability in the network—which is the counterintuitive starting point we spend most of the study trying to unpack and explain.
Is having Facebook friends with different political views an example of monophily?
With respect to political affiliation, you tend to surround yourself with similar others. That said, we did see a statistically significant amount of friend dissimilarity when it came to political affiliations in blogger networks. There are some people who are crossovers: they run liberal blogs but tend to link to conservative blogs, or vice versa.
Have you seen changes in how social networks are being studied in light of privacy concerns?
I view myself as somebody who tries to sound alarms and look at all the ways it is possible to predict things about individuals. There has been a healthy public conversation recently about the importance of protecting the information contained in connections in these online social networks. [Disclosure: Ugander was affiliated with Facebook Data Science from 2010 to 2014.]
On the other hand, there are benefits to understanding people better based on their position in a social network. A lot of social sciences research is focused on identifying authentic causal relationships and ruling out confounding factors. I am interested in understanding the extent to which we can describe individuals when we maybe don’t have demographic data but do have this very rich network of social relationships.
Are you concerned that your research could be used for nefarious purposes?
Always. When one builds tools, one has a responsibility for how those tools are used. The main algorithm we study has been in the scientific literature since 2009. It was previously assumed that this method works for predicting an individual’s attitudes or attributes if there are between-friend similarities in the network. But we are showing you do not need homophily, or likeness, for this approach to be effective.
https://www.scientificamerican.com/article/friends-of-friends-can-reveal-hidden-information-about-a-person1/
One Mathematician's Mission to Boost Bitcoin's Privacy
Have modern internet companies gone too far?
According to mathematician and Blockstream research director, Andrew Poelstra, the answer is unequivocally yes. In his view, companies are simply now vacuuming up troves of customer data, which they then sell to others without the owner's knowledge or benefit. (Think how Instagram owns user images, or Target acquires huge amounts of data on what products people buy).
Not just a bad deal for customers, though, security experts even worry that with all this data, AI systems will be able to predict what a person will do next by following data trails, conjuring up concerns about real-life dystopias like those of sci-fi books and movies.
As such, Poelstra is using his two passions – math and bitcoin – to try to bring added privacy to online money.
To this end, Poelstra has been tinkering away, formulating mathematical equations and writing code, to hide bitcoin's "trails." Trails being the traces of personal information – who you are, what you buy, for how much – that can be gleaned when transacting online when using bitcoin.
Because the world's first cryptocurrency rides on a public ledger, users who aren't especially careful can leave traces for all with an internet connection to see.
"Those trails that no one thinks about, I wish that they weren't there," Poelstra told CoinDesk, adding:
"I would hope I'm not leaving one and I would hope that no one that I love is leaving one. That's who I'm working for."
And that statement might just reveal Poelstra's true mission.
Unlike many privacy advocates, who to describe the point of creating a private money system typically point to extremes, Poelstra isn't focused on these edge cases, he's focused on his friends and family.
Speaking during a panel at CoinDesk's Consensus 2018 conference, he summed up his outlook stating, "I think about myself, not people who are really in any extreme turmoil or instability."
Scriptless scripts
Poelstra's recent work revolves around a project called "scriptless scripts," which allow for bitcoin smart contracts that don't use so much data.
More complex smart contracts can sometimes require more storage, so while they offer the ability to perform more complicated transaction types, they've become a key hurdle for smart contracts platforms.
One popular cryptocurrency project, mimblewimble, has struggled with this exact tradeoff. In creating a protocol that improved upon bitcoin's scale and privacy limitations, it was thought mimblewimble might be unable to support more complex transactions through smart contracts. So Poelstra, not convinced it was impossible, put his interest in math to work on this issue, and came out with scriptless scripts.
"Then I realized there's no reason to do this in mimblewimble. You can do it in bitcoin," he told CoinDesk.
On top of the smart contract benefits for mimblewimble, the concept also has scalability and privacy advantages for the longest-running and largest cryptocurrency.
According to Poelstra, scriptless scripts can help improve the privacy of lightning payments, those that take place on bitcoin's layer-two scaling technology that pushes transactions off the blockchain.
"With it, you no longer need to publish to the world all the details of your payment channels," Poelstra said.
And all this work could come to fruition sooner than many might expect.
Scriptless scripts are just a couple steps away. They merely require Schnorr signatures, a technology pioneered (for bitcoin at least) by veteran developer Pieter Wuille – which Poelstra has also contributed to – to be implemented and voted on and approved by bitcoin users.
But Poelstra believes this technology will only really have the biggest effect on privacy by being joined by other technology.
For instance, Poelstra would like to see the recently unveiled and much-applauded Taproot, which was created by long-time bitcoin core contributor Greg Maxwell, also implemented.
In that, the lightning network would get even more private, since it makes all bitcoin transactions look the same – so people wouldn't be able to tell the difference between on-chain and lightning's off-chain transactions.
"That is, the user does not even need to reveal that she is using payment channels at all!" Poelstra said.
Minor changes
But all these various small code changes seem like a slow, patchwork way of making bitcoin private. Instead, why can't developers just do something big and all-encompassing?
According to Jameson Lopp, an engineer at key management startup Casa, "There's no silver bulletproof for fixing cryptocurrency privacy problems."
Poelstra echoed that, saying that no one's so far been able to wave a magic wand and suddenly create a completely private cryptocurrency without any downsides. One particularly stubborn trade-off is scalability.
But Poelstra is also working on this as well in a recently unveiled breakthrough he's been contributing to called bulletproofs. In short, bulletproofs helps to decrease the size of another privacy technology called confidential transactions, which is a cryptographic way of shielding bitcoin user balances.
The size of these transactions is the main thing holding back the long-in-the-making privacy technology, so bulletproof's reduction is important.
But even with this breakthrough, the transactions are still not small enough.
"I can't see it ever getting enough community support because of scalability," Poelstra said.
Not only that but confidential transactions only shield bitcoin balances, and do not hide the other various parts of a transactions – like where a transaction came from and who the sender and receiver are.
That's why Poelstra is only one technologist taking on this thorny problem.
Developers of the core protocol, but also technologists in other areas, such as wallet developers are all working on privacy-enhancing technologies for users.
And because that's happening today, Poelstra thinks there's a "whole pile" of other promising ways to shield various pieces of bitcoin.
https://www.coindesk.com/one-mathematicians-mission-boost-bitcoins-privacy-soon/
Six Alternatives to an Initial Coin Offering
Last summer, ICOs could do no wrong. But by 2018, the acronym had been relegated to the realm of the unmentionables, a place normally reserved for the most offensive cuss words and the name of Harry Potter’s antagonist, Voldemort. In many circles, “ICO” has become a dirty word. In its place has come a range of creative alternatives, each designed to improve on the model and nomenclature of the much derided Initial Coin Offering.
ICOs Are So Last Year
Whenever a new musical movement emerges – punk; nu-metal; emo – bands lumped into the genre rush to distance themselves from it. Something similar has happened with ICOs: everyone’s in them, but no one wants to admit to being in them. Instead, we have the spectacle of projects dressing their ICO up as a “token generation event” and other euphemisms.
Some of the alternative nomenclature is an attempt to avoid legal repercussions (“You can’t charge us with running an unregistered ICO if we didn’t call it an ICO!”), but more often it’s an attempt to avoid being tarred with the same brush as the scammy ICOs that have ruined the name for everyone. Then there are the crowdsales whose alternative name reflects a genuine desire to provide an alternative means of raising capital in which everyone gets a bite of the cherry. What follows is six alternatives to the tried, tested, and tired ICO.
STO
Six Alternatives to an Initial Coin OfferingA Security Token Offering (STO) is a fully regulated ICO which proceeds with the SEC’s blessing. These are categorized into various types including Reg D (open to institutional investors only) and Reg S, which is for STOs being held in a country outside the US. The holy grail for companies seeking an STO is Reg A+ as this entitles retail investors to participate. A number of projects including Gab.ai and Knowbella are waiting for Reg A+ approval, but SEC permission is still pending, while Dexfreight are also planning to apply.
IICO
The Interactive Initial Coin Offering (IICO) was first proposed in a paper by Vitalik Buterin as a fairer model of ICO. It’s designed to prevent the sort of FOMO and gas wars that can result in whales getting all the tokens and squeezing out investors of humbler means. In Fantom’s recent crowdsale, for example, one investor spent 580k gwei, or around $24,000, just to ensure their transaction reached the front of the queue.
Decentralized justice protocol Kleros has become the first project to trial an Interactive Initial Coin Offering. Contributors can specify a maximum cap for the sale; if the total raised surpasses that, their ether will be returned to them. This ensures that everyone is given a chance to purchase tokens at a price they deem fair – or at least that’s the theory.
Initial Supply Auction
Six Alternatives to an Initial Coin OfferingMetronome’s crowdsale started today under the banner of an Initial Supply Auction. As the team explain, “The Initial Supply Auction utilizes a descending price auction, where the price starts intentionally high and ticks down incrementally toward its intentionally low price floor as long as the auction is open. The price is not averaged out. Purchasers will receive their Metronome almost immediately after purchase, at the price they purchased. Purchasers should purchase only when they feel the price of MET to be fair.”
Various attempts have been made at ensuring everyone gets a chance to participate in a crowdsale including the IICO, the Initial Supply Auction, and variations of the Dutch auction, in which winning bids are not revealed until the sale has been completed. The risk with the latter two methods is that they risk being perceived as a mechanism for boosting the coffers of the project rather than as a more democratic process.
SAFT
A Simple Agreement for Future Tokens provides a means of overcoming the risk that tokens sold for a project that is under development could be classified as a security. To circumvent this, investors contribute funds on the understanding that they will receive their tokens once the network is operational and the tokens are usable. That way the project benefits from receiving the capital necessary to get building, and investors can sell their tokens to the public at a future date, once the platform has utility.
Airdrop
Six Alternatives to an Initial Coin OfferingMost ICOs now allocate a portion of their tokens to an airdrop – i.e a giveaway – to onboard a distributed community in the hope that these individuals will become users of the platform. It’s standard practice to distribute less than 5% of tokens via an airdrop, but there is a bolder approach: to give away the majority of your tokens in this manner, retain a portion for the team as a reserve, and then hope that the market assigns value to the token once it starts trading. That’s the model being trialed by Everipedia and a host of other EOS-based projects whose tokens will be given away to EOS token holders.
No ICO
The final alternative to the ICO is to have no ICO whatsoever. That might sound crazy in an era of multi-million-dollar valuations for crypto projects, but it’s actually a much better way to align the incentives of participants. Bitcoin, Litecoin, and Decred are all examples of networks that started life without a fundraiser. If your tokenized idea is genuinely revolutionary, you don’t necessarily need to resort to an ICO: build it and they will come.
https://www.linkedin.com/feed/update/urn:li:activity:6414585506952212480
Renewables make this question significantly less important.
For fiat, in addition to the energy costs for printing and minting, think about the amount of energy that goes into mining for metals and harvesting trees for paper.
Which consumers more energy - fiat or crypto?
Cryptocurrencies like Bitcoin Consume Significantly Less Resources than Fiat Money
Earlier this week, I wrote on social media that it costs significantly less energy to produce cryptocurrencies like bitcoin and Ethereum. The responses were, “that’s not true, once fiat money is created, no additional energy is required.”
Perhaps a better way to phrase the statement was to replace energy with resources, as fiat currencies do require significantly more resources than cryptocurrencies.
Myth
Currently, the vast majority of people are comparing bitcoin’s electricity consumption to the production of paper money at central banks like the Federal Reserve, dismissing manual labor, energy, and electricity required to distribute and transfer money.
Fiat requires commercial banks, central banks, ATMs, armored cars, hundreds of thousands of employees, among other things to work. The central bank, in this case the FED, does not magically distribute the US dollar to every person in the country at their doorstep. The FED distributes its US dollar to banks and its friends, who then distribute money with the hopes of trickling down the US dollar to the bottom of the economy.
Cash requires a truly massive infrastructure to function. In the US alone, there are more than 6,000 banks that process cash transactions. Most people no longer use cash in its physical form to transact. They rely on third-party service providers and banks like JPMorgan, Visa, and MasterCard to process payments. The amount of resources and energy these companies and their hundreds of thousands of employees consume should be included in the comparison between the energy consumption of bitcoin against banks.
Bitcoin is a peer-to-peer financial network and due its decentralized nature, no third party is required to transact. Alice can send Bob $100 by broadcasting the transaction to the mempool, which is than picked up by miners to process. In return, miners are incentivized by receiving bitcoin and transaction fees included in the block.
Hence, while it may be accurate to claim it requires more electricity to mine cryptocurrency, it is false to claim that to create or generate bitcoin, more resources are required than to create cash or paper money, as the majority of the energy used by the miners is attributable to confirming and validating transactions, which most of the banks do globally.
John Lilic, member at Ethereum blockchain development studio ConsenSys, stated that the cost per transaction is significantly higher with crypto and that is undoubtedly correct. Major banks like JPMorgan processes trillions of dollars on a daily basis. Lilic said that in the long-term, blockchain projects will have to find better ways to process transactions and information more efficiently.
“The per unit cost of each tx is significantly higher with crypto. Data centres banks use are much more efficient than mining operations & legacy systems process orders of magnitude more tx’s per day than crypto. We need specificity around the energy issue, not conjecture. The real question is whether the gross energy inefficiency costs in crypto is worth the benefits like custody over assets. My contention is Yes! It is worth it but only if our industry prioritizes & continues to work towards energy efficiency gains like Proof of Stake.”
As cryptocurrencies and blockchain technology mature, they will experiment with more efficient methods of consensus algorithms and mining methods that may decrease the energy output of cryptocurrencies in the long-term.
https://www.ccn.com/op-ed-cryptocurrencies-like-bitcoin-consume-significantly-less-resources-than-fiat-money/
WHAT YOU NEED TO KNOW BEFORE INVESTING IN CRYPTOCURRENCY
Want to get into cryptocurrency? Here’s what you need to know before you invest.
KNOW YOURSELF
A lot of people are investing in cryptocurrency and it’s becoming increasingly clear that it’s not just a passing fad. It’s also clear that it’s potentially very lucrative — though not without risks. So, before you invest in cryptocurrency, it’s a good idea to have a goal in mind and know how much you can afford to lose.
Not many people ask themselves why they are you investing? Most will say it’s to make money quick, while others will say it’s a future investment in blockchain technology. For others, it might just be out of curiosity. These are already very different reasons that should produce very different strategies.
For short-term gains, it would make sense to buy low and sell high — but there’s a lot more to it than that. You’d need to choose a coin with high liquidity, have a sense of risk management, and rebalance your portfolio every so often. Without a plan, you’re simply not going to produce good results.
Likewise, if you’re betting on future technology then you’re likely making a long term-investment, meaning you’re going to hold, or hodl. That’s what a lot of early bitcoin and ethereum holders did, but that doesn’t mean it’s the right strategy for you and your goals. And even this purpose still requires research. There’s a ton of investment opportunities, and many of them will not pan out.
No matter your reason, don’t just gamble your money away because you “feel” like it might do well. Have a reason for why you’re investing, how much you’re investing, what you’re investing in, and the timing you’re choosing to make the buy.
Once you know why you’re investing, ask yourself what you want to gain. For example, how much profit are you looking to make? To meet your goal, how much time, effort, and research are you willing to put in? What is your stop-loss? Before you invest, know your objective and go about it rationally. Since most people won’t have much time to spare for research, you can use cryptocurrency trading tools to aid in the decision making.
