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ICO craze birthed 1,000 millionaires but cryptoasset code often failed to include promised investor protections

ICOs Investment Fewer To Invest or Not To Invest, That is The Question!

The computer code of the majority of cryptoassets that raised the most funds through initial coin offering (ICO) token sales failed to deliver on whitepaper promises to protect investors.

That’s the finding of two academics, David Hoffman, a law professor at the University of Pennsylvania and David Wishnick a fellow at the same institution, who together conducted a survey of the 50 ICOs that raised the most amount in the 2017 fundraising frenzy.

According to the pair “ICOs birthed a thousand millionaires” before the bubble burst.

The crypto code is not law – token sale contractual promises not coded

Hoffman says the central innovation of ICOs rested on the “possibility
of using computer code to deliver on contractual promises.

The researchers compared the promises in the whitepaper to
the actual computer code of the project to see to what extent promises had been
hard-coded in.

Professor Hoffman found that the majority of projects failed
to deliver on promised investor protection.

Things as fundamental as token supply were not coded into
20% of the cryptoasset surveyed which means that there was no protection
against an ICO promoter simply minting more coins, thereby diluting the value
of the tokens held by ICO investors.

Protection against team exits not in code of ICO smart contracts

Another key consideration for any investor doing their due diligence
was the team lock-in to prevent them selling up and leaving investors high and
dry.

Alarmingly, the University of Pennsylvania survey discovered
that 25 of the 36 projects with explicit restrictions on team divestment had
not included the parameter in their code.

Even worse, the academics found 12 cryptoassets that allowed
a centralised entity to modify smart contract code, flying in the face of what is
meant to be the essence of blockchain architecture where no trusted third party
of centralised gatekeeper is present.

Of those 12 offending projects just four of them shared this
information with investors.

Additionally, Hoffman says he “found no evidence that investors punished firms for failing to put investor protections into code”, and that crypto rating agencies focused on the security risks around smart contracts and neglected to consider whether the code conformed with the promised investor protections.

With such lax practices in the industry, the individual
private investor is burdened with having to audit the code themselves, an
onerous task, if not impossible, for the average individual.

More crypto regulations for the SEC to consider

The solution proposed by Hoffman is for projects to be required to match promises in the whitepaper with deployed code or to force cryptoasset promoters to provide plain English walkthroughs of what the code does.

As is so often the case in the crypto industry, the crypto
projects can be their own worst enemy.

“Such market integrity measures won’t just protect investors, they will also build trust in the asset class itself and enable it to move from a curiosity to something of real economic worth,” Hoffman concludes in an article published in the print edition of the Financial Times.  


Did you invest in an ICO? Do you know whether the project smart contract had investor protection hard-coded in? Share your experiences in the comments below and help to inform other investors.

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Crypto Regulations: The New Focus of The G20 and a Presidential Candidate

bitcoin 2018

The ecosystem of crypto currencies and blockchain
technologies has grown so much that it has already become a matter of political
strategy in different parts of the world. Despite the opinion of many
anarchists, government authorities are taking the issue more and more
seriously.

G20 Summit

Following the G20 summit in Buenos Aires, Argentina, the
leaders of the world’s 20 largest economies issued a joint declaration
committing themselves – among other things – to studying the possibility
of joint regulation on the subject of virtual assets.

The declaration sought to eliminate the legal loopholes that
have allowed the development of scams and cybercrimes, and to regulate the
trading of crypto assets and – according to some opinions – to establish taxes
on these activities.

One of the regulatory initiatives is the support given by the G20 to the Financial Action Task Force (FATF), a body that informed to the multilateral body they should take a risk-based approach in relation to virtual assets. Likewise, it seems to be a common opinion that virtual assets should not be self regulated.

Crypto Regulations Are Now A Thing Among Presidential Candidates

One politician who has shown a special interest in the topic
is Andrew Yang, a presidential candidate for the 2020 elections.

Andrew Yang

The politician and entrepreneur has stated on his website that America needs an ecosystem where businesspeople feel secure in having a legal environment that embraces crypto-verse without voids or conflicts of competence.

Investment in cryptocurrencies and digital assets has far outpaced our regulatory frameworks in the US. We should let investors, companies, and individuals know what the landscape and treatment will be moving forward to support innovation and development. The blockchain has vast potential.

