Srp 01

ICO Haven Sent Packing; Singapore follows SEC Lead to Regulate Securities-type Token Sales

· August 1, 2017 · 5:15 pm

Exactly one week ago, the SEC issued a report concluding that certain token sales could be considered securities, and hence were subject to regulation. Today, the Monetary Authority of Singapore (MAS) issued a similar statement, clarifying that, in some cases, Initial Coin Offerings (ICOs) were essentially equivalent to securities, and should fall under the same regulatory procedures.


I can’t help but feel slightly responsible. After all, just five days before the SEC report was published, I wrote an article describing many of the recent ICOs as tantamount to “buying shares in a stranger’s start-up.”

Oops!

SEC Issues Warning for ICO Organizers and Investors

Say What Now?

Sure, the SEC report was a direct response to the hack on the Ethereum side project, the DAO hub, almost a year ago… So I guess that can’t be my fault, but the timing is more than a little suspicious, wouldn’t you say?

Okay, the SEC focussed more on the risks to investors, and (quite rightly IMHO) ascertained this. If the token issued is promising to give investors a return (i.e. dividend), then it should fall under the realm of the SEC, and be subject to regulation. These rules are there to protect investors, so really it would be churlish of us to complain.

They also decided that they wouldn’t press charges at this point, but that future ICOs should be wary of where the often hazy line is drawn. Many token sales already prohibit U.S. citizens from participating for just this reason, so it’s not something we weren’t already aware of.

But Singapore? They Were Like… Totally Chill Man!

Well, yes and no. Singapore’s recent experiments with the tokenization of its currency were seen as an implicit embracing of all things crypto, with local authorities stating that they don’t consider digital tokens as securities. However, this is also the place where you can be fined $100,000 dollars and spend two years in jail for chewing gum.

The report is very clear and states:

The function of digital tokens has evolved beyond just being a virtual currency. […] Where digital tokens fall within the definition of securities in the SFA, issuers of such tokens would be required to lodge and register a prospectus with MAS prior to the offer of such tokens

So the Party’s Over?

No. Not by a long shot. Both the SEC and MAS reports specifically stop short of claiming that all cryptocurrency tokens and ICOs will fall within their remit. The MAS explicitly states that their “position of not regulating virtual currencies is similar to that of most jurisdictions.”

As would be expected, no specific definition is provided as far as what will or will not count as a security. But implicit in these reports is the assertion that this isn’t going to affect your Bitcoin, or your Ether, or your Just-doing-this-for-a-joke-Coin, whatever.

If a coin functions as a coin, then it should be fine. If a coin functions as a token for the purchase of service or product within an eventual eco-system, then that should also be fine.

If a coin is promising dividends based on a company’s profitability, then… yeah. If it sounds like a share in a stranger’s start-up…

But… but… but…

Let me repeat once again that these regulations are here to protect us, the investors.

Yes, our eyes may spin like a cartoon character’s until the pupils resemble dollar signs at the mere thought of that near-mythical level of profit that a friend of a friend down the pub told us about but we would all be sick to our stomachs to find out that the ICO we just plowed our hard-won life-savings into was just an elaborate Ponzi scheme after all.

To ignore the risk of one for the sake of the other would make us not investors. It would simply make us gamblers.

What do you think of the SEC and MAS’ recent reports? Will it have an impact on which ICOs you choose to invest in? Have you found yourself frozen out of an ICO because of where you live? Let us know in the comments below.


Images courtesy of Wikimedia Commons, Fotolia

Show comments

Share
Čvc 19

Convictions, Jail Time On The Rise In The U.S. For Selling Bitcoin

· July 19, 2017 · 3:30 pm

incidents of People are increasingly being arrested in the U.S. for selling Bitcoin via online sites such as localbitcoins.com.


With the recent surge in the public’s interest in Bitcoin and cryptocurrency as a whole, the United States government is sitting up and taking notice of something that many officials once dismissed as a passing fad. As a result, a disturbing trend has begun to emerge. Law enforcement agencies are arresting and charging people with a crime for selling Bitcoin in the U.S.