Another thing to keep in mind — if you have experience trading stocks, don’t assume cryptocurrency trading will be the same thing. Cryptocurrencies are not stock. You can use tools like RSI (relative strength index) and ADX (average directional index), which are certainly helpful, but cryptocurrency is way more volatile and the market tends to be much more emotional than the stock market. Think FUD/FOMO: fear, uncertainty and doubt/fear of missing out.
If you can keep a level head, devise a plan and stick to it, while properly managing risks, then crypto investing might be rewarding for you. How involved you get should be dependent on your goals.
Remember, whether or not cryptocurrency is a good investment for you depends entirely on what you think the future will look like and not what the past growth of cryptocurrency has been.
http://bitcoinist.com/what-you-need-to-know-before-investing-in-cryptocurrency/
Centralized exchanges such as Coinbase are cancer
COINBASE SHUTS GAB SOCIAL NETWORK’S ACCOUNT
Gab, a social network messaging platform that describes itself as a place “where people, free expression, and individual liberty come first,” has announced that its Coinbase account was suddenly closed by the popular US-based crypto exchange.
GAB: CENTRALIZED EXCHANGES ‘CONTRADICTORY TO EVERYTHING CRYPTO STANDS FOR’
Gab is a relatively young social networking platform launched in August 2016 as a response to censorship controversies involving major social media companies — such as Facebook and Twitter — which founder and CEO Andrew Torba calls “the entirely left-leaning Big Social monopoly.”
It has been battling this “Big Social Monopoly” in court with a legal fund that accepts donations in PayPal, Bitcoin, and Ethereum. In an email to Breitbart Tech, Torba claimed the Gab Legal Fund “will be used to directly explore any and all legal options against the anti-competitive actions of the Silicon Valley oligopoly.”
Now, the alternative social network announced that Coinbase has closed its account on the exchange — presumably used to send, receive and cash out cryptocurrencies — without providing any specific explanation.
Gab, meanwhile, slammed the move, calling the centralized cryptocurrency exchange “cancer,” saying:
Coinbase has banned Gab’s account. Centralized crypto exchanges/wallets are cancer and contradictory to everything crypto stands for.
Social commentator Kevin Pham, however, believes he may know why the San-Francisco based exchange decided to shutter Gab’s account. Pham pointed to a recent tweet from Gab that suggested “crony capitalism” could have been behind yesterday’s SEC announcement that Ethereum is not a security.
Pham also encouraged others in the cryptocurrency space to sign up for Gab just in case “Twitter tries to silence us.”
Meanwhile, other users encouraged Gab not to use Coinbase and set up their own wallets controlling their own private keys. “There are plenty of open source options you can just install and run without having to use any third party,” @username0ne wrote, continuing:
Utilize the censorship resistance of Bitcoin which allows you to be your own bank, and not use Coinbase.
BITCOIN, CRYPTO, AND CENSORSHIP-RESISTANCE
Torba created the alternative social network “after reading reports that Facebook employees suppress conservative articles.” His platform got a significant boost to its user base in November 2016 following permanent suspensions of conservative activist accounts such as Breitbart writer Milo Yiannopoulos.
The platform, however, has been accused by critics of being supportive of white supremacists and the alt-right.
Gab
On its website description, Gab vehemently opposes suppression of online speech. “Censorship and closed systems are ultimately about two things: destruction and control,” it reads. “Censorship does not create value, it annihilates it.”
In line with its anti-censorship ethos, the social network has unsurprisingly embraced Bitcoin, which can be used to transact without trusting middlemen and third-parties. In fact, it even launched its own Gab Token ICO, raising over $5 million to date in an effort to build the next-generation social network focused on supporting free speech online.
“Gab Tokens will represent tokenized equity in Gab AI Inc and are not a ‘utility token’ of any nature,” its ICO website explains. “We believe that, like many of our users, investors in Gab will be supportive of a crowdfunding campaign that champions a truly democratic approach to raising capital.”
http://bitcoinist.com/centralized-crypto-coinbase-shuts-gab/
Thomson Reuters to Track Top 100 Cryptocurrencies
Thomson Reuters has expanded its sentiment data tracking service to cover the top 100 cryptocurrencies. You can find details about the TRMI 3.1 crypto sentiment package in our daily rubric, Bitcoin in Brief. Today’s edition also features other announcements crypto investors may find interesting. Some useful tools can help them develop dynamic strategies on the volatile markets, while a new bot offers automated crypto trading.
Thomson Reuters Expands Its Crypto Sentiment Data Tracking
Bitcoin in Brief Thursday: Thomson Reuters to Track Top 100 CryptocurrenciesThomson Reuters has included market data for the top 100 cryptocurrencies in its sentiment data offerings. The service is provided in cooperation with Marketpsych Data LLC, a leader in quantitative behavioral science. The expansion comes after the introduction of bitcoin sentiment index in March, when Marketpsych 3.0 was revealed, as news.Bitcoin.com reported, and the launch of cryptocurrency real-time rates data feed for six cryptocurrencies in May.
According to the official announcement, the new Marketpsych Indices package uses machine learning and natural language processing to measure emotional and topical items across news and social media sites that may drive market participant behavior in cryptocurrency markets. TRMI 3.1 monitors more than 2,000 global news and 800 social media platforms in real-time.
The providers of the service also note that the historical data dates back to 2009. The collected sentiment data can be incorporated into quantitative and qualitative analysis to support investment decisions, the press release details. Investors and other interested professionals can use it to quickly discern patterns affecting their respective businesses, Thomson Reuters points out.
Suite of Tools for Crypto Investors Released
Waterstreet Research Partners LLC, a Minneapolis-based investment research firm, has announced the launch of Crypto Powerranks, a suite of useful tools for cryptocurrency investors. Its users will be able to research, plan, and develop dynamic investment strategies on the volatile cryptocurrency markets, according to the announcement.
Crypto Powerranks is a membership program that provides access to institution-level analytics and portfolio construction strategies. The service will enable cryptocurrency investors to create their own investment plans. The developers of the suite note that their solution comes in response to the need to use robust research tools in combination with market intelligence when making investment decisions.
The service introduces 32 cryptocurrency indices, including 12 that use quantitative factor models known as smart beta. These proven index strategies have not been applied to the cryptocurrency market before. The platform also provides its members with continually updated tools, indicators, and reports, including index action reports. By applying the tools to the different indices, they will be able to research a single cryptocurrency or the broader market, when deciding which coins to choose for their investment portfolio.
“More and more investors are entering the crypto market and have expressed a clear need for more insight, intelligence, and tools, so they can make better informed decisions,” said Jonathan Held, managing partner and cofounder of Waterstreet. In his words, crypto investors are tired of biased and emotional opinions in blogs and video channels. “They want clear, objective insights to help them understand the evolving market and make investment choices with confidence,” Held added.
New Bot Automates Cryptocurrency Transactions
Bitcoin in Brief Thursday: Thomson Reuters to Track Top 100 CryptocurrenciesA new trading bot, designed to automate cryptocurrency purchases and sales, has been launched by Millioncoin. The platform, which offers crypto-related services, promises to counter the high costs and inconvenience of transacting in digital coins. The bot, named AT.systems, provides its users with resources in real time, which help them profit from trading these cryptocurrencies.
According to the developers, price instability, high transaction fees, and uncertainty about the relative value of different digital and fiat currencies represent barriers to buying, trading, and spending cryptocurrencies. Millioncoin is trying to address these issues by automating the respective processes.
The bot offered by the company can automatically trade cryptocurrencies to provide its users with the best possible deal for their assets. Combined with other tools, AT.systems can also enhance crypto shopping. This, according to Millioncoin, will help consumers incorporate cryptos in their everyday lives.
https://news.bitcoin.com/bitcoin-in-brief-thursday-thomson-reuters-to-track-top-100-cryptocurrencies/
Is token a security?
Hinman at SEC added:
"If a cryptocurrency network is sufficiently decentralized and purchasers no longer have expectation of managerial stewardship from a third party, a coin is not a security..."
Microsoft Purchase of GitHub Leaves Some Scientists Uneasy
They fear the online platform will become less open, but other researchers say the buyout could make GitHub more useful
GitHub—a website that has become popular with scientists collaborating on research data and software—is to be acquired by Microsoft for US$7.5 billion. In the wake of the takeover announcement on 4 June, some scientists and programmers voiced concerns about the deal on social media. They fear that the site will become less open, or less useful for sharing and tracking scientific data, after the buyout. But others are hopeful that Microsoft’s stewardship will make the platform even more valuable.
GitHub launched in 2008, and is now widely used to store, share and update data sets and software code. As of June 13, more than 223,000 academic papers on Google Scholar cited the website, which is free to use for projects that release their code. One of the features that sets GitHub apart from many similar websites is its use of version-control software known as Git, which transparently records changes to files. This allows programmers in different locations to work on the same project in real time, and to track changes and merge updated data. During the 2014–16 Ebola outbreak in West Africa, for example, researchers used the platform to share and cross-check daily patient counts.
Although Microsoft says GitHub will remain open to any project, some scientists are sceptical about that commitment. “Open Science is not compatible with one corporation owning the platform used to collaborate on code. I hope that expert coders in #openscience have a viable alternative to #github,” tweeted Tom Johnstone, a cognitive neuroscientist at the University of Reading, UK.
Björn Grüning, a bioinformatician at the University of Freiburg in Germany, says some researchers are wary of Microsoft because the company has been slow to make its own tools available in open-source code, or to make its services compatible with open-source projects. He has several projects on GitHub, but says he will move them to another service if the company makes the platform less open, forces Microsoft tools on users or changes its pricing model.
Mahmood Zargar, who studies open-source communities at the Free University of Amsterdam in the Netherlands, is more concerned that Microsoft will impose changes that make GitHub less efficient for him to use. He’s planning to move several projects to other services.
A spokesperson for Microsoft did not answer Nature’s questions about researchers’ concerns, but referred to a blogpost by company chief executive Satya Nadella. “We recognize the responsibility we take on with this agreement,” Nadella wrote. “We are committed to being stewards of the GitHub community, which will retain its developer-first ethos, operate independently and remain an open platform.” The post also states that the company will listen to developers’ feedback and invest in both fundamental features and new capabilities.
UNCONCERNED
Some researchers say that fears about Microsoft’s acquisition of the platform are overblown. “I’m not convinced that Microsoft owning GitHub is that big a deal to busy researchers,” says Arfon Smith, a data-science manager at the Space Telescope Science Institute in Baltimore, Maryland, and a former GitHub programme manager. Smith, who began using the platform for his own research in 2009 and has more than 200 projects there, doesn’t think Microsoft will change the collaborative features that researchers care about, such as its ease of use.
Other scientists, such as Ruibang Luo, a bioinformatician at the University of Hong Kong, think Microsoft will use its resources to boost the platform’s user numbers, which would increase the number of potential collaborators. “Satya Nadella has done a good job opening up Microsoft’s products to competitors’ platforms,” he says. “So I’m willing to believe it’s a great deal, unless they prove me wrong.” Katy Huff, a nuclear engineer at the University of Illinois at Urbana-Champaign, also thinks GitHub will give Microsoft an opportunity to support science.
DECENTRALIZED SYSTEMS
Daniel Himmelstein, a data scientist at the University of Pennsylvania in Philadelphia, says that GitHub is problematic for researchers, but that this has nothing to do with the Microsoft acquisition.
GitHub hosts repositories of code or data created by the open-source Git, which can be distributed among users, so the repositories themselves can still have backups if a server dies. However, certain information, such as comments on projects and requests to add code, are stored on GitHub’s website. Some of these data are an important part of the scientific record, says Himmelstein, but they are at risk from outages, surveillance or censorship. “Regardless of the Microsoft acquisition, GitHub, as a centralized and closed company, possesses a dangerous level of control over the open-source ecosystem,” he says.
Scientists face fewer threats, says Himmelstein, if they put their work on decentralized hosting systems, such as the git-ssb project, which don’t have a single point of failure. “To the extent that the Microsoft acquisition makes people aware of the centralized nature of GitHub,” he says, “that’s a positive thing.”
This article is reproduced with permission and was first published on June 15, 2018.
https://www.scientificamerican.com/article/microsoft-rsquo-s-purchase-of-github-leaves-some-scientists-uneasy/
EU copyright reforms attacks Open Science?
EU copyright reforms draw fire from scientists
Planned changes threaten open science, research advocates warn.
An influential committee of the European Parliament is due to vote this month on changes to copyright regulations in the European Union, but the latest drafts of the rules have triggered a wave of criticism from open-science advocates. They say that the proposals will stifle research and scholarly communication.
Intellectual-property experts agree that existing EU copyright rules need an overhaul for the digital age, and a proposal first circulated by the European Commission in 2016 had this goal in mind. But critics worry that some provisions in more-recent proposals for the law — known as the directive on copyright in the digital single market — conflict with Europe’s principles of open science and freedom of expression.
“Copyright law must not hamper open science,” says Vanessa Proudman, European director of the Scholarly Publishing and Academic Resources Coalition (SPARC), a science-advocacy group in Apeldoorn, the Netherlands. “The EU has made significant headway towards open access of research funded by European citizens. The proposed new rules would clearly impede further progress, threatening the visibility of Europe’s research,” she says.
Concerns focus on a provision that would let publishers claim royalties for the use of snippets of information, such as tables or headlines. This was included with the aim of enabling news publishers to secure revenue from social-media platforms such as Facebook and Google. But a proposal added by a European Parliament committee would mean that the provision also applies to academic publications.
Many scholarly publishers, including the International Association for Scientific, Technical and Medical Publishers (STM), based in Oxford, UK, support this amendment. But open-research advocates say that facts and information in a scientific article must remain free from copyright. “We really don’t want further paywalls on top of any research materials libraries have paid for already,” says Maria Rehbinder, a copyright specialist in Finland with the Association of European Research Libraries.
Some researchers express concern that the proposed rule might even force scientists to pay fees to publishers for references they include in their own publications. But STM “cannot envisage any situation where students and researchers would need to pay fees” for citations, says Matt McKay, a spokesperson for the association.
Extra burdens
The EU copyright law, as written, would also compel repositories of research articles to prevent uploads of copyrighted papers and other content. Currently, the onus is on academic publishers to issue take-down notices for papers illegally posted to repositories.
The scholarly social network ResearchGate, for example, has in recent months disabled public access to more than 1.7 million papers on its site, in compliance with take-down messages by publishers. This process of removing articles upon request, says Proudman, works well and effectively for institutional repositories. Forcing all existing non-profit educational and research-data services, including more than 1,000 university repositories, to seek copyright licences and install upload filters would overburden most institutions, she says. “The proposed level of surveillance would put science repositories in the same boat as Facebook or YouTube,” she says, by requiring them to scan submissions for possible copyright violations.
The proposed rules aren’t all bad news for science, says Marie Timmermann, who is in charge of EU legislation and regulatory affairs at Science Europe, an association of national research-funding agencies in Brussels. Text-mining — whereby researchers use computer programs to extract data automatically from large numbers of texts — is exempted from the copyright law, when carried out in the public interest. Scientists at public research organizations would be allowed to harvest facts and data from all sources they have legal access to read.
However, this exemption does not extend to companies — a possible problem for EU-funded research projects, which increasingly include commercial partners, Timmermann notes.