To achieve this, Yang proposes to develop a general
framework for virtual assets, this would pave the way for a massive adoption of
cryptocurrencies and blockchain technologies.

Yang is a candidate for the Democratic Party and if he wins the elections, these are some of the promises target to crypto enthusiasts:

  • Promote legislation
    that provides clarity in the cryptocurrency/digital asset market space by:

    • Defining what a token is, and when it is a security
      (e.g., recognizing “utility tokens”)
    • Define which federal agencies have regulatory
      power over the crypto/digital assets space
    • Provide for consumer protections in the space
    • Clarify the tax implications of owning,
      selling, and trading digital assets
    • Promote the nationwide adoption of recognition
      of protections afforded by a series LLC
    • Preempt state regulations when possible to
      create one national framework
  • Work with the sponsors
    of the Token Taxonomy Act and Wyoming legislators to promote the above, largely
    modeled after their work.

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Blockchain Doesn’t Need Regulations, Austrian Minister for Digital and Economic Affairs Says

Blockchain
technologies have been beneficial in the development of modern industry.
However, there is still a long way to go for them to be massively adopted.

Austrian Flag

One of the
reasons why developments have slowed down at the business level is because of
the regulatory uncertainty surrounding these technologies. While some countries
seek to boost their development, others impede their free growth. This
uncertainty has concerned governments looking for a way to regulate a terrain
that is entirely new and over which they do not have a complete understanding.

The ANON Blockchain Summit is taking place during April 2 and 3 in the city of Vienna, Austria and one of the most relevant events was precisely a panel discussion on “The role of government in the age of blockchain.” During this conference, three experts debated for 40 minutes the current and future situation of blockchain technologies.

We Don’t Need No Regulations, We Don’t Need No Thought Control 

However, the most popular opinion was that of Margarete Schramböck, Federal Minister for Digital and Economic Affairs Austria. This political expert in business management said that from her point of view, regulations on blockchain technologies are not necessary at least initially :

“We do not need regulation for Blockchain as We also do not regulate technologies such as machine learning or C ++”

Although
there is agreement on the need to regulate activities related to
cryptocurrencies in order to avoid crimes such as fraud, tax evasion, and money
laundering, the underlying technology does not require such controls.

Commissioner Hester M. Peirce (source SEC)

Like the SEC Commissioner, Hester Peirce, Schramböck explained that excessive regulations could complicate the development of emerging businesses and industries. The minister called for calm to avoid the mistake of overregulating these promising technologies:

Europe has a strong tendency to overregulate, and then we are surprised that there are no European companies in the top 10 worldwide”

Just as Schramböck, Hester Peirce released a dissent after a decision from the SEC to disapprove the denial of a Bitcoin ETF promoted by the Winklevoss twins. On that public statement, Ms. Peirce showed concern about the negative impact that excessive regulations could bring to emerging businesses:

More generally, the Commission’s interpretation and application of the statutory standard sends a strong signal that innovation is unwelcome in our markets, a signal that may have effects far beyond the fate of bitcoin ETPs”.

Schramböck considers that the use of blockchain technologies is not only positive for the economy. At the level of politics and government, the use of DLTs can help reduce bureaucracy, corruption and information transfer between stakeholders.

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Jimmy Wales: Blockchain Can’t Be Banned

The name Jimmy Wales (born August 7, 1966), may not sound familiar to those outside the world of IT, but when it is taken into consideration that his name appears in the Time magazine as one of the 100 most influential people of 2006, his credibility and prestige begin to prove evident.

“Jimbo” (his moniker) became world famous thanks to the success of Wikipedia, which has already become an international reference for the search for information.

He is currently working on a new project: WikiTribune, which seeks to revolutionize the world of journalism through a platform that promotes impartiality and fights fake and unsubstantiated news.

During the BlockShow Conference in Berlin, Jimy Wales was interviewed by Cointelegraph about his career prospects. The vision he showed about the world of cryptos and blockchain technologies is quite compelling.

Concerning cryptocurrencies, Catherine Ross, the interviewer, asked him if he was still holding to his previous statements in which he said he considered cryptocurrencies to be a bubble. Jimmi Wales joined the “Crypto is a Bubble” team, but with a reasonably objective vision:

“When I say something is a bubble, it doesn’t mean that I think there’s nothing of value there. It means there’s a lot of noise and there’s a lot of investment money flowing in, and a lot of things are being invested into what does not actually make sense. A lot of projects are going to fail, but we additionally have a lot of scams, a lot of theft, a lot of crazy things happening. So, I just ask people to be careful.”