Bitcoin has yet to be given currency status in the U.S. and since lawmakers are still struggling to wrap their minds around the new technology, laws governing the buying and selling of Bitcoin are nebulous at best. While that may come as no surprise to many, it is worth familiarizing yourself with the laws that do exist should you wish to sell Bitcoin.

Selling Bitcoin as a Business

bitcoin money

While it is not illegal to buy and sell Bitcoin per se, four people have been arrested for exchanging the cryptocurrency for fiat. The charge? Operating a money transmission business without a license.

In May of this year, Jason Klein of Nixa, Missouri waived his right to a grand jury trial and plead guilty to the charge of “conducting an illegal money transmission business.” He was arrested after five separate instances of in-person transactions of cash for bitcoin with undercover federal agents. Transaction amounts ranged from $1,000 to $15,000.

Also in May, Detroit, Michigan resident Sal Mansy plead guilty to the charge of “operating an unlicensed money service business.” Between 2013 and 2015, it is estimated that Mansy bought and sold close to $2.5 million worth of bitcoin, the proceeds of which he funneled through a legitimate business that he owned.

Although the wording of the exact charge varies to some degree, the operative word in both is ‘business’. That is, the main marker of criminality seems to be whether or not an individual is selling Bitcoin as a business. The litmus test for whether or not it constitutes a business seems to be a combination of the frequency and volume of the transactions as well as to whom the individual is selling.

In a telephone interview with Motherboard, Marco Santori, a Palo Alto-based lawyer who specializes in Bitcoin, explained:

‘As a business’ is the qualifier that triggers the money transmission laws. […] If you come to me and ask to buy $100 worth of bitcoin and I sell that to you, in no state is that sole activity considered to be money transmission. It must occur in a sufficient frequency and volume and you have to accept all comers. It’s a fact-based test.

Selling Bitcoin as a business requires a license and consciously selling Bitcoin to someone whom you know to be a money launderer is a path to conviction. Two Arizona men found this out the hard way when undercover federal agents contacted them through localbitcoins.com and the officers told the men the funds they were using to buy with were illegally obtained. This was enough to arrest the pair, and not only charge them with unlicensed money transference but on money laundering charges as well.

Overturned Cases

Overturned Cases

Although convictions for selling Bitcoin illegally appear to be on the rise, the law is far from clear cut. Judges in several states disagree with the assessment that selling Bitcoin is illegal.

Last year in Florida, Miami-Dade Circuit Judge Teresa Mary Pooler ruled in the case of the State of Florida v. Michell Espinoza that since Bitcoin was not backed by any government or bank it could not be considered ‘money’. Espinoza had been arrested and charged with illegally transmitting and laundering $1,500 worth of Bitcoin, which he sold to undercover detectives who had informed him that they planned to use the money to buy stolen credit cards.

According to Judge Pooler’s ruling:

The court is not an expert in economics; however, it is very clear, even to someone with limited knowledge in the area, the Bitcoin has a long way to go before it the equivalent of money.

She went on to further explain her decision:

This court is unwilling to punish a man for selling his property to another, when his actions fall under a statute that is so vaguely written that even legal professionals have difficulty finding a singular meaning.

Espinoza’s case was thrown out in a ruling that many experts in the Bitcoin community are hoping will “encourage the use of the virtual currency, and offer a roadmap to governments across the world that have struggled to understand and regulate it.”

Do you sell Bitcoin? How will recent rulings affect lawmakers’ decisions in future Bitcoin-related cases? Let us know in the comments below.


Images courtesy of Shutterstock, Wikimedia Commons

Show comments

Share
Čvc 16

Mystery Ethereum Millionaire Has Regulators Fuming Over Cryptocurrency Anonymity

· July 16, 2017 · 1:00 pm

A man who can only be identified by his anonymous digital wallet address has renewed concerns that many regulators have over a new breed of cryptocurrency millionaires. How do they tax, and monitor illegal activities, of masked cryptocurrency users?