The European Parliament legal committee’s vote on the law, scheduled for 23–24 April, will be a crucial test of whether lawmakers are listening to scientists’ concerns. The precise version the committee will consider has not yet been finalized and circulated, and the final law will also need to be approved by the entire parliament and by EU member states before it can come into effect, due for next year. “For the sake of European research, we hope the worst flaws will yet be deleted,” Timmerman says.
Nature 556, 14-15 (2018)
doi: 10.1038/d41586-018-03837-7
https://www.nature.com/articles/d41586-018-03837-7
SEC remarks at the Yahoo Finance All Markets Summit: Crypto
William Hinman, Director, Division of Corporation Finance
San Francisco, CA
June 14, 2018
Thank you Andy. I am pleased to be here today.[1] This event provides a great opportunity to address a topic that is the subject of considerable debate in the press and in the crypto-community – whether a digital asset offered as a security can, over time, become something other than a security.[2]
To start, we should frame the question differently and focus not on the digital asset itself, but on the circumstances surrounding the digital asset and the manner in which it is sold. To that end, a better line of inquiry is: “Can a digital asset that was originally offered in a securities offering ever be later sold in a manner that does not constitute an offering of a security?” In cases where the digital asset represents a set of rights that gives the holder a financial interest in an enterprise, the answer is likely “no.” In these cases, calling the transaction an initial coin offering, or “ICO,” or a sale of a “token,” will not take it out of the purview of the U.S. securities laws.
But what about cases where there is no longer any central enterprise being invested in or where the digital asset is sold only to be used to purchase a good or service available through the network on which it was created? I believe in these cases the answer is a qualified “yes.” I would like to share my thinking with you today about the circumstances under which that could occur.
Before I turn to the securities law analysis, let me share what I believe may be most exciting about distributed ledger technology – that is, the potential to share information, transfer value, and record transactions in a decentralized digital environment. Potential applications include supply chain management, intellectual property rights licensing, stock ownership transfers and countless others. There is real value in creating applications that can be accessed and executed electronically with a public, immutable record and without the need for a trusted third party to verify transactions. Some people believe that this technology will transform e-commerce as we know it. There is excitement and a great deal of speculative interest around this new technology. Unfortunately, there also are cases of fraud. In many regards, it is still “early days.”
But I am not here to discuss the promise of technology – there are many in attendance and speaking here today that can do a much better job of that. I would like to focus on the application of the federal securities laws to digital asset transactions – that is how tokens and coins are being issued, distributed and sold. While perhaps a bit dryer than the promise of the blockchain, this topic is critical to the broader acceptance and use of these novel instruments.
I will begin by describing what I often see. Promoters,[3] in order to raise money to develop networks on which digital assets will operate, often sell the tokens or coins rather than sell shares, issue notes or obtain bank financing. But, in many cases, the economic substance is the same as a conventional securities offering. Funds are raised with the expectation that the promoters will build their system and investors can earn a return on the instrument – usually by selling their tokens in the secondary market once the promoters create something of value with the proceeds and the value of the digital enterprise increases.
When we see that kind of economic transaction, it is easy to apply the Supreme Court’s “investment contract” test first announced in SEC v. Howey.[4] That test requires an investment of money in a common enterprise with an expectation of profit derived from the efforts of others. And it is important to reflect on the facts of Howey. A hotel operator sold interests in a citrus grove to its guests and claimed it was selling real estate, not securities. While the transaction was recorded as a real estate sale, it also included a service contract to cultivate and harvest the oranges. The purchasers could have arranged to service the grove themselves but, in fact, most were passive, relying on the efforts of Howey-in-the-Hills Service, Inc. for a return. In articulating the test for an investment contract, the Supreme Court stressed: “Form [is] disregarded for substance and the emphasis [is] placed upon economic reality.”[5] So the purported real estate purchase was found to be an investment contract – an investment in orange groves was in these circumstances an investment in a security.
Just as in the Howey case, tokens and coins are often touted as assets that have a use in their own right, coupled with a promise that the assets will be cultivated in a way that will cause them to grow in value, to be sold later at a profit. And, as in Howey – where interests in the groves were sold to hotel guests, not farmers – tokens and coins typically are sold to a wide audience rather than to persons who are likely to use them on the network.
In the ICOs I have seen, overwhelmingly, promoters tout their ability to create an innovative application of blockchain technology. Like in Howey, the investors are passive. Marketing efforts are rarely narrowly targeted to token users. And typically at the outset, the business model and very viability of the application is still uncertain. The purchaser usually has no choice but to rely on the efforts of the promoter to build the network and make the enterprise a success. At that stage, the purchase of a token looks a lot like a bet on the success of the enterprise and not the purchase of something used to exchange for goods or services on the network.
As an aside, you might ask, given that these token sales often look like securities offerings, why are the promoters choosing to package the investment as a coin or token offering? This is an especially good question if the network on which the token or coin will function is not yet operational. I think there can be a number of reasons. For a while, some believed such labeling might, by itself, remove the transaction from the securities laws. I think people now realize labeling an investment opportunity as a coin or token does not achieve that result. Second, this labeling might have been used to bring some marketing “sizzle” to the enterprise. That might still work to some extent, but the track record of ICOs is still being sorted out and some of that sizzle may now be more of a potential warning flare for investors.
Some may be attracted to a blockchain-mediated crowdfunding process. Digital assets can represent an efficient way to reach a global audience where initial purchasers have a stake in the success of the network and become part of a network where their participation adds value beyond their investment contributions. The digital assets are then exchanged – for some, to help find the market price for the new application; for others, to speculate on the venture. As I will discuss, whether a transaction in a coin or token on the secondary market amounts to an offer or sale of a security requires a careful and fact-sensitive legal analysis.
I believe some industry participants are beginning to realize that, in some circumstances, it might be easier to start a blockchain-based enterprise in a more conventional way. In other words, conduct the initial funding through a registered or exempt equity or debt offering and, once the network is up and running, distribute or offer blockchain-based tokens or coins to participants who need the functionality the network and the digital assets offer. This allows the tokens or coins to be structured and offered in a way where it is evident that purchasers are not making an investment in the development of the enterprise.
Returning to the ICOs I am seeing, strictly speaking, the token – or coin or whatever the digital information packet is called – all by itself is not a security, just as the orange groves in Howey were not. Central to determining whether a security is being sold is how it is being sold and the reasonable expectations of purchasers. When someone buys a housing unit to live in, it is probably not a security.[6] But under certain circumstances, the same asset can be offered and sold in a way that causes investors to have a reasonable expectation of profits based on the efforts of others. For example, if the housing unit is offered with a management contract or other services, it can be a security.[7] Similarly, when a CD, exempt from being treated as a security under Section 3 of the Securities Act, is sold as a part of a program organized by a broker who offers retail investors promises of liquidity and the potential to profit from changes in interest rates, the Gary Plastic case teaches us that the instrument can be part of an investment contract that is a security.[8]
The same reasoning applies to digital assets. The digital asset itself is simply code. But the way it is sold – as part of an investment; to non-users; by promoters to develop the enterprise – can be, and, in that context, most often is, a security – because it evidences an investment contract. And regulating these transactions as securities transactions makes sense. The impetus of the Securities Act is to remove the information asymmetry between promoters and investors. In a public distribution, the Securities Act prescribes the information investors need to make an informed investment decision, and the promoter is liable for material misstatements in the offering materials. These are important safeguards, and they are appropriate for most ICOs. The disclosures required under the federal securities laws nicely complement the Howey investment contract element about the efforts of others. As an investor, the success of the enterprise – and the ability to realize a profit on the investment – turns on the efforts of the third party. So learning material information about the third party – its background, financing, plans, financial stake and so forth – is a prerequisite to making an informed investment decision. Without a regulatory framework that promotes disclosure of what the third party alone knows of these topics and the risks associated with the venture, investors will be uninformed and are at risk.
But this also points the way to when a digital asset transaction may no longer represent a security offering. If the network on which the token or coin is to function is sufficiently decentralized – where purchasers would no longer reasonably expect a person or group to carry out essential managerial or entrepreneurial efforts – the assets may not represent an investment contract. Moreover, when the efforts of the third party are no longer a key factor for determining the enterprise’s success, material information asymmetries recede. As a network becomes truly decentralized, the ability to identify an issuer or promoter to make the requisite disclosures becomes difficult, and less meaningful.
And so, when I look at Bitcoin today, I do not see a central third party whose efforts are a key determining factor in the enterprise. The network on which Bitcoin functions is operational and appears to have been decentralized for some time, perhaps from inception. Applying the disclosure regime of the federal securities laws to the offer and resale of Bitcoin would seem to add little value.[9] And putting aside the fundraising that accompanied the creation of Ether, based on my understanding of the present state of Ether, the Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions. And, as with Bitcoin, applying the disclosure regime of the federal securities laws to current transactions in Ether would seem to add little value. Over time, there may be other sufficiently decentralized networks and systems where regulating the tokens or coins that function on them as securities may not be required. And of course there will continue to be systems that rely on central actors whose efforts are a key to the success of the enterprise. In those cases, application of the securities laws protects the investors who purchase the tokens or coins.
I would like to emphasize that the analysis of whether something is a security is not static and does not strictly inhere to the instrument.[10] Even digital assets with utility that function solely as a means of exchange in a decentralized network could be packaged and sold as an investment strategy that can be a security. If a promoter were to place Bitcoin in a fund or trust and sell interests, it would create a new security. Similarly, investment contracts can be made out of virtually any asset (including virtual assets), provided the investor is reasonably expecting profits from the promoter’s efforts.
Let me emphasize an earlier point: simply labeling a digital asset a “utility token” does not turn the asset into something that is not a security.[11] I recognize that the Supreme Court has acknowledged that if someone is purchasing an asset for consumption only, it is likely not a security.[12] But, the economic substance of the transaction always determines the legal analysis, not the labels.[13] The oranges in Howey had utility. Or in my favorite example, the Commission warned in the late 1960s about investment contracts sold in the form of whisky warehouse receipts.[14] Promoters sold the receipts to U.S. investors to finance the aging and blending processes of Scotch whisky. The whisky was real – and, for some, had exquisite utility. But Howey was not selling oranges and the warehouse receipts promoters were not selling whisky for consumption. They were selling investments, and the purchasers were expecting a return from the promoters’ efforts.
Promoters and other market participants need to understand whether transactions in a particular digital asset involve the sale of a security. We are happy to help promoters and their counsel work through these issues. We stand prepared to provide more formal interpretive or no-action guidance about the proper characterization of a digital asset in a proposed use.[15] In addition, we recognize that there are numerous implications under the federal securities laws of a particular asset being considered a security. For example, our Divisions of Trading and Markets and Investment Management are focused on such issues as broker-dealer, exchange and fund registration, as well as matters of market manipulation, custody and valuation. We understand that market participants are working to make their services compliant with the existing regulatory framework, and we are happy to continue our engagement in this process.
What are some of the factors to consider in assessing whether a digital asset is offered as an investment contract and is thus a security? Primarily, consider whether a third party – be it a person, entity or coordinated group of actors – drives the expectation of a return. That question will always depend on the particular facts and circumstances, and this list is illustrative, not exhaustive:
Is there a person or group that has sponsored or promoted the creation and sale of the digital asset, the efforts of whom play a significant role in the development and maintenance of the asset and its potential increase in value?
Has this person or group retained a stake or other interest in the digital asset such that it would be motivated to expend efforts to cause an increase in value in the digital asset? Would purchasers reasonably believe such efforts will be undertaken and may result in a return on their investment in the digital asset?
Has the promoter raised an amount of funds in excess of what may be needed to establish a functional network, and, if so, has it indicated how those funds may be used to support the value of the tokens or to increase the value of the enterprise? Does the promoter continue to expend funds from proceeds or operations to enhance the functionality and/or value of the system within which the tokens operate?
Are purchasers “investing,” that is seeking a return? In that regard, is the instrument marketed and sold to the general public instead of to potential users of the network for a price that reasonably correlates with the market value of the good or service in the network?
Does application of the Securities Act protections make sense? Is there a person or entity others are relying on that plays a key role in the profit-making of the enterprise such that disclosure of their activities and plans would be important to investors? Do informational asymmetries exist between the promoters and potential purchasers/investors in the digital asset?
Do persons or entities other than the promoter exercise governance rights or meaningful influence?
While these factors are important in analyzing the role of any third party, there are contractual or technical ways to structure digital assets so they function more like a consumer item and less like a security. Again, we would look to the economic substance of the transaction, but promoters and their counsels should consider these, and other, possible features. This list is not intended to be exhaustive and by no means do I believe each and every one of these factors needs to be present to establish a case that a token is not being offered as a security. This list is meant to prompt thinking by promoters and their counsel, and start the dialogue with the staff – it is not meant to be a list of all necessary factors in a legal analysis.
Is token creation commensurate with meeting the needs of users or, rather, with feeding speculation?
Are independent actors setting the price or is the promoter supporting the secondary market for the asset or otherwise influencing trading?
Is it clear that the primary motivation for purchasing the digital asset is for personal use or consumption, as compared to investment? Have purchasers made representations as to their consumptive, as opposed to their investment, intent? Are the tokens available in increments that correlate with a consumptive versus investment intent?
Are the tokens distributed in ways to meet users’ needs? For example, can the tokens be held or transferred only in amounts that correspond to a purchaser’s expected use? Are there built-in incentives that compel using the tokens promptly on the network, such as having the tokens degrade in value over time, or can the tokens be held for extended periods for investment?
Is the asset marketed and distributed to potential users or the general public?
Are the assets dispersed across a diverse user base or concentrated in the hands of a few that can exert influence over the application?
Is the application fully functioning or in early stages of development?
These are exciting legal times and I am pleased to be part of a process that can help promoters of this new technology and their counsel navigate and comply with the federal securities laws.
[1] The Securities and Exchange Commission disclaims responsibility for any private publication or statement of any SEC employee or Commissioner. This speech expresses the author’s views and does not necessarily reflect those of the Commission, the Commissioners or other members of the staff.
[2] Section 2(a)(1) of the Securities Act of 1933 (Securities Act) [15 U.S.C. § 77b(a)(1)] and Section 3(a)(10) of the Securities Exchange Act of 1934 (Exchange Act) [15 U.S.C. § 78c(a)(10)] define “security.” These definitions contain “slightly different formulations” of the term “security,” but the U.S. Supreme Court has “treated [them] as essentially identical in meaning.” SEC v. Edwards, 540 U.S. 389, 393 (2004).
[3] I am using the term “promoters” in a broad, generic sense. The important factor in the legal analysis is that there is a person or coordinated group (including “any unincorporated organization” see 5 U.S.C. § 77n(a)(4)) that is working actively to develop or guide the development of the infrastructure of the network. This person or group could be founders, sponsors, developers or “promoters” in the traditional sense. The presence of promoters in this context is important to distinguish from the circumstance where multiple, independent actors work on the network but no individual actor’s or coordinated group of actors’ efforts are essential efforts that affect the failure or success of the enterprise.
[4] SEC v. W.J. Howey Co., 328 U.S. 293 (1946). Depending on the features of any given instrument and the surrounding facts, it may also need to be evaluated as a possible security under the general definition of security – see footnote 2 – and the case law interpreting it.
[5] Id. at 298.
[6] United Housing Found., Inc. v. Forman, 421 U.S. 837 (1975).
[7] Guidelines as to the Applicability of the Federal Securities Laws to Offers and Sales of Condominiums or Units in a Real Estate Development, SEC Rel. No. 33-5347 (Jan. 4, 1973).
[8] Gary Plastic Packaging Corp. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 756 F.2d 230 (2d Cir. 1985).