He mentioned that he was not a crypto investor although he did accept that he had “some crypto here and there.”

Jimmy “Jimbo” Wales

He also noted that he had no particular interest in projects based on blockchain technologies, but did not deny the possibility of diving into the pool if any idea was meaningful.

Regarding the issue of the regulation of cryptomarket and ICOs, he pointed out that it makes no sense to consider extremist positions such as those of some politicians seeking to ban their use, but he was emphatic in stressing that it is necessary to innovate in a new legal framework adapted to this reality:

“Blockchain as a technology is not something that needs regulation. You’ll occasionally hear a politician saying, “We need to ban cryptography,” but that’s stupid and crazy and you’re never going to do it with math. You can’t ban math. You can’t ban blockchain. It’s math.”

At the same time, we see a lot of things going on that it’s very difficult to say they’re anything other than just scams. People are making millions of dollars of other people’s money with no accountability and that deserves law enforcement for investigation.

We see a lot of the hacks and Bitcoin or other coins being stolen because somebody hacked the server and got the keys. That’s what the police are for, right? Ideally. I feel like there’s been far too little response. You know, if you walked into Citibank and walked out with 56 million dollars’ worth of gold… You went, and you picked a lock and you stole the actual gold [and put it in] the back of a truck, then there’d be an army of FBI agents investigating this.

I feel like a lot of the cryptocurrency thefts have gone [unsolved]. The police are like, “We don’t know what to do,” so they do very little. That’s not to criticize them, that’s just the fact that we don’t see the right kind of law enforcement response. People don’t think about it as regulation, but of course it’s against the law to steal things.”

For Jimmy Wales, the fact that there are so many scams and hacks is a situation that, in addition to tarnishing the image of cryptocurrencies, hinders the revolution they could bring along.

Jimmy Wales on Government Adoption

On the adoption of blockchain technologies by governments, Jimmy Wales was enthusiastic but cautious. For him, governments would be risking too much on a technology they cannot tolerate failing:

“They need to be very cautious and very careful. I think particularly when they’re dealing with taxpayer money, there’s a very good reason to be extremely cautious about new technologies … It doesn’t mean that we won’t necessarily move in that direction, but I want to see governments moving very cautiously in this space.”

To see the full video click here:

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Switzerland Marches Ahead to Become the Crypto-Nation: ICO Guides

A very appreciated and welcomed approach by a gov – The Financial supervisor of Switzerland has taken a different path towards the much speculated ICO crowdfunding as it issued guidelines for Swiss-based startups that are planning to raise capital for support in the projects. These could be just one of many steps that the country has taken [in contrary to many other nations that are stricting-up rules] to take the lead in the Cryptocurrency community and ecosystem.

The guidelines do divide Initial Coin Offerings into three major categories which are: Utility ICOs, Payment ICOs and Asset ICOs.

Utility ICOs – In this group are included the crowdfunding at which funds or tokens are used as a way to give access to a service or product. Only if they are made with the target of serving a utility these are put down as security, otherwise they are not considered of the sort.

Payment ICOs – These are the ICO funds that are transferable and can be used as a mode of payment. Finma remarked these ICO would have to comply with the anti-money laundering regulations but they wouldn’t be considered as financial securities.

Asset ICOs – The ones that will be set on sale for investors as bonds or equities while making sure that the returns are in regular income or dividends. The Asset ICOs will undergo the definitions of security and the complete-regulation pack for financial securities will be added on.

Finma’s Chief Executive – Mark Branson [on Friday] added that the supportive yet balanced approach towards ICOs would allow:

“Legitimate innovators to navigate the regulatory landscape and so launch their projects in a way consistent with our laws protecting investors and the integrity of the financial system.”

This is a clear sign that Switzerland is trying to take the lead int he crypto-ecosystem tech-wave that has his the globe and finding the best way to utilize it, while other gov-s like South Korea, India or China have pointed out their unwillingness to adopt crypto-trading.

Economic Minister – Johann Schneider Ammann, in Jan, added that there is a full-intention taking place for Switzerland to become the cryptocurrency nation.