An Instagram post that sparked these concerns again read:

I get many private messages asking how much ether I have. […] One of the cool things about Ethereum is that all wallets around the world are transparent and open for everyone to see. And this is my wallet’s savings.

The figure that was visible in the post was $283 million, apparently made in less than a month with only $55 million of fiat currency. This is a 413 percent return that, while impressive, is also concerning to regulators for a few reasons.

An Environment for Criminality and Tax Evasion

As the mystery trader stated in his post, Ethereum, or indeed any digital currency wallet is totally transparent and visible to all, but it is also totally anonymous, something that is of huge concern for regulators.

Regulators would prefer an identity to be tied to digital wallets in order to enact taxation, but also to keep tabs on what the currencies are being spent, legal or otherwise.

The case of Ross Ulbricht, the man behind the nom de guerre Dread Pirate Roberts, the operator of the infamous Silk Road, remained an enigma to regulators and law enforcement while profiting through anonymous digital transactions made to his untraceable wallet.

Not All Cryptocurrency Activity Illegal

Not All Cryptocurrency Activity Illegal

It cannot be proven that this latest mystery millionaire has achieved his funds by any dubious means, especially considering that the month in which he quadrupled his money was one which saw Ethereum almost double its value going from about $220 to just touching $400.

Many regulators believe that a system of taxation on digital currencies will actually aid their stability, and ultimately, its growth.

According to draft legislation issued by the European Parliament in March:

That’s not to say that (this latest Ethereum millionaire) or any other entities are doing anything illegal. But opacity may be worsening jagged price movements. The value of ether, for example, rose from about $8 a unit at the start of the year to crest at $400 in June before settling. A lack of transparency could also be stifling the mainstreaming of online money.

The Tax Man Cometh

The Tax Man Cometh

Regulators would have many digital currency users believe that the anonymous nature of their coins of choice would stunt their ability to be taken seriously and adopted in a mass market. However, the original cryptocurrency, Bitcoin, has in its very DNA anonymity at its core and that very aspect is the reason many have flooded to cryptocurrencies in recent months.

Ironically, if regulators get their way (and it is likely that they will) and are able to pull the masks off of holders of digital currencies, they could wind up damaging the very assets that they are trying to tax. A break in anonymity for Ethereum users, for instance, would drive them towards cryptocurrencies that have better privacy, such as Zcash and Monero.

Escaping Digital Currencies' Dark Past

Escaping Digital Currencies’ Dark Past

While Bitcoin and several other coins that sprung up in its wake have mostly broken the shackles of their dark past, their links to the Dark Web and other nefarious activities are resulting in their being implicated in illegal acts even today.

Recent ransomware attacks on institutions as big as the National Health Service in the United Kingdom have seen demands for payment to be made in Bitcoin to the hacker for the release of sensitive information. It is the secret nature of these accounts, untraceable and anonymous, that is allowing hackers thrive on such a huge scale.

Would taxation on your digital coins drive you away from using them? Do you think governments and regulators need to stop the illegal use of digital currencies? Let us know in the comments below!


Images courtesy of Shutterstock, Wikimedia Commons

Show comments

Share
Čvn 10

AML: US Rules Would Force Declaration Of Crypto At Borders

· June 10, 2017 · 11:00 am

An update to US anti-money laundering (AML) legislation currently going through Congress would oblige travelers to declare digital currency at the border.


AML Rules Target $10k+ Crypto Holdings

S. 1241, a new bill sponsored by Senator Chuck Grassley, proposes adding the terms ‘digital currency’ and ‘prepaid access devices’ to existing list of financial items subject so such AML procedures.

It would also include reference to “any digital exchanger or tumbler of digital currency.”

Ostensibly designed to prevent trafficking of funds over $10,000 in value, the resulting powers given to border authorities could be nonetheless considerably more sweeping than at present.