[9] Secondary trading in digital assets by regulated entities may otherwise implicate the federal securities laws, as well as the Commodity Exchange Act. In addition, as SEC Chairman Jay Clayton has stated, regulated financial entities that allow for payment in cryptocurrencies, allow customers to purchase cryptocurrencies on margin or otherwise use cryptocurrencies to facilitate securities transactions should exercise caution, including ensuring that their cryptocurrency activities are not undermining their anti-money laundering and know-your-customer obligations. Statement on Cryptocurrencies and Initial Coin Offerings (Dec. 11, 2017). In addition, other laws and regulations, such as IRS regulations and state money servicing laws, may be implicated.
[10] The Supreme Court’s investment contract test “embodies a flexible rather than a static principle, one that is capable of adaptation to meet the countless and variable schemes devised by those who seek the use of the money of others on the promise of profits.” Howey, 328 U.S. at 299.
[11] “[T]he name given to an instrument is not dispositive.” Forman, 421 U.S. at 850.
[12] Forman, 421 U.S. at 853.
[13] See footnotes 10 and 11.
[14] SEC Rel. No. 33-5018 (Nov. 4, 1969); Investment in Interests in Whisky, SEC Rel. No. 33-5451 (Jan 7, 1974).
[15] For example, some have raised questions about the offering structure commonly referred to as a Simple Agreement for Future Tokens, or “SAFT.” Because the legal analysis must follow the economic realities of the particular facts of an offering, it may not be fruitful to debate a hypothetical structure in the abstract and nothing in these remarks is meant to opine on the legality or appropriateness of a SAFT. From the discussion in this speech, however, it is clear I believe a token once offered in a security offering can, depending on the circumstances, later be offered in a non-securities transaction. I expect that some, perhaps many, may not. I encourage anyone that has questions on a particular SAFT structure to consult with knowledgeable securities counsel or the staff.
https://www.sec.gov/news/speech/speech-hinman-061418
Remarks at the Yahoo Finance All Markets Summit: Crypto
William Hinman, Director, Division of Corporation Finance
San Francisco, CA
June 14, 2018
Thank you Andy. I am pleased to be here today.[1] This event provides a great opportunity to address a topic that is the subject of considerable debate in the press and in the crypto-community – whether a digital asset offered as a security can, over time, become something other than a security.[2]
To start, we should frame the question differently and focus not on the digital asset itself, but on the circumstances surrounding the digital asset and the manner in which it is sold. To that end, a better line of inquiry is: “Can a digital asset that was originally offered in a securities offering ever be later sold in a manner that does not constitute an offering of a security?” In cases where the digital asset represents a set of rights that gives the holder a financial interest in an enterprise, the answer is likely “no.” In these cases, calling the transaction an initial coin offering, or “ICO,” or a sale of a “token,” will not take it out of the purview of the U.S. securities laws.
But what about cases where there is no longer any central enterprise being invested in or where the digital asset is sold only to be used to purchase a good or service available through the network on which it was created? I believe in these cases the answer is a qualified “yes.” I would like to share my thinking with you today about the circumstances under which that could occur.
Before I turn to the securities law analysis, let me share what I believe may be most exciting about distributed ledger technology – that is, the potential to share information, transfer value, and record transactions in a decentralized digital environment. Potential applications include supply chain management, intellectual property rights licensing, stock ownership transfers and countless others. There is real value in creating applications that can be accessed and executed electronically with a public, immutable record and without the need for a trusted third party to verify transactions. Some people believe that this technology will transform e-commerce as we know it. There is excitement and a great deal of speculative interest around this new technology. Unfortunately, there also are cases of fraud. In many regards, it is still “early days.”
But I am not here to discuss the promise of technology – there are many in attendance and speaking here today that can do a much better job of that. I would like to focus on the application of the federal securities laws to digital asset transactions – that is how tokens and coins are being issued, distributed and sold. While perhaps a bit dryer than the promise of the blockchain, this topic is critical to the broader acceptance and use of these novel instruments.
I will begin by describing what I often see. Promoters,[3] in order to raise money to develop networks on which digital assets will operate, often sell the tokens or coins rather than sell shares, issue notes or obtain bank financing. But, in many cases, the economic substance is the same as a conventional securities offering. Funds are raised with the expectation that the promoters will build their system and investors can earn a return on the instrument – usually by selling their tokens in the secondary market once the promoters create something of value with the proceeds and the value of the digital enterprise increases.
When we see that kind of economic transaction, it is easy to apply the Supreme Court’s “investment contract” test first announced in SEC v. Howey.[4] That test requires an investment of money in a common enterprise with an expectation of profit derived from the efforts of others. And it is important to reflect on the facts of Howey. A hotel operator sold interests in a citrus grove to its guests and claimed it was selling real estate, not securities. While the transaction was recorded as a real estate sale, it also included a service contract to cultivate and harvest the oranges. The purchasers could have arranged to service the grove themselves but, in fact, most were passive, relying on the efforts of Howey-in-the-Hills Service, Inc. for a return. In articulating the test for an investment contract, the Supreme Court stressed: “Form [is] disregarded for substance and the emphasis [is] placed upon economic reality.”[5] So the purported real estate purchase was found to be an investment contract – an investment in orange groves was in these circumstances an investment in a security.
Just as in the Howey case, tokens and coins are often touted as assets that have a use in their own right, coupled with a promise that the assets will be cultivated in a way that will cause them to grow in value, to be sold later at a profit. And, as in Howey – where interests in the groves were sold to hotel guests, not farmers – tokens and coins typically are sold to a wide audience rather than to persons who are likely to use them on the network.
In the ICOs I have seen, overwhelmingly, promoters tout their ability to create an innovative application of blockchain technology. Like in Howey, the investors are passive. Marketing efforts are rarely narrowly targeted to token users. And typically at the outset, the business model and very viability of the application is still uncertain. The purchaser usually has no choice but to rely on the efforts of the promoter to build the network and make the enterprise a success. At that stage, the purchase of a token looks a lot like a bet on the success of the enterprise and not the purchase of something used to exchange for goods or services on the network.
As an aside, you might ask, given that these token sales often look like securities offerings, why are the promoters choosing to package the investment as a coin or token offering? This is an especially good question if the network on which the token or coin will function is not yet operational. I think there can be a number of reasons. For a while, some believed such labeling might, by itself, remove the transaction from the securities laws. I think people now realize labeling an investment opportunity as a coin or token does not achieve that result. Second, this labeling might have been used to bring some marketing “sizzle” to the enterprise. That might still work to some extent, but the track record of ICOs is still being sorted out and some of that sizzle may now be more of a potential warning flare for investors.
Some may be attracted to a blockchain-mediated crowdfunding process. Digital assets can represent an efficient way to reach a global audience where initial purchasers have a stake in the success of the network and become part of a network where their participation adds value beyond their investment contributions. The digital assets are then exchanged – for some, to help find the market price for the new application; for others, to speculate on the venture. As I will discuss, whether a transaction in a coin or token on the secondary market amounts to an offer or sale of a security requires a careful and fact-sensitive legal analysis.
I believe some industry participants are beginning to realize that, in some circumstances, it might be easier to start a blockchain-based enterprise in a more conventional way. In other words, conduct the initial funding through a registered or exempt equity or debt offering and, once the network is up and running, distribute or offer blockchain-based tokens or coins to participants who need the functionality the network and the digital assets offer. This allows the tokens or coins to be structured and offered in a way where it is evident that purchasers are not making an investment in the development of the enterprise.
Returning to the ICOs I am seeing, strictly speaking, the token – or coin or whatever the digital information packet is called – all by itself is not a security, just as the orange groves in Howey were not. Central to determining whether a security is being sold is how it is being sold and the reasonable expectations of purchasers. When someone buys a housing unit to live in, it is probably not a security.[6] But under certain circumstances, the same asset can be offered and sold in a way that causes investors to have a reasonable expectation of profits based on the efforts of others. For example, if the housing unit is offered with a management contract or other services, it can be a security.[7] Similarly, when a CD, exempt from being treated as a security under Section 3 of the Securities Act, is sold as a part of a program organized by a broker who offers retail investors promises of liquidity and the potential to profit from changes in interest rates, the Gary Plastic case teaches us that the instrument can be part of an investment contract that is a security.[8]
The same reasoning applies to digital assets. The digital asset itself is simply code. But the way it is sold – as part of an investment; to non-users; by promoters to develop the enterprise – can be, and, in that context, most often is, a security – because it evidences an investment contract. And regulating these transactions as securities transactions makes sense. The impetus of the Securities Act is to remove the information asymmetry between promoters and investors. In a public distribution, the Securities Act prescribes the information investors need to make an informed investment decision, and the promoter is liable for material misstatements in the offering materials. These are important safeguards, and they are appropriate for most ICOs. The disclosures required under the federal securities laws nicely complement the Howey investment contract element about the efforts of others. As an investor, the success of the enterprise – and the ability to realize a profit on the investment – turns on the efforts of the third party. So learning material information about the third party – its background, financing, plans, financial stake and so forth – is a prerequisite to making an informed investment decision. Without a regulatory framework that promotes disclosure of what the third party alone knows of these topics and the risks associated with the venture, investors will be uninformed and are at risk.
But this also points the way to when a digital asset transaction may no longer represent a security offering. If the network on which the token or coin is to function is sufficiently decentralized – where purchasers would no longer reasonably expect a person or group to carry out essential managerial or entrepreneurial efforts – the assets may not represent an investment contract. Moreover, when the efforts of the third party are no longer a key factor for determining the enterprise’s success, material information asymmetries recede. As a network becomes truly decentralized, the ability to identify an issuer or promoter to make the requisite disclosures becomes difficult, and less meaningful.
And so, when I look at Bitcoin today, I do not see a central third party whose efforts are a key determining factor in the enterprise. The network on which Bitcoin functions is operational and appears to have been decentralized for some time, perhaps from inception. Applying the disclosure regime of the federal securities laws to the offer and resale of Bitcoin would seem to add little value.[9] And putting aside the fundraising that accompanied the creation of Ether, based on my understanding of the present state of Ether, the Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions. And, as with Bitcoin, applying the disclosure regime of the federal securities laws to current transactions in Ether would seem to add little value. Over time, there may be other sufficiently decentralized networks and systems where regulating the tokens or coins that function on them as securities may not be required. And of course there will continue to be systems that rely on central actors whose efforts are a key to the success of the enterprise. In those cases, application of the securities laws protects the investors who purchase the tokens or coins.
I would like to emphasize that the analysis of whether something is a security is not static and does not strictly inhere to the instrument.[10] Even digital assets with utility that function solely as a means of exchange in a decentralized network could be packaged and sold as an investment strategy that can be a security. If a promoter were to place Bitcoin in a fund or trust and sell interests, it would create a new security. Similarly, investment contracts can be made out of virtually any asset (including virtual assets), provided the investor is reasonably expecting profits from the promoter’s efforts.
Let me emphasize an earlier point: simply labeling a digital asset a “utility token” does not turn the asset into something that is not a security.[11] I recognize that the Supreme Court has acknowledged that if someone is purchasing an asset for consumption only, it is likely not a security.[12] But, the economic substance of the transaction always determines the legal analysis, not the labels.[13] The oranges in Howey had utility. Or in my favorite example, the Commission warned in the late 1960s about investment contracts sold in the form of whisky warehouse receipts.[14] Promoters sold the receipts to U.S. investors to finance the aging and blending processes of Scotch whisky. The whisky was real – and, for some, had exquisite utility. But Howey was not selling oranges and the warehouse receipts promoters were not selling whisky for consumption. They were selling investments, and the purchasers were expecting a return from the promoters’ efforts.
Promoters and other market participants need to understand whether transactions in a particular digital asset involve the sale of a security. We are happy to help promoters and their counsel work through these issues. We stand prepared to provide more formal interpretive or no-action guidance about the proper characterization of a digital asset in a proposed use.[15] In addition, we recognize that there are numerous implications under the federal securities laws of a particular asset being considered a security. For example, our Divisions of Trading and Markets and Investment Management are focused on such issues as broker-dealer, exchange and fund registration, as well as matters of market manipulation, custody and valuation. We understand that market participants are working to make their services compliant with the existing regulatory framework, and we are happy to continue our engagement in this process.
What are some of the factors to consider in assessing whether a digital asset is offered as an investment contract and is thus a security? Primarily, consider whether a third party – be it a person, entity or coordinated group of actors – drives the expectation of a return. That question will always depend on the particular facts and circumstances, and this list is illustrative, not exhaustive:
Is there a person or group that has sponsored or promoted the creation and sale of the digital asset, the efforts of whom play a significant role in the development and maintenance of the asset and its potential increase in value?
Has this person or group retained a stake or other interest in the digital asset such that it would be motivated to expend efforts to cause an increase in value in the digital asset? Would purchasers reasonably believe such efforts will be undertaken and may result in a return on their investment in the digital asset?
Has the promoter raised an amount of funds in excess of what may be needed to establish a functional network, and, if so, has it indicated how those funds may be used to support the value of the tokens or to increase the value of the enterprise? Does the promoter continue to expend funds from proceeds or operations to enhance the functionality and/or value of the system within which the tokens operate?
Are purchasers “investing,” that is seeking a return? In that regard, is the instrument marketed and sold to the general public instead of to potential users of the network for a price that reasonably correlates with the market value of the good or service in the network?
Does application of the Securities Act protections make sense? Is there a person or entity others are relying on that plays a key role in the profit-making of the enterprise such that disclosure of their activities and plans would be important to investors? Do informational asymmetries exist between the promoters and potential purchasers/investors in the digital asset?
Do persons or entities other than the promoter exercise governance rights or meaningful influence?
While these factors are important in analyzing the role of any third party, there are contractual or technical ways to structure digital assets so they function more like a consumer item and less like a security. Again, we would look to the economic substance of the transaction, but promoters and their counsels should consider these, and other, possible features. This list is not intended to be exhaustive and by no means do I believe each and every one of these factors needs to be present to establish a case that a token is not being offered as a security. This list is meant to prompt thinking by promoters and their counsel, and start the dialogue with the staff – it is not meant to be a list of all necessary factors in a legal analysis.
Is token creation commensurate with meeting the needs of users or, rather, with feeding speculation?
Are independent actors setting the price or is the promoter supporting the secondary market for the asset or otherwise influencing trading?
Is it clear that the primary motivation for purchasing the digital asset is for personal use or consumption, as compared to investment? Have purchasers made representations as to their consumptive, as opposed to their investment, intent? Are the tokens available in increments that correlate with a consumptive versus investment intent?
Are the tokens distributed in ways to meet users’ needs? For example, can the tokens be held or transferred only in amounts that correspond to a purchaser’s expected use? Are there built-in incentives that compel using the tokens promptly on the network, such as having the tokens degrade in value over time, or can the tokens be held for extended periods for investment?
Is the asset marketed and distributed to potential users or the general public?
Are the assets dispersed across a diverse user base or concentrated in the hands of a few that can exert influence over the application?
Is the application fully functioning or in early stages of development?
These are exciting legal times and I am pleased to be part of a process that can help promoters of this new technology and their counsel navigate and comply with the federal securities laws.
[1] The Securities and Exchange Commission disclaims responsibility for any private publication or statement of any SEC employee or Commissioner. This speech expresses the author’s views and does not necessarily reflect those of the Commission, the Commissioners or other members of the staff.