United States Congress

While it is unclear how those arriving in the US would be screened for digital currency holdings, the Bill makes provision for a report to be commissioned ironing out the finer points.

The text states:

Not later than 18 months after the date of enactment of this Act, the Secretary of Homeland Security, in consultation with the Commissioner of U.S. Customs and Border Protection, shall submit to Congress a report—

(1) detailing a strategy to interdict and detect prepaid access devices, digital currencies, or other similar instruments, at border crossings and other ports of entry for the United States; and

(2) that includes an assessment of infrastructure needed to carry out the strategy detailed in paragraph […]

Coin Center ‘Reaching Out’ For Debate

The Bitcoin community is already reacting with caution to the legislation as it stands, with multiple questions being raised as to how lawmakers could enforce it in practice.

“We’re reaching out to the relevant offices,” Coin Center CEO Jerry Brito said in a Twitter response.

EU Focuses On Dark Web, ID Linking

The move is reminiscent of similar plans across the pond in the European Union regarding declaration of digital currency funds, this time at the point of spend.

While border controls are not currently on the table, legislators are keen to enforce similar AML controls on anyone holding any form of virtual funds.

Formally revealed in March, users could soon face obligatory linking of their personal identity to their wallet.

AML could force linking users' ID to their digital wallets

More recently, a joint “consortium” by the European Commission, INTERPOL and others will research ways in which illicit use of the dark web can be curbed. Participants promise that:

“The consortium will analyze legal and ethical requirements and define guidelines for storing and processing data, information, and knowledge involved in criminal investigations without compromising citizen privacy,” participants promise.

What do you think about the Bill being considered by Congress? Let us know in the comments below!


Images courtesy of Wikimedia, Shutterstock

Show comments

Share
Dub 01

Japan’s New Bitcoin Law Could Do More Damage Than NY BitLicense

· April 1, 2017 · 9:00 am

7,130 views

According to IndieSquare Co-founder Koji Higashi, new regulations in Japan, which will make Bitcoin an official form of payment (starting today April 1), may do more harm than good for the fledgling industry in the country.


Japan to Introduce Own ‘Bitlicense’

Following the disastrous demise of the infamous Japanese exchange, Mt. Gox and the arrest of its CEO Mark Karpelès, regulators in the country decided to introduce regulations for Bitcoin.

Bitcoinist_Mt. Gox

The regulatory framework has been in the works for over two years. The first bill was submitted to the Diet in Japan (the legislature consisting of the Lower and the Upper Houses) last March, and the Payment Services Act and the Act on Preventing of Transfer of Criminal Proceeds were amended in May 2016. Now, new drafts for detailed regulations and guidelines have been approved.

The new law, which is now in place starting today (April 1), is meant to protect consumers and to help them distinguish safe, i.e. approved exchanges, from fraudulent operations.

The law also recognizes approved cryptocurrencies as a legal method of payment in Japan, preventing users from investing in so-called scam coins, fake digital assets, and IOU tokens.

Although praised by western and Japanese media alike, the new regulatory framework may pose serious problems for the Japanese Bitcoin community, according to Koji Higashi, Co-Founder of IndieSquare and Community Director at the Counterparty Foundation.

profile-pic

In a blog post, Higashi outlines the major issues with what he calls “Japan’s Bitlicense” due to the similarities found between the two, saying:

I’d actually argue that this law may turn out to be more damaging to the Japanese industry in the long run than what Bitlicense has been to NY.

Why It Could Be Worse Than NY’s

The Bitlicense introduced in New York has been widely perceived by the community as damaging for Bitcoin startups in the region due to the bureaucracy and high entry barriers for small startups. It resulted in several startups like ShapeShift and LocalBitcoins halting services for NY-based customers.

Now, Japan is doing the same, explains Higashi. “If you are not a fan of the excessive cost for legal and compliance fee for Bitcoin startups, however, the new law in Japan is certainly not exciting news for you,” he notes. 

bitlicense

Among others, the requirements involve the submission of a 3-year business plan, segregated fund management, KYC/AML requirements, segregated fund management, frequent reporting to authority, and external audits.

Some experts estimate that the costs involved with becoming a compliant exchange could be as high as $300,000-$500,000 USD. Moreover, additional fees and paperwork will also apply to companies beyond trading platforms and will affect P2P decentralized exchanges as well.

Higashi:

It’s hard to say whether the regulation in Japan is more costly than the Bitlicense but I can say it’s expensive enough to put serious financial pressure on startups and may force them to go out of business completely in some cases.

Another issue with the new regulatory framework is that it will require virtual currencies to be accepted into an official list of approved coins. Although this system may protect users from being scammed out of their savings, it may end up damaging the reputation of coins that don’t make it to the list, which will most likely be a conservative one at best.

Bitcoin in Japan

The new regulations may affect Bitcoin startups negatively but are also likely to push adoption forward and to create a sense of trust for new users in the virtual currency space. Japan is the fastest growing country in the Bitcoin market. For example, trading volume in Japan has recently surpassed that of China and the U.S.

bitcoinist_jpy_volume_09_feb

The country is experiencing growing interest in Bitcoin from users, investors, and merchants. Blockchain is also a technological focus point both for companies and the government. The Japanese community is also one of the biggest investors in crypto-related crowdfunding campaigns and Initial Coin Offerings, according to Higashi. 

[Note: This article was originally published on February 9, 2017. It has been updated as today (April 1) is the first day Japan’s new cryptocurrency law comes into effect.]

Will the new regulations drive companies away from Japan? Or will it usher a new age for cryptocurrency adoption in the country?


Images courtesy of CryptoCompare, Shutterstock, Counterparty.io

Show comments

Share
Úno 13

VP Mike Pence’s New Chief Economist is a Bitcoin Supporter

· February 13, 2017 · 8:00 am

Bitcoin supporter Mark Calabria from the Cato Institute has been selected to serve as Chief Economist for Vice President Mike Pence.


Bitcoin-Supporter to Advise Mike Pence

The Vice President of the United States, Mike Pence, has selected a well-known libertarian and Bitcoin advocate, Mark Calabria, as his chief economist.

calabria

Having also previously worked for the Senate Banking Committee, Calabria is best known as the former director of financial regulation studies at the Cato Institute. He is also an outspoken advocate of free markets, housing reform and alternative currencies.

He expressed his support for Bitcoin on multiple occasions. In an interview, Calabria said:

While I’m an economist, not a tech guy, I’m very excited about Bitcoin, as I am about alternative currencies in general, and perhaps even more interested in the blockchain.

According to Jim Parrot, a senior adviser to Barack Obama’s National Economic Council, Calabria provides the Trump administration with “a voice around the table that will give them their philosophical true North.”

Moreover, Calabria even acknowledged in 2015 that “pretty much everyone at Cato, to varying degrees, is supportive of Bitcoin.” In fact, a few even own bitcoin, “as well as a few other alt-currencies.”

Bitcoin-Advocates Fill Administration

Mark Calabria is not the first Bitcoin advocate to join the ranks of the Trump administration. The president’s Bitcoin-friendly entourage is one of the main reasons why many Bitcoinists are optimistic about the Trump presidency.

Among these is Peter Thiel, co-founder of PayPal and initial financier of Facebook. Thiel has been part of Trump’s transitional team for over a year and has invested millions of dollars in Bitcoin businesses over the years.

Greater

Senator Mick Mulvaney, also known as ‘Bitcoin Congressman,’ has been chosen as Trump’s budget chief. Mulvaney has been actively promoting Bitcoin education in Washington for several years.

Most notable, however, is perhaps Balaji Srinivasan, an executive at venture capital firm Andreessen Horowitz and founder of the Bitcoin startup 21.co, who is contending to lead the Food and Drug Administration (FDA).