[2] Section 2(a)(1) of the Securities Act of 1933 (Securities Act) [15 U.S.C. § 77b(a)(1)] and Section 3(a)(10) of the Securities Exchange Act of 1934 (Exchange Act) [15 U.S.C. § 78c(a)(10)] define “security.” These definitions contain “slightly different formulations” of the term “security,” but the U.S. Supreme Court has “treated [them] as essentially identical in meaning.” SEC v. Edwards, 540 U.S. 389, 393 (2004).
[3] I am using the term “promoters” in a broad, generic sense. The important factor in the legal analysis is that there is a person or coordinated group (including “any unincorporated organization” see 5 U.S.C. § 77n(a)(4)) that is working actively to develop or guide the development of the infrastructure of the network. This person or group could be founders, sponsors, developers or “promoters” in the traditional sense. The presence of promoters in this context is important to distinguish from the circumstance where multiple, independent actors work on the network but no individual actor’s or coordinated group of actors’ efforts are essential efforts that affect the failure or success of the enterprise.
[4] SEC v. W.J. Howey Co., 328 U.S. 293 (1946). Depending on the features of any given instrument and the surrounding facts, it may also need to be evaluated as a possible security under the general definition of security – see footnote 2 – and the case law interpreting it.
[5] Id. at 298.
[6] United Housing Found., Inc. v. Forman, 421 U.S. 837 (1975).
[7] Guidelines as to the Applicability of the Federal Securities Laws to Offers and Sales of Condominiums or Units in a Real Estate Development, SEC Rel. No. 33-5347 (Jan. 4, 1973).
[8] Gary Plastic Packaging Corp. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 756 F.2d 230 (2d Cir. 1985).
[9] Secondary trading in digital assets by regulated entities may otherwise implicate the federal securities laws, as well as the Commodity Exchange Act. In addition, as SEC Chairman Jay Clayton has stated, regulated financial entities that allow for payment in cryptocurrencies, allow customers to purchase cryptocurrencies on margin or otherwise use cryptocurrencies to facilitate securities transactions should exercise caution, including ensuring that their cryptocurrency activities are not undermining their anti-money laundering and know-your-customer obligations. Statement on Cryptocurrencies and Initial Coin Offerings (Dec. 11, 2017). In addition, other laws and regulations, such as IRS regulations and state money servicing laws, may be implicated.
[10] The Supreme Court’s investment contract test “embodies a flexible rather than a static principle, one that is capable of adaptation to meet the countless and variable schemes devised by those who seek the use of the money of others on the promise of profits.” Howey, 328 U.S. at 299.
[11] “[T]he name given to an instrument is not dispositive.” Forman, 421 U.S. at 850.
[12] Forman, 421 U.S. at 853.
[13] See footnotes 10 and 11.
[14] SEC Rel. No. 33-5018 (Nov. 4, 1969); Investment in Interests in Whisky, SEC Rel. No. 33-5451 (Jan 7, 1974).
[15] For example, some have raised questions about the offering structure commonly referred to as a Simple Agreement for Future Tokens, or “SAFT.” Because the legal analysis must follow the economic realities of the particular facts of an offering, it may not be fruitful to debate a hypothetical structure in the abstract and nothing in these remarks is meant to opine on the legality or appropriateness of a SAFT. From the discussion in this speech, however, it is clear I believe a token once offered in a security offering can, depending on the circumstances, later be offered in a non-securities transaction. I expect that some, perhaps many, may not. I encourage anyone that has questions on a particular SAFT structure to consult with knowledgeable securities counsel or the staff.
https://www.sec.gov/news/speech/speech-hinman-061418
In the Knowbella Tech STO, Helix token holders are entitled to shares in the Company upon a positive liquidity event:
How The Helix Token Will Power Knowbella Tech’s Growth
Knowbella Tech is an open science collaboration platform that connects global researchers to intellectual property and assets that are sitting idle across institutions, universities and companies. The platform will provide tools and services to match researchers to IP and to crowdsource and advance new discoveries and innovations.
Blockchain is Knowbella’s underlying technology that manages grant funding and the Helix token. It is the “blockchain” part of the equation that we will discuss today, as this introduces a number of new ideas and concepts for people outside the blockchain and cryptocurrency sector. Specifically, I want to discuss the Helix token, which can be used as a value exchange within and without the Knowbella Platform.
This reasonably raises the question as to why we need our own currency. Fiat currencies like the dollar, pound, or yen are very well tried and tested, and if we really insist on using a cryptocurrency, then bitcoin and ethereum are also already commonplace. Would using one of these more established and prolific currencies not be easier? The answer to that question is a lot more interesting than you might imagine.
The Helix Token
Firstly, by using our own currency we will be able to reward scientists for their time and participation in a way that simply would not be possible with a fiat currencies such as the U.S. dollar. Since our project is concerned with collaboration and open science, Helix allows us to incentivize research activities, as well as activities that grow the Knowbella Platform. Helix can be used by our global user base (without the need to use currency exchanges) to purchase equipment or services (within the Knowbella ecosystem) and in any other situation where value exchange is necessary. As the platform grows, the demand for Helix grows with it, which in turn drives up the value of Helix.
This is the Knowbella Tech ecosystem as powered by Helix.
Users are rewarded in Helix for registering, building a profile, uploading intellectual assets, and contributing to research.
Helix tokens are convertible to common shares in Knowbella, thus the users gain economic rights to Knowbella in a liquidity event such as an IPO or acquisition.
Helix encourages user retention?—?the participants, platform, and currency together form an “ecosystem” that work seamlessly with each other as the exclusive means of value exchange within the network.
By contributing and participating in our ecosystem the users increase the value of the platform and the Helix they hold.
Helix will be traded on an SEC compliant alternative trading system (ATS) for other token securities or fiat currency.
Knowbella Platform users are not exploited for their scientific contributions as their participation directly impacts the value of Helix, whereas if Knowbella Tech used fiat or other cryptocurrencies, their participation would have no impact on the value of their holdings.
The blockchain enablement affords our ability to provide voting rights through Helix-as-an-equity.
And finally, as Helix is tied to the Company’s equity, as the Company gains in value, so too does Helix. In this way, Helix is truly a security in the U.S. This means Knowbella can avoid the international complexities that mainstream cryptocurrencies are experiencing.
These points illustrate exactly why Helix is such an integral part of the Knowbella Tech business plan and model. Helix helps us to build our global ecosystem and fuels growth, as well as fostering the ecosystem. Helix will also give our users voting rights within the network, democratizing the Knowbella Platform and helping to shape the future direction for projects, funding and platform tools and services.
Lastly, Helix will guarantee holders a stake in the Company and a share in the profits should the company conduct an Initial Public Offering (IPO) or some other positive liquidity event.
We are very keen to not exploit our scientific members and their holding of Helix guarantees this. Our members are rewarded for their efforts and will also participate in the upside that they create for Knowbella.
Helix Gives More
In creating Helix we have done our utmost to create a token with the strongest and most robust use case possible. Helix helps us to build a strong community, which in turn creates strong loyalty and strong network growth. For any blockchain project the question should always be asked, ‘is there any need for this token?’ In the case of Knowbella Tech that answer is an emphatic yes!
https://medium.com/knowbella-tech/how-the-helix-token-will-power-knowbella-techs-growth-e19f69146f0e
Oxford Profs Plan Launch of World's First Blockchain-Based, Decentralized University
A group of Oxford professors are seeking full-degree granting powers in the EU for the world’s first “blockchain university”, according to an email shared with Cointelegraph today, June 14.
According to the team of academics behind Woolf Development, led by Joshua Broggi from the Faculty of Philosophy at Oxford, blockchain tech and smart contracts can help democratize the traditional structure of higher education.
The proposed “blockchain university” will adopt the traditional Oxbridge course and collegiate structure by focusing on individual tutorial-led modules that will be available to students either on- or offline. The project’s design is “geographically agnostic,” prioritizing a “borderless” academic community over local or national ties.
Woolf’s whitepaper suggests that a blockchain-powered university can address many of the issues currently affecting universities worldwide, including sky-high tuition fees for students, cumbersome bureaucracy and administration costs, and precarious and underpaid academic teaching posts.
As the whitepaper outlines, the immutability of blockchain can function to prevent students from falsifying their academic records, with smart contracts automating students’ attendance, credits and academic paper submissions.
Dr. Broggi told CoinTelegraph that Woolf is now seeking full degree-granting powers in the EU and has been offered “a clear pathway to full accreditation in two European jurisdictions,” continuing:
“We are using a blockchain to enforce regulatory compliance and provide high degrees of data security, so that regulators have the confidence to provide global teaching activities with accreditation in Europe. So a Woolf student in Madras with a Woolf teacher in New York will earn an EU Woolf degree.”
Woolf’s first college, Ambrose, is set to launch in fall 2018. The proposed fees are set to $400 per tutorial, or $19,200 per year “before scholarships.”
Characterizing their project as an “Airbnb of degree courses” for students, and a “decentralized, non-profit, democratic community” for tutors, the academics emphasize that blockchain is the key technology that “provide[s] the contractual stability needed to complete a full course of study.”
A native, fully pre-mined and ERC20-compliant WOOLF token will be used for a wide range of functions, including tuition custodianship, the university budget, internal project developments, and in university governance (voting will be free, but proposing a vote carries a cost as an anti-spamming measure).
Blockchain has already made a significant impact on the content, if not yet the structure, of higher education, with many leading international universities offering blockchain, smart contract, and cryptocurrency-related courses. Institutions such as Cambridge University have conducted substantial research into the crypto-finance field, and Swiss university Lucerne even accepts Bitcoin payments for tuition fees.
https://cointelegraph.com/news/oxford-profs-plan-launch-of-world-s-first-blockchain-based-decentralized-university
The Future of Recruiting Won't Have Any Resumes, and Two More Predictions From an Expert
Put it on the blockchain?
https://business.linkedin.com/talent-solutions/blog/future-of-recruiting/2018/future-of-recruiting-predictions
Blockchain For Scientists Takes On Elsevier, The Business The Internet Couldn't Kill
It was 1995, the year that Craigslist, eBay and Expedia were born.
The age of the internet had arrived, and we at Forbes magazine, all too aware of academics’ complaints about cashing out for research, made a prediction: Elsevier, the largest publisher of scientific journals, would be its “first victim.”
Yet recent years have seen Elsevier profits swell to more than £900 million closing in on a 40% profit margin. It seems to be—as the Financial Times claimed in 2015—“the business the internet could not kill.”
This hasn’t stopped resentment from brewing as journal prices continue to rise above inflation.
In the U.K. universities paid an average of nearly £4 million ($5.4 million) for journal subscriptions last year, with the majority of this budget going to five academic publishing companies: Elsevier, Springer, Wiley-Blackwell, Taylor & Francis and Sage.
At the close of 2017, a group of 200 German Universities even stood together against Elsevier, sparking further unrest in Sweden alongside renewed outrage from European academia.
Blockchain to the rescue
Could blockchain be what brings science’s untouchable publishing giants down? Norway’s Anita Schjøll Brede, cofounder and CEO at Iris.AI—one of Europe’s hottest artificial intelligence companies—hopes so. She said as much speaking at the CogX AI festival yesterday, part of London Tech Week.
The entrepreneur experienced firsthand the frustrations of opaque academia while at the helm of her previous energy startup Pinexo. “It took us nine months to find the right researcher who was just three blocks down the road,” she tells Forbes.
This is why she started Iris.AI in 2015, a semi-automated scientific review tool that’s today used by everyone from Denmark’s Leo Pharma to the University of Helsinki (this uses artificial intelligence to help scientists tackle “information overload” by pulling together precise reading lists for them).
Now, having announced a €2 million ($2.4 million) fundraise at Finland’s Slush festival in December, Schjøll Brede is building a “blockchain for scientists” to disrupt the traditional publishing model.
“The conglomerates buy up all these journals, bundle them together and sell them back to universities at a ridiculous price,” she says. “It's a lazy business model, and in a digital world it doesn't make sense anymore.”
Project Aiur
Schjøll Brede’s new side project is called Project Aiur (a name which references the hit PC game StarCraft). Its aim? To use the blockchain to support a transparent AI peer review and publishing service with its own online economy.
Individuals can contribute in many ways, building useful research tools, publishing their own studies to the platform, peer reviewing work and training the platforms AI to automate the process.
In return, they earn “Aiur tokens,” which can be spent on the use of research tools, including those which allow them to compare their papers with all other scientific research on the system (this today includes over 130 million open access studies and is expected to grow over time).
“We call this tool the semi-automation of the peer review process,” explains Schjøll Brede. “It helps you spot any constraints you might have missed, any other papers contradicting you. You might still be right, but you can now be aware of it and address it in your paper.”
Schjøll Brede has already soft-launched Aiur’s €10 million ($11.7 million) token sale to 8,000 researchers who’ve worked on its machine learning, with a public token sale due to open later this month—this has a lower cap of €6 million ($7 million) and upper cap of €50 million ($59 million), says the entrepreneur.
No one will be allowed to hold more than 2% of tokens (the Iris AI team will initially hold 50% but will redistribute this to the community within the next 18 months). And those who want to stick with traditional paywall publishing can simply pay to access Project Aiur’s features, with their payments increasing the value of its digital tokens.
Tracking “the truth”
It’s not just scientists who could potentially benefit from Project Aiur, an open source platform that has been built as an independent nonprofit extension of Iris.AI (a bit like the Linux-Red Hat model).
Schjøll Brede says she’s already in “close dialogue” with Unit, an offshoot of Norway’s Ministry of Education, about how it could streamline its due diligence processes before funding new research. Tools could also be built specifically for VCs, patent experts or even hedge funds, she predicts.
“We need this engine to exist, but we do not believe a company should be the owner of it, because you're essentially talking about finding the ‘truth’,” says the founder.
“Even if we see ourselves as the good guys taking on a very powerful academic publishing industry right now, we might not be the good guys five years from now.”
Being the “good guys” hasn’t been easy in the billion-dollar journal publishing business of course, and Schjøll Brede says her team’s focus on impact has been the hardest part of her startup journey so far (although having supportive investors like Nordic Impact has helped).
The big dream is to create a world where cutting-edge information becomes more accessible to everyone, she says: whether you’re looking up the latest information about a rare disease, or advice on what you can grow in your garden.
“There is so much in our world of work that is just incredibly time-consuming and painstaking,” says Schjøll Brede. “What we really want to do is take away that excruciatingly boring part so that people can focus on coming up with new solutions.”
Elsevier may have survived one fatal Forbes prediction. Can it possibly survive two?
https://www.forbes.com/sites/kittyknowles/2018/06/13/blockchain-science-iris-ai-project-aiur-elsevier-academic-journal-london-tech-week-cogx/#7b88414c1e0a
Can Blockchain Technology put an end to Counterfeit Drugs?
Roughly 50% of drugs consumed in developing nations are counterfeit
The global pharmaceutical industry is faced with a growing counterfeit drugs market, a serious concern that is a strong deterrent to generic and innovative industries. Most importantly, it puts millions of lives at stake. According to the World Health Organization, roughly 50% of drugs consumed in developing nations are counterfeit. Among these, most are antibiotics and antimalarials. These drugs can harm patients and fail to treat the diseases they are treated for. Furthermore, they can hurt the reputation of the original product.
How Grave is The Problem
A report from the US International Trade Administration on The Pharmaceutical Market states that the size of the global counterfeit drug market ranges between $75 to $200 billion and comprises of 50% of all drugs sold in low-income nations. Such illegal operations have caused over 100,000 deaths across the globe, with the expenses in lost profits rendered by pharmaceutical companies touching $18 billion annually. The report suggests various ways to counteract the increase in fake drugs in the market, which includes the use of Radio Frequency Identification Devices (RFID) and implementation of powerful state licensure supervision of suppliers to precisely segregate real drugs.
The counterfeiting trade has become more profitable than the narcotics business. And experts state that finding a permanent solution to it or stemming the tide entails active participation of both the industry and government.
Some of the top counterfeit drug types are as follows:
Cytostatic
Central nervous system
Cardiovascular
Anti-infectives
Alimentary
One prominent stakeholder that’s fighting fake drugs is the Pharmaceutical Security Institute. Thomas Kubic, PSI chief executive, states that there were 2,003 incidents involving 808 various drug products that were counterfeited, stolen or illegally diverted in 2016.
Counterfeits are also on the rise in developed nations mainly because of the prevalence of online pharmacies. The FDA routinely purchases drugs on the internet and finds that more than 50% are fake. According to the National Crime Prevention Council, the traffic in counterfeit drugs poses a massive threat to all Americans and people in other countries.
INTERPOL conducts yearly operations to crackdown on unauthorized sale of medicines, medical equipment and devices. During its operation in 2016, it seized over $53 million of potentially fatal medicines and blocked 4,932 websites selling illegal drugs. INTERPOL had also seized harmful drugs worldwide worth $6.3 million in 2011. While these facts highlight the success of authorities, it also shows the huge growth of counterfeit pharmaceuticals over the years.
Can Blockchain Be The Solution?
Blockchain technology is popularly known as email for money; however, it has the potential to be so much more. To date, blockchain applications mainly focus on the financial world but this is just the tip of the iceberg. There are many other industries that are putting blockchain technology to good use. And among them is the pharmaceutical industry.
Blockchain technology stops the entry of fake drugs into the supply chain, mainly the part between the manufacturer and consumer. The technology uses a highly scalable transparent protocol in order to assign every manufactured product an asset. These assets are then added to the blockchain and assigned a unique identification number, commonly referred to as hash.
The technology then verifies the hashes to find out whether or not the product in question is counterfeit or legitimate. Whether it’s a tablet, a handbag or a medicine, every product in the world can be verified using this technology. An interesting part of this technology is that anyone can get access to the blockchain and conduct his own product verifications. On top of that, it avoids malicious groups or individuals from creating duplicate items.
Blockchain creates a visible supply chain where all entities like suppliers, vendors, distributors and partners are brought together in a close-knit and comprehensive manner. It keeps record of all transactions and makes every necessary detail like location, quality, price and other data visible to all concerned parties while lessening the tampering of records. The supply chain is made transparent, secure, decentralized and verifiable besides plugging loopholes in the supply of authentic medicines and trimming costs involved in detecting faulty areas.
Blockchain is a wonderful platform to increase transparency and trust, with customers being able to keep a track on pharmaceutical products throughout the supply chain. Only trusted parties are allowed to write on the blockchain. Manufacturers and consumers can scan the bar code and view the history. The platform also notifies whenever a counterfeit drug is found.
One of the major issues to be taken into consideration is the change of ownership of a particular drug. Fear not as the technology provides absolute verification on the ownership
In short, blockchain tracks pharmaceuticals throughout the supply chain and ensure that consumers receive authentic products.
Startups Engaging in Blockchain Technology in The Pharmaceutical Supply Chain
Companies like LinkLab, iSolve, LifeCrypter and BlockVerify and a few more are actively working to find blockchain solutions that bring transparency, traceability and integrity to the global drug supply chain.
In November 2016, Chronicled launched CryptoSeal, representing a major step forward in making the supply chain more genuine. Each CryptoSeal contain a Near Field Communication (NFC) chip installed with a unique identity number, which is registered and verified on a blockchain. Besides a product’s identity, the CryptoSeal also records the identity of its registrant and packaging, also known as asset metadata on to the blockchain.
London-based anti-counterfeit solution provider, BlockVerify, has started focusing their efforts on the pharmaceutical industry. They plan to give every drug its own permanent record on the blockchain, which will make manipulation of private keys an impossible task. The system will also be able to identify stolen drugs, diverted goods, and fraudulent transactions.
Final Thoughts
By implementing blockchain technology, pharmaceutical supply chain stakeholders can significantly improve their efficiency while distributing verifiable medications all across the globe. Patients also stand to gain by independently verifying the products.
At the end of the day, a transparent and secure supply chain is important for companies spending billions of dollars on R&D to come up with innovative formulas and also for millions of patients who rely on life-saving drugs.
https://www.drugpatentwatch.com/blog/can-blockchain-technology-put-an-end-to-counterfeit-drugs/amp/
Thomson Reuters Adds Sentiment Data Tracking of 100 Top Cryptocurrencies
Thomson Reuters Adds Sentiment Data Tracking of 100 Top CryptocurrenciesNEWS
Canadian mass media and information company Thomson Reuters will now be tracking the top 100 currencies in its sentiment data tool. The necessary data will be provided via a partnership with MarketPsych Data LLC, according to a WebWire press release published Wednesday, June 13.
In March, Thomson Reuters had added a Bitcoin (BTC) sentiment data feed to its MarketPsych Indices (TRMI), getting data by scanning more than 400 news and media sites related to cryptocurrencies.
The new TMRI Cryptocurrency Sentiment package (TRMI 3.1) will monitor over 2,000 news and 800 social media sites for 43 sentiments of the top 100 cryptocurrencies. The press release notes that TRMI 3.1 will use visualization tools and quantitative research results to support traders distinguish significant themes.
In April, a Thomson Reuters survey had shown that 1 in 5 financial firms in their sample had expressed interest in expanding to cryptocurrency in the next year, finding that an estimated 56 will offer a form of crypto by October.
Pradeep Menon, the Managing Director and Global Head of Investing and Advisory at Thomson Reuters, said that the shift to crypto in the financial sector prompted the new release:
“Adding a cryptocurrency-focused sentiment feed to our suite of cross-asset solutions has therefore enabled us to provide our customers with invaluable insights that may help them make strategic investment decisions.”
The press release notes that Thomson Reuters introduced crypto trading on Thomson Reuters REDI this year, supporting trading of CBOE and CME Group Bitcoin futures.
In March, Fundstrat’s Tom Lee created another kind of crypto sentiment device - the Bitcoin Misery Index - that measures how “miserable” Bitcoin holders are based on the current prices.
https://cointelegraph.com/news/thomson-reuters-adds-sentiment-data-tracking-of-100-top-cryptocurrencies
Another US Bitcoin Trader Faces Prison for Illegal Money Transmission
This week in Southern California a Los Angeles woman who called herself the ‘Bitcoin Maven’ will be sentenced this Monday after pleading guilty for illegal money transmission. According to law enforcement, the woman made close to $300,000 USD annually by selling BTC on the peer-to-peer exchange Localbitcoins.
LA Woman Called the ‘Bitcoin Maven’ Convicted for Selling Bitcoins Without a License
U.S. law enforcement has arrested and convicted another Localbitcoins seller who reportedly made $300K per year selling digital assets. The 50-year-old Theresa Tetley used the alias ‘Bitcoin Maven’ and sold bitcoins without registering with the financial authorities. Prosecutors say Tetley’s operations “fueled a black-market financial system in the Central District of California that purposely and deliberately existed outside of the regulated bank industry.”
The U.S. Attorney’s Office claims that Tetley processed around $6-9.5 million USD worth of bitcoins throughout her tenure. Operating as the ‘Bitcoin Maven’ Tetley sold BTC between 2014 and 2017 using the online trading platform. Tetley has pleaded guilty and her defense is asking for 1 year in prison for her wrong doings but prosecutors have asked the U.S. District Judge Manuel Real to sentence Tetley to 30 months in federal prison.
Another US Bitcoin Trader Faces Prison for Illegal Money Transmission
Last year US law enforcement officials began arresting Localbitcoins traders who dealt with large amounts of BTC.
US Law Enforcement Continues to Arrest Localbitcoins Sellers for Selling Large Quantities of Digital Assets Without Permission
Tetley is one of many instances where US Localbitcoins traders have been taken into custody for illegal money transmission. In Missouri, a trader named Jason R. Klein pleaded guilty for trading BTC for fiat without registering with the financial authorities. Thomas Constanzo, (aka ‘Morpheus’) was arrested by Homeland Security in Arizona for the same crime. An Ohio man named Daniel Mercede was arrested in May of last year for selling large quantities of BTC overseas. Further, Richard Petix from New York was another trader who was found guilty for selling BTC and charged with “illegal money transmitting business” and “making false statements.”
Then this past February there was another instance where the U.S. Immigration and Customs Enforcement (ICE) team and Homeland Security arrested Morgan Rockcoons (aka ‘Morgan Rockwell’) in Las Vegas Nevada for a BTC transaction from November 2016. That month Rockcoons was charged with unlicensed money transmitting business and money laundering.
In Theresa Tetley’s (aka ‘Bitcoin Maven’) case, the U.S. Attorney’s Office is asking for a forfeiture of 40 BTC confiscated during her arrest, and 25 gold bars.
What do you think about the LA woman charged with illegal money transmission for selling BTC on the platform Localbitcoins? Let us know what you think about this subject in the comment section below.
https://news.bitcoin.com/another-us-bitcoin-trader-faces-prison-for-illegal-money-transmission/
Security Token Offerings (STO) – The New Way To Raise Funds With Crypto
So far, even non-crypto worshippers are either aware of or have heard about a fundraising initiative known as an Initial Coin Offering (ICO). However, ICOs have gone through turbulent times in the recent past, often due to fraudulent feedback from the mainstream media and a low success rate of shutdowns from the Securities and Exchange Commission – with accusations of fraud. A number of countries have also banned ICOs, like South Korea. So, blockchain enthusiasts are looking for a more satisfactory means of funding blockchain innovation that is more legitimate. Security token offerings, STOs, are therefore the new kid on the crypto block.
Business Insider reports that in spite of a lack of regulation, ICOs still fuel startups with a massive $5.6 billion, so what next? Many industry experts and enthusiasts believe the answer is STOs.
What Are STOs and How do They Work?
One of the industry experts, Overstock CEO Patrick Byrne, says that STOs are a safer way of raising money through crypto to fund blockchain ventures. The CEO told CNBC,
It’s the new term. The industry is distinguishing very clearly now between ICOs and STOs.
Recently, Overstock announced a $2.5 million investment in three-wheel car start-up Elio Motors. The announcement also coincided with the launch of ElioCoin, which will fund the production and the company, making it clear that it was a “security token offering”. The industry figurehead argues that STOs are a clever offering that present a whole new dimension to American entrepreneurship.
Since 2016, about 10 billion has been raised using ICOs, a figure that has drawn the attention of financial regulators in the world including the SEC – which has since warned American investors of pump-and-dump schemes in ICOs.
In an ICO, coins or tokens are put up for sale as a form of crowdfunding. Rather than an investor gaining voting rights or dividends as is the case with shares in a company, utility tokens promise accessibility to a platform, service or network. However, they are usually backed by an abstract idea or nothing at all.
Indeed, in the last few years, ICOs has led to the birth of some ‘funny’ cryptos like Dogecoin, a Shiba Inu dog meme that was turned to a cryptocurrency and has a passionate following on sites such as Reddit. Similarly, Whoppercoin, Pandacoin, Trumpcoin and PutinCoin.
As with ICOs, in a STO, one can purchase coins or tokens. However, unlike in various ICOs, security tokens must be supported or backed by something tangible like assets, profits or revenue of a firm. They are almost similar to company shares; the only difference is that they are programmable to do certain tasks, like conducting proxy voting, since they are built on blockchain technology.
Binance founder Changpeng Zhao believes that the invention of STOs is a compromise with the existing framework of how securities work, therefore they could be the new ICOs in the years to come. This also means that investors are sealed from the pump-and-dump schemes that are evident with ICOs.
https://bitrazzi.com/security-token-offerings-sto-the-new-way-to-raise-funds-with-crypto/
The CFTC sees bitcoin and other cryptocurrencies as commodities.
https://news.bitcoin.com/cftc-subpoenas-leading-exchanges-for-trading-data/
CFTC COMMISSIONER: BITCOIN, CRYPTOCURRENCIES ARE NOT GOING AWAY
U.S. Commodities Futures Trading Commission
Recent remarks from CFTC Commissioner, Rostin Behnam, reveal that US regulators are realizing that Bitcoin and cryptocurrencies are here to stay because they’ll “become a part of the economic practices of any country, anywhere.”
‘WE ARE WITNESSING A TECHNOLOGICAL REVOLUTION’
The CFTC Commissioner gave the remarkable speech on June 4th in New York City at the BFI Summit event titled “Fostering Open, Transparent, Competitive, And Financially Sound Markets.”
Behnam outlined the agency’s stance on the burgeoning Bitcoin and cryptocurrency space, admitting that regulators around the globe are scratching their heads when it comes to how to stop fraud and manipulation that is not uncommon in this nascent industry.
“The debate on virtual assets is just beginning,” he notes. “None of us know where it will end. But it has forced us to rethink. We have learned that virtual assets respect no borders. Regulation is often behind the curve, unable to keep up with daily developments.”
Considering the apolitical, borderless and decentralized properties of cryptocurrencies like Bitcoin, the commissioner admitted that the cat is out of the bag and the technology is here to stay.
According to Benham:
[V]irtual currencies may – will – become part of the economic practices of any country, anywhere. Let me repeat that: these currencies are not going away and they will proliferate to every economy and every part of the planet. Some places, small economies, may become dependent on virtual assets for survival. And, these currencies will be outside traditional monetary intermediaries, like government, banks, investors, ministries, or international organizations. We are witnessing a technological revolution. Perhaps we are witnessing a modern miracle.
‘BLOCKCHAIN IS MORE THAN A TECHNOLOGY’
The commissioner echoed the positive statements of CFTC chairman, J. Christopher Giancarlo, who urged the government to take a “no harm approach” back in February. What’s more, Behnam believes cryptocurrencies could become a powerful tool to reduce poverty and corruption with its open-access technology and transparent ledger.
“The so-called ‘unbanked’ could now be on the virtual grid,” he explains. “And, those without computers, some four billion people, could gain an important connection through cell phones.”
Blockchain is More Than a Technology
Conversely, the commissioner warns that cryptocurrencies could be a “possible danger” if they fall into the hands of the “kleptocracy.”
“[T]hen [the kleptocracy would] simply accumulate more wealth at the expense of their citizens, draining wealth in cryptocurrencies rather than dollars or euros,” Behnam warns.
At the same time, current law in the United States does not give any US regulator authority over spot virtual currency platforms operating in the United States (e.g. Bittrex, Poloniex, Coinbase) or abroad (e.g. Binance, Bitfinex).
Nevertheless, the CFTC does have authority under the Commodities Exchange Act (CEA) over derivatives on cryptocurrencies traded in the US. Therefore, it can take action against wash trading and prearranged trades on cryptocurrency exchanges.
But because cryptocurrencies are borderless and outside of any government control, Behnam believes that there must be a coordinated effort on a global scale to educate the public through the agency’s international project named “LabCFTC.”
“We need to think about how to make this work internationally!” he said, calling on the effort to be undertaken on a “large, perhaps unprecedented scale.”
He adds:
Blockchain is more than technology: it is an advance that reaches out into every aspect of life.