Bitcoin Gaining Ground in Washington D.C.

Furthermore, the U.S. Government is taking other steps to better understand Blockchain and its industry. This is the case with the new Congressional Blockchain Caucus, an initiative spearheaded by Rep. Jared Polis (D-Colo.) and David Schweikert (R-Ariz.).

140408165335-bitcoin-washington-620xa

In 2015, Calabria expressed his concern with regards to Bitcoin regulations, saying:

I don’t think the Bitcoin community should be complacent about the current regulatory environment. The potential to get a lot worse is definitely there.

The Congressional Blockchain Caucus hopes to improve the approach to regulating cryptocurrencies through education about Bitcoin and blockchain technology. Hopefully, Calabria’s libertarian and laissez-faire approach can help lawmakers establish a sensible policy towards Bitcoin regulation in the near future.

Will the addition of Mark Calabria as Chief Economist help push Bitcoin adoption forward? Will it be good for the American Economy? Share your thoughts below!


Images courtesy of Shutterstock, Cato.org

Show comments

Share
Úno 04

South Africa Latest to Consider Creating National Digital Currency

· February 4, 2017 · 8:00 am

One more nation, South Africa, is making the first step of migration to a fully digital economy, speaking about offering their own national digital currency based on blockchain technology.


South Africa Looks to Digital Currency

There are many advantages to nation-states, both stated and unspoken, to head in the direction of a national digital currency. The chief executive of the South African Reserve Bank (SARB) said that this would include more inclusion and economic reach, faster settlements and lower costs.

“If we go the route of issuing a digital currency, the objective would be to take advantage of emerging technologies so that we reap the benefits,” said Tim Masela, head of the National Payments System at the SARB in a statement.

We foresee that these benefits could be realized, which would be good for the transacting public. But of course, the risks have to be borne in mind as well and that’s what we want to balance.

4

In Africa alone, digital currency use and national propagation seem to be a step ahead of the rest of the world’s governments. At the end of 2015, Tunisia announced that they had already successfully created a blockchain and a digital eDinar.

Senegal announced last year that they have struck a deal with a regional bank for their own national digital currency and this is expected to expand into neighbor nations as well. Nigeria has taken to Bitcoin’s digital currency in a big way over the last year.

“The proponents of the technology say ‘you don’t need to regulate it; it will self-regulate’. We don’t have an idea of how that will happen, we still need to reflect on this and need a good case [to show] that it can self-regulate. Otherwise, we believe that if it is not regulated and things go wrong, it could have a spillover effect on the financial systems,” he said.

Sweden is well along in removing cash from their society and going cashless is expected by the end of the decade. The Ukraine has declared their digital intentions recently. Australia, Canada, and even the United States have had discussions about their own versions of Bitcoin as well over the last couple of years. China is fast-tracking their own national Bitcoin system to prevent “capital flight,” when citizens move their money overseas due to a loss of value, domestically.

5

One thing that we want to state very categorically is that, in working closely with the industry, we are very conscious about possible regulatory capture. We wouldn’t want to be seen as being captured, where the regulation would be dictated by participants in the market. We will guard our independence so that the regulation is for the good of the system and not necessarily informed by the incumbents’ positions.

Plenty of Downsides for Consumers

This eventuality of a world of national digital currencies is exciting but is ceded with potential unstated consumer downsides. Mass surveillance by banks and governments becomes a plug-and-play scenario. Economic capture is also assured, as one cannot divest themselves from the currency, as there is no way to actually withdraw funds from the system.

Cash is the last private form of payment, and that is being phased out in many nations, creating a future economic system where all transactions are monitored and all user’s finances are kept on a server, which can also be hacked.

According to the IMF, South Africa is the world’s 41st-largest economy, similar to Singapore and Columbia.

Will South Africa’s own national currency be a success? Share your thoughts below!


Images courtesy of Wikimedia, StudentBrands.co, Shutterstock

Show comments

Share