As a young child, I would come to this building in search of solutions to the problems of the world. Now, today, we may have found one of those solutions – bigger, bolder, more comprehensive, and more effective than anything imagined before. And, as a regulator, I am pleased to be part of your discussion.
http://bitcoinist.com/cftc-commissioner-bitcoin-not-going-away/
How An IPO Really Works
IPO fever is definitely back in the tech world. Some of the recent deals include DocuSign, Smartsheet, Pivotal Software, Zuora, Dropbox and Zscaler.
Yet the IPO process is often mysterious and misunderstood. So to get a sense of how things really work, I had a chance to talk to Howard Lerman, who is the founder and CEO of Yext. His company is the leader in Digital Knowledge Management (this involves applying algorithms to public facts so as to boost revenues and find business opportunities) and the customer base includes large enterprises like Arby’s, AutoNation, Marriott and T-Mobile.
Back in April 2017, Howard took Yext public on the New York Stock Exchange, raising $116 million. The lead investment bankers included Morgan Stanley and J.P. Morgan.
Okay, then what was the experience like for Howard? Well, let’s take a look:
#1- Pre-IPO Preparation
Despite recent loosening of the rules, an IPO still involves many regulations. Because of this, Yext started building the compliance infrastructure two years before it pulled off its own offering. This meant hiring a strong team with public company experience. There was also a need to hire a top audit firm.
Basically, before Yext sold shares, the company was already operating as if it were public. “It’s amazing the kinds of systems you need to put in place so you do not have any material weaknesses,” said Howard.
This also meant that millions had to be spent. This is why a company needs to reach a certain scale – such as over $100 million in annual revenues – to be a viable IPO candidate.
But there are certainly key benefits of an IPO. “Being public has always been our destiny,” said Howard. “We do not want to favor one company or brand. We need to be independent, like Switzerland.”
The IPO was also a strong marketing event for Yext, especially in terms of getting the attention of prospects outside the US. It also got easier to work with larger companies because of the credibility from having to disclose ongoing financial information. And yes, the liquid stock provided more flexibility with employee compensation.
#2 – Testing The Waters And The Roadshow
The “testing the waters” phase involves a two-day period of meetings to gauge the interest of investors. Think of this as a practice roadshow. A company can also do this without having a lead investment banker.
“You’ll have eight meetings each day,” said Howard, “which is a good practice round. The meetings can also be an eye-opener. You’ll soon realize that public company investors have a much different approach versus venture capitalists. A VC is much more about the long-term and often gets involved in the strategy and operations, such as being a part of the board. A public company investor, though, is much more short-term focused. He or she may also see your deal in two ways. Should I buy? Or Should I sell the stock short?”
While this can be unnerving, Howard considered the meetings to be extremely helpful. He also realized how important it was to have a strong CFO. “Public company investors have a deep understanding of the financials,” he said.
After the meetings are over, you will get a run-down of the interest from the investors. And if it is strong, then the company will go on a roadshow, which will last 2 weeks or so. Much of it will be focused on the major cities in the US but there may be meetings in Europe and Asia (Yext had one in London).
“The roadshow is a whirlwind,” said Howard. “But you’ll definitely get to know your pitch well. Your investment bank will also provide a jet, which is nice.”
He also had an app that showed – in real-time – the interest from investors.
#3 – The IPO
During the evening before the shares are sold to the public, the senior managers of the company and the investment bankers will have a pricing meeting – which can be tense. Keep in mind that it’s a tough balance to get a good price for investors but also trying to find the best deal for the company. In the case of Yext, the company priced 10.5 million shares at $11 each. The stock would then end the day up 22%.
“During the morning of the IPO,” said Howard, “I saw the banner of our company hanging in front of the exchange. This is when the moment felt real.”
And it was a busy day, of course. He rang the bell, met lots of people and had interviews with various media outlets, such as with CNBC.
“Despite all the excitement, it’s important to realize that an IPO is not an end in itself,” said Howard. “The focus must continue to be to serve employees, customers and shareholders. So the next day after the IPO, we went back to work.”
https://www-forbes-com.cdn.ampproject.org/c/s/www.forbes.com/sites/tomtaulli/2018/06/10/how-an-ipo-really-works/amp/
So you want to launch a STO…
Before I start, a Disclaimer:
1. I am not a lawyer. I do not pretend to be a lawyer. Nothing in this posting is legal advice.
2. I am not an account. I do not pretend to be an accountant. Nothing in this posting is financial advice.
3. Lastly, I am not a bot!
Background
What is STO?
A Security Token Offering (STO) based upon blockchain technology can be thought of as a next-generation Initial Coin Offering (ICO). We prefer to think of it as a regulated ICO.
In December 2017, the U.S. Securities and Exchange Commission’s (SEC), Jay Clayton, Commissioner, said, “I believe every ICO I’ve seen is a security.”[1] The SEC has become more proactive about regulating ICOs. [2]
Unfortunately, outright fraud has started to plague ICOs. Where ever there is easy money, the crooks will follow.[3]
This was backed-up by Operation CryptoSweep, with nearly a hundred ICOs targeted for investigation.[4][5]
Frankly, if I had launched an ICO, I would be concerned about who my prison cell mate might be.[6]
Why STO?
The value proposition of https://Knowbella.Tech is crowdsourcing underserved scientists around idle intellectual properties (IP). As the researchers openly collaborate they are rewarded with Helix tokens. Over 50% of the tokens in the issuance are reserved for researchers.
For those scientists who opt-in, we will matchmake them with employers. This is good for the researchers who opt-in because Knowbella Tech facilitates opportunities. The employers benefit by being able to see the researchers in action in real-time. Unlike job hunting platforms in which you only update your profile when you are looking for a job, Knowbella Tech gives employers a window into the real-time collaboration of opted-in scientists and their profiles are dynamic. This will be managed on the blockchain.
As an experienced team with a number of startups and exits over the past 30 years, we suspected unregulated ICOs would come to a nasty screeching halt. Because of that, we decided to consider our Helix token as a security from the start and make it SEC-compliant. Of course we knew this would be time consuming and expensive. Most startups cannot muster the funds and expertise to launch a regulated STO.
Luckily, due to our previous successes, we were able to bring together funds and a team to give a run at launching a STO. We decided to pursue a Regulation A+, Tier 2, Form 1-A filing with the SEC. This is not a cheap proposition. Fortunately, once again, we secured an expert Midwestern law firm charging Midwestern hourly rates. This was less than the rates quoted by law firms on either coast.
As an experienced team we knew sophisticated investors would require Knowbella Tech to actually be a sustainable revenue-generating company focused on providing a multi-bottom-line return on investment (ROI). We also think cryptocurrency investors burned by the fraudently ICOs and those ICOs that simply exploit their user base, would similarly demand a revenue-generating sustainable business. We know our business had to stand on its own without the bluster of buzzwords such as “blockchain”. Yes, we are using blockchain technology, but it is only an enabling technology that supports the business.
It is with this philosophical approach that we decided to give investors and researchers value equivalent to equity. We believe those researchers participating in building the Company, its platform, and its value should not be exploited; rather they should enjoy any ROI realized by their participation.
Tokens as Securities
To this, and inline with our focus on making Helix a bona fide security, we tied H shares in the Company to the Helix tokens. As the scientists increase the value of the Company, the value of the H shares increases, and this in turn increases the value of the attached Helix they have earned. This should spill over to the non-scientist holders of Helix on SEC-compliant exchanges.
If the Company achieves an ROI liquidity event such as an Initial Public Offering (IPO), or is purchased, the Helix holders can gain H shares for the Helix they hold and enjoy the liquidity of the H shares on a stock exchange. Now the Helix holder has both tokens and stock. The Helix is much sooner liquid than the shares, but the shares require regulatory reporting, keeping both the Helix holders and equity holders up-to-date on the Company’s inner workings.
Process
Okay, with that background, a little bit of insight into the process of the STO.
Step one: Identify a problem in the market that you can solve, presumably with the help of the enabling blockchain technology. Remember, there must be a market for the solution. No one wants to fund research projects with the promise of “if you build it they will come”.
Step two: Anwer the question, “who is going to help you launch a company”? You will most likely need a founding team working without pay (“sweat equity”). Securing a team is the most critical step as sophisticated investors back teams, not products. The team will collaborate on building the business plan and executing it. Be sure to secure your legal and financial infrastructure. They will help you grow and remain compliant.
Step three: Leverage your business plan and team to raise capital, most likely from high networth accredited investors. Again, in the U.S., this type of capital raise is governed by State and Federal regulations. Your “high-speed, low-drag”, law firm should be involved from the start of your company building process. In this step, you better know the team, product, market, and proposed ROI forwards and backwards. Be sure someone on the team can tell the story in an honest, non-embellished way. There are a number of books that can help you. My favorite is Guy Kawasaki’s “The Art of the Start 2.0: The Time-Tested, Battle-Hardened Guide for Anyone Starting Anything” (Guy Kawasaki, @GuyKawaski, 2015).
Step four: After securing funding try to gain a minimal viable product (MVP). Funders are becoming increasing wary of funding research projects that cannot be sustainable.
Step five: With a MVP, proof of honest and frugal financial stewardship, a focus on generating an ROI, consider launching a STO.
Step six: Pick either a Regulation D (Reg D) offering or Regulation A (Reg A) offering.
A Reg D only allows raising capital from U.S. accredited investors. If you want to gain non-U.S. investors, add a Regulation S (Reg S). A Reg A allows raising capital from both accredited and non-accredited investors, domestically and internationally. This is the regulation that Knowbella Tech chose to pursue under the expert guidance and leadership of our law firm.
Which is cheaper: The Reg D/S or Reg A?
Depends on the variables such as doing a roadshow, networking with investors who care about your story, and the amount of work required to achieve the filing. Generally speaking the Reg D route is the cheapest, followed by the Reg D/S combination, and most expensively the Reg A. The Reg is generally more expensive because it requires nearly the same amount of cost as an IPO. As such, Reg A is frequently know as a “mini-IPO”[7]. As usual, ask your big bad law firm which is best for you. If you use a Midwestern law firm and your company is not too complex, expect around $100,000.00.
Step seven: Assuming you gain permission from the SEC to do an STO, recognize other regulatory requirements including interstate money transfer, taxes, and state securities authorities.
Step eight: Do not sleep. You are working for your investors, customers, and token holders.
Other Considerations
If you are not committed 100% to your business and willing to give up holidays, weekends, relationships, and your sanity, do not undergo launching a business, let alone a STO regulation filing. Most of your investors do not care about your sacrifices. They care to gain a ROI. Regardless, under the Regulations in which you raise capital, you are required to be a good steward of capital with a fiduciary responsibility to the equity holders.[8]
You should know yourself. Know your strengths and weaknesses and fill the weaknesses with those who are stronger than you. Try to tuck away ego.
Do not worry about dilution. Own a fraction of something instead of a 100% of nothing.
Conclusion
The complexity of the STO cannot be boiled down into a few blog posts. After all, many books of regulations exist that govern securities and their are constant updates. Again, your law firm is a critical team member to ensure you are compliant and remain compliant.
In the near future we will discuss the execution of the Knowbella Tech STO…
Citations
[1] Stan Higgins, SEC Chief Clayton: ‘Every ICO I’ve Seen Is a Security’, https://www.coindesk.com/sec-chief-clayton-every-ico-ive-seen-security/, 06 Feb 2018.
[2] Jay Clayton, Statement on Cryptocurrencies and Initial Coin Offerings, https://www.sec.gov/news/public-statement/statement-clayton-2017-12-11, 11 Dec 2017.
[3] Gareth Jenkinson, Unpacking the 5 Biggest Cryptocurrency Scams, https://cointelegraph.com/news/unpacking-the-5-biggest-cryptocurrency-scams, 18 Apr 2018.
[4] North American Securities Administrators Association (NASSA), State and Provincial Securities Regulators Conduct Coordinated International Crypto Crackdown, http://www.nasaa.org/45121/state-and-provincial-securities-regulators-conduct-coordinated-international-crypto-crackdown-2/, 21 May 2018.
[5] Jay Clayton, Statement on NASAA’s Announcement of Enforcement Sweep Targeting Fraudulent ICOs and Crypto-asset Investment Products, https://www.sec.gov/news/public-statement/statement-nasaas-announcement-enforcement-sweep-targeting-fraudulent-icos-and, 22 May 2018.
[6] Dan Mangan, ‘Pharma bro’ fraudster Martin Shkreli: I want to serve prison in a minimum-security federal camp, https://www.cnbc.com/2018/03/14/martin-shkreli-asks-to-serve-fraud-sentence-in-minimum-security-camp.html, 14 Mar 2018.
[7] Dylan Lewis, What’s a Mini-IPO?, https://www.fool.com/investing/2017/10/03/whats-a-mini-ipo.aspx, 03 Oct 2017.
[8] Legal Information Institute, Fiduciary Duty, https://www.law.cornell.edu/wex/fiduciary_duty, July 2016.
https://medium.com/@knowbella_tech/so-you-want-to-launch-a-sto-1ba0d83a74dc
Crypto Valley’s Zug to Run Switzerland’s First Blockchain-Based Municipal Vote
The Swiss city of Zug will conduct a blockchain-powered trial municipal vote this summer, local media outlet Swissinfo.ch reported June 8. The event, which is scheduled to take place between June 25 and July 1, will reportedly be Switzerland’s first municipal vote using blockchain.
According to the report, the upcoming trial vote will implement the city’s digital ID (eID) system that was launched in November 2017. The system will allow citizens to vote via their mobile devices.
Apart from voting on minor municipal matters, citizens will also be asked if blockchain-based eID system should be used for referendum votes in the future. Since the upcoming vote is a trial, its results will be non-binding for city authorities, Swissinfo.ch reports.
Having established “Crypto Valley”, a global hub for crypto and blockchain development, Zug has become one of the centers of “world’s leading ecosystems for crypto, blockchain, and distributed ledger technologies.” In 2016, Zug launched an initiative accepting Bitcoin (BTC) as payment for certain municipality services.
Thanks to the presence of “Crypto Valley” and the country’s tax-free policy for crypto investors, Switzerland is reportedly the number one most blockchain-friendly country in Europe.
On June 6, the privately held Hypothekarbank Lenzburg bank, became the first bank in Switzerland to provide business accounts to blockchain and cryptocurrency companies.
https://cointelegraph.com/news/crypto-valley-s-zug-to-run-switzerland-s-first-blockchain-based-municipal-vote
Blockchain-Based Solutions for Scientific Research
Distributed, June 05, 2018, 10:35:43 AM EDT
Science has come a long way since the days when heliocentrism was controversial and most people believed in spontaneous generation . Yet when it comes to sharing and verifying scientific work, the systems that researchers still rely upon today date back to an era of premodern science.
This is a challenge that blockchain technology can help to solve. By providing new ways to share academic research and verify the origin of information, blockchains could introduce significant new efficiencies and transparency to the world of research.
Here's a look at how blockchain-based solutions are driving innovation in the world of academic research.
The State of Academic Research
The U.S. federal government spends more than $150 billion per year to fund scientific research, and that is just one of several major sources of research funding. Meanwhile, academic researchers publish millions of scholarly papers every year, in addition to other types of publications.
Yet despite the huge amount of money and time that the academic community spends on research, the ability of scholars to find and track the resulting information is surprisingly limited, for several reasons.
Lack of Universal Research Registers
You might think that there is a central database where you could easily look up all of the journal articles published on a given topic or in a given academic discipline. But there's not.
When researchers want to find out what other researchers have already discovered about a certain subject, they typically take an approach that can be described as "ad hoc" at best. A researcher can search through a variety of library catalogs and journal databases. But because there is no single database that registers all published material in any field, there is no guarantee that this type of search will be comprehensive. Plus, because academic publishing tends to move slowly and research databases are not always updated frequently, a catalog-based search for a certain topic might yield results that no longer reflect the latest insight on a topic.
A researcher could also ask colleagues for tips about where to find existing information on a given subject. This strategy is also unlikely to lead them to all relevant material, however. Worse, relying on colleagues can lead to a sort of research bias. People tend to recommend work that they like or to which they have contributed to, which reduces objectivity.
Unreliable Citations
The citation systems used by academic researchers vary between disciplines. Some involve footnotes. Some involve parenthetical citations. And, as more and more academic work is created digitally, hyperlinks are becoming a citation solution.
However, no matter which academic citation system you use, it will almost certainly have several limitations. One is that citations are often ambiguous because researchers tend to group multiple references into a single citation. As a result, it is difficult to know exactly which claim within an academic article or book corresponds to which source in a citation.
There is also no guarantee that citations are accurate in a world where there is little to stop researchers from making up reference data entirely. And because there is no automatic way to verify citation information, checking for fraud is difficult. Even the most prestigious academic journals, which strive to prevent fraud through rigorous peer-review processes, sometimes publish work that turns out to be based on utterly fraudulent data .
Meanwhile, honest mistakes by researchers can lead to inaccurate citations. For example, a typo within a citation could cause the wrong page number of an external work to be cited, making it difficult for a scholar to track down the exact source of a claim. Even the most diligent scholars make mistakes like these and the best copy editors rarely find them. Doing so would require a huge amount of tedious cross-referencing between citations and external sources that are often not readily available.
Crediting Contributors
It is common in many academic disciplines for journal articles to be published under the names of multiple authors . This is a crude and ambiguous way of assigning credit to researchers who contribute to a publication. While the names of the most significant contributors are usually listed first, it is usually impossible to identify exactly who contributed what to a given article.
This is bad for authors, who may not receive as much credit as they deserve for their work on a publication. It is also bad for other researchers who want to expand on their work, because it makes it more difficult for them to determine who can help them.
The problem with receiving credit for academic work can run deeper in some cases. Claims that one researcher has "stolen" the work of another by publishing it without giving due credit to the original researcher are not uncommon .
Moving Research to the Blockchain
The problems described above result from the fact that, traditionally, the technology required to build better solutions did not exist. Writing and verifying citations manually was the best that scholars could do.
And while the advent of digital technology has led to platforms like Google Scholar and Worldcat , which vie to create searchable, universal databases of certain types of academic work, they are far from perfect. They are not totally comprehensive in their coverage, and they don't address issues like fraudulent data sets or inappropriate reuse of another scholar's work.
Blockchain technology, however, has made it possible for a new generation of solutions to address the key challenges in academic research and publishing. To date, at least two platforms or projects have emerged in this vein:
ARTiFACTS , which debuted in March 2018. The ARTiFACTS platform includes an attribution engine that allows researchers to register findings on the Ethereum blockchain, providing an immutable record of their work. In addition, ARTiFACTS aims to build a community-maintained index of research findings in order to simplify accessibility to research.
Project Aiur . Aiur, which is still in development and has not yet set a platform release date, plans to combine artificial intelligence with a blockchain. The platform will first perform automated analysis of a scientific text to assess its usefulness and validity and then record that information on a blockchain. In this way, Aiur aims to improve access to credible scientific research, reduce fraudulent research and make it easier for scientists to disseminate their findings without having to rely on traditional publication channels.
Beyond these platforms, which target academic research specifically, other types of blockchain-based solutions could also conceivably help to improve the reliability and distribution of academic work. Proof-of-existence and timestamping solutions, such as OpenTimestamps and Po.et , could be used to register the existence of research on a blockchain.
Thinking further into the future, it may someday be possible to integrate blockchain-based research databases with digital documents so that claims within an article or other publication could be linked automatically and immutably to the specific external reference that supports them. That type of solution is not yet on the horizon, but if open-access, blockchain-based research databases come into existence, it should not be too difficult from a programming standpoint to integrate them directly into texts.
On balance, it's worth noting that platforms like ARTiFACTS and Project Aiur have their limitations. Unless they achieve adoption by all researchers in all disciplines across the planet, they won't be able to build universal research databases that cover all publications. And while using artificial intelligence to evaluate research in order to reduce fraud and improve credibility will no doubt help to root out inaccurate publications, it seems unlikely to deliver perfect results.
Yet even if blockchain-based solutions can't fully address all of the shortcomings of the current means of registering, distributing and sharing academic research, they represent a significant step forward. They might finally bring research and publication processes into the 21st century, a feat that earlier digital technologies have not achieved.
https://m.nasdaq.com/article/blockchain-based-solutions-for-scientific-research-cm973435
China takes new steps to lure science talent from abroad
The Chinese government, eager to sustain the country's rapid emergence as a scientific superpower, is opening the door wider for foreign researchers. On 22 May, the Chinese Ministry of Science and Technology issued guidelines that encourage science ministries and commissions to consult foreign experts and attract non-Chinese to full-time positions within China. Foreign scientists can for the first time serve as principal investigators for publicly funded research programs. Other incentives for talent from abroad include China's increased spending on R&D—rising twice as fast as its gross domestic product—and ambitious big science projects such as a massive particle accelerator now under study.
http://science.sciencemag.org/content/360/6393/1053
She studied Mexico City. Can she lead it, too?
Summary
Until 3 years ago, Claudia Sheinbaum Pardo worked quietly as an environmental engineer at the National Autonomous University of Mexico in Mexico City. Now, with a 20-point lead in the polls, she seems set to become mayor of this city of nearly 9 million people in elections on 1 July. Her work on energy science and engineering—with a focus on vehicle emissions and climate change mitigation—is respected both in Mexico and abroad, and she's a member of the Mexican Academy of Sciences and a former member of the United Nations Intergovernmental Panel on Climate Change. Many say she's uniquely positioned to understand and tackle the myriad problems that afflict the 20 million people in the city's metropolitan area, especially its stuffed-to-the-gills public transportation, epic traffic snarls, and worsening water crisis. Meanwhile, critics worry about Sheinbaum Pardo's close ties with Andrés Manuel López Obrador, a leftist populist and the leading candidate in Mexico's presidential election.
http://science.sciencemag.org/content/360/6393/1052
What is Delegated Proof-of-Stake?
While Tesla is focused on autonomous driving, in the crypto world EOS is focused on autonomous companies that would reduce or remove the megalomaniacal influence that CEOs like Elon Musk have in the running of their companies.
EOS launched its blockchain over the weekend marking a new chapter for the Delegated Proof of Stake (DPoS) protocol that also powers social media site Steemit and the Bitshares exchange.
Created by Dan Larimer in 2014 to address what he saw as the inefficiencies in PoW and PoS through a core function, shareholder voting, that implements “a layer of technological democracy to offset the negative effects of centralization”.
Very simply, every token holder has a proportional voting right to choose who the block producers are (or witnesses in DPoS vernacular). The productivity and behaviour of witnesses is held to account by the shareholders (token holders), so if they don’t meet block targets or act in a way that harms the network they are voted out of the job, which can happen several times in a single day.
Of course, there is a monetary incentive for the witnesses to perform dutifully in the form of a salary, which voters set, and through the networking effect of EOS - the more people who use the coin the more their salary is worth. Also each witness - block producer - is accorded the same power and responsibility regardless of their size.
In addition to exponentially increased transaction speeds from Bitcoin’s proof-of-work (PoW) or Ethereum’s proof-of-stake (PoS) to around 100,000 per second, DPoS avoids the centralization of power from big players pooling together either their resources of money or hashing power - as happens with bitcoin mining pools. Another core difference between this protocol and PoW and PoS is that not just anyone with enough computing power can join the network as a block producer, you must be voted in - much like in real world voting processes.
DPoS also eliminates the need to wait until a certain number of untrusted nodes have verified a transaction before it can be confirmed.
How does DPoS compare to real shareholder voting?
Tesla may provide a real-world antithesis to the autonomous company that Larimer is trying to achieve with DPoS.
On Tuesday shareholder activists proposed to break up the power of Tesla’s board and its CEO come-chairman, Elon Musk, citing the need for an independent chairman at its annual shareholders meeting. A shareholder group representing pension funds also urged shareholders to vote against all three of its directors: Antonio Gracias, head of Valor Management, 21st Century Fox CEO James Murdoch, and Musk’s brother Kimbal Musk arguing that issues including continuously missed production targets and vague promises showed the board has been insufficient in governing Musk and the company.
“We think we might be able to do for a lot of them [cars] same day body repairs. It’s possible.” - Elon Musk, Tesla shareholder meeting 2018
It was a bold statement but in the face of a charismatic CEO/chairman who is the company’s largest shareholder with 21 percent of the stock (his brother is third largest) and who has a cult-like loyalty from customers, the protests had very little chance of success. So the status quo at Tesla continues.
When the average uncontested director at companies in the S&P 500 stock index gets elected with 97 percent of votes cast in their favor, and only one director fails to get a majority vote each year, it is no wonder retail investor turnout is so low at corporate elections. At just 27 percent in 2013, it appears retail voters are apathetic when faced with the voting power of large shareholders.
In contrast, the decentralized company of DPoS uses the process of approval voting to ensure that even someone with 50 percent of the active voting power is unable to select even a single producer on their own.
Code over conflation
Despite his erratic public behaviour and being concurrent CEO of three other companies (from high-speed rail tunnel boring to intergalactic exploration and many other vested interests) Musk has been allowed to rule Tesla like a personal fiefdom through a combination of blind faith, nepotism and his major shareholding.
Unlike the concrete parameters of code, Musk’s litany of missed targets and grandiose promises of the future - “we are going to build the biggest building (Gigafactory) in the world” - are allowed to snowball without any consequence.
Larimer, on the other hand, has delivered four complete blockchain projects in four years, with Steemit now an exemplar of the technology functioning in real life. BitShares is self-funded, self-sustaining, self-regulated and continues to be developed by a decentralized group of developers directly hired by the blockchain through stakeholder election. Today, the BitShares shareholders collectively control a funding pool of $290m worth of BTS.
BitShares and Steem are entirely operated without any central authority or servers - Steem proving social media doesn’t actually need a Mark Zuckerberg.
With the tokenization of companies and securities the inevitable future of legacy stockmarkets could there also be potential for a change to the shareholder voting system? Musk has built his empire on the power of automation - why not him next?
https://bravenewcoin.com/news/could-eos-delegated-proof-of-stake-work-for-teslas-governance/
Security tokens offer a new model of fundraising for both startups and established businesses
Coinbase Just Made an Interesting Acquisition--and Its Implications for Entrepreneurs are Incredible
Security tokens offer a new model of fundraising for both startups and established businesses
By Darren MarbleCEO, CrowdfundX
Coinbase, the largest Bitcoin exchange in the U.S., announced yesterday that it had acquired Keystone Capital, a financial services firm, in an effort to become a fully regulated broker-dealer. President and Chief Operating Officer Asiff Hirji commented that "Coinbase will soon be capable of offering blockchain-based securities, under the oversight of the U.S. Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA)."
While the cryptocurrency market delivers countless new headlines daily, this particular announcement is likely to be one of the most significant stories of the year. Historically, Coinbase has traded just four coins: Bitcoin, Bitcoin Cash, Ethereum, and Litecoin. Now, they are positioned to add blockchain-based securities--otherwise known as security tokens--once granted regulatory approval, which they anticipate in the next few months.
The implication for entrepreneurs?
Security tokens, like equity in a business, can be sold to U.S. and international investors, opening up an entirely new avenue to capital raising.
When Coinbase makes moves, the ground shakes. With more than twenty million customers and $150 billion in assets traded, the San Francisco-based company has raised $225 million to date, and recently valued itself at $8 billion when it acquired Earn.com.
But wait: what are security tokens?
Security tokens are digital, regulated securities on the blockchain. Think of them as a form of programmable ownership. Imagine being able to program your capitalization table, dividend payments, voting rights, or liquidation preferences directly into your tokens. Now imagine that the technology to do this exists today--because it does.
Multiple issuance platforms, such as Polymath, Securitize, and Harbor, allow issuers to program these rights and more into security tokens using smart contracts. And the benefits to tokenizing assets are substantial.
Security tokens bring a new set of benefits to both issuers and investors. One of the biggest draws is liquidity, the ability to trade tokens on soon-to-be regulated, secondary exchanges such as Coinbase. Whereas as many investors have historically invested in startups with a five to ten year horizon for an exit (if any), security tokens promise near-term liquidity on exchanges that will trade tokens 24/7, and attract a global pool of investors.
Security Token Offerings (STOs)
A new breed of innovative startups and established businesses alike are beginning to consider security token offerings, or STOs, as a strategy to raise capital. STO issuers have a variety of securities exemptions at their disposal, including Regulation D 506(c), Regulation A+, Regulation Crowdfunding, and Regulation S, to run compliant offerings.
While U.S. securities laws are imperfect--and openly frowned upon or despised by some in cryptocurrency--the current framework provides guided pathways to capital raising for STO issuers.
Aaron Wolko, Founder of Green Diamond Ventures, is bullish on STOs. "This is a huge breakthrough for both startups and investors," he said. "Companies looking to raise capital benefit because they can now easily seek funds from investors who are located outside of their own legal jurisdiction, and it protects investors because their equity is now guaranteed by a smart contract."
By tokenizing equity (or debt), entrepreneurs can now sell their tokens to investors around the world, widening both their reach and target audience. And investors benefit, too: they get access to an exiting new asset class--STOs--that will give them near-term liquidity and economic rights to the underlying assets of the business.
Navigating New Waters
Currently, the most common approach to an STO is Regulation D 506(c), which allows you to raise an unlimited amount of capital, generally solicit or market you deal, but restricts you to accepting only verified accredited investors. Regulation S, which allows you to accept international investors, is often used in parallel with Regulation D.
As always, you should retain an experienced securities attorney to help you evaluate whether an STO is right for your business. At a minimum, you will need to devise a strategy for primary issuance (tokenization), legal, and liquidity. And while Coinbase is not the only digital currency exchange with plans to trade security tokens, they are an industry bellweather.
Anthony "Pomp" Pompliano, Founder and Partner at Morgan Creek Digital Assets, is an outspoken advocate for security tokens, who can often (multiple times daily) be found on Twitter claiming that "the virus is spreading," to the tune of dozens of retweets. Pompliano says the acquisition of Keystone Capital is "another step in the process for Coinbase to be able to support tokenized securities trading. It's coming. No one can stop it."
Established companies are already beginning to tokenize equity in their business, and startups now have a new vehicle that may provide faster and easier access to capital.
By the end of the year, Coinbase may be more profitable than Intercontinental Exchange, the parent company to the New York Stock Exchange. Richard Johnson, Senior Analyst of Market Structure and Technology at Greenwich Associates, sums it up nicely, and with a warning, to Wall Street: "Stocks are in danger, and security tokens are the invasive species."
https://www.inc.com/darren-marble/coinbase-just-made-an-interesting-acquisition-and-its-implications-for-entrepreneurs-are-incredible.html
Science benefits from diversity
Improving the participation of under-represented groups is not just fairer — it could produce better research.
https://www.nature.com/articles/d41586-018-05326-3
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