Bitcoin is an Economic Miracle: Cambridge Professor

Dr. Garrick Hileman, an economic historian at the University of Cambridge and the London School of Economics, explained Bitcoin is nothing short of an economic miracle.

Dr. Garrick Hileman, an economic historian at the University of Cambridge and the London School of Economics, explained in an interview with CNN that Bitcoin is nothing short of an economic miracle.

Hileman stated:

"Many economists dismissed it as a flawed form of money, something that could never achieve the level of adoption that it has. Today we estimate 5 to 10 million unique active users of cryptocurrencies, and in my opinion that's nothing short of a minor economic miracle."

What Bitcoin represents

Bitcoin is the world’s first form of decentralized money; a store of value that is censorship-resistant and that is immutable against manipulation by central entities, authorities and governments.

The decentralized structure and peer-to-peer protocol of Bitcoin are unique in that they allow the Bitcoin network to operate as its own economy, without intermediaries and third party service providers. While some central banks and financial institutions have begun to fear such aspects of Bitcoin, the Bank of Finland encouraged economists to study the “marvelous structure” of Bitcoin.

In a paper entitled “Monopoly without a monopolist: An economic analysis of the Bitcoin payment system,” Bank of Finland researchers wrote:

“Bitcoin is not regulated. It cannot be regulated. There is no need to regulate it because as a system it is committed to the protocol as is and the transaction fees it charges the users are determined by the users independently of the miners’ efforts. Bitcoin’s design as an economic system is revolutionary and therefore would merit an economist’s attention and scrutiny even if it had not been functional. Its apparent functionality and usefulness should further encourage economists to study this marvelous structure.”

Global impact

As mentioned above, Hileman described Bitcoin as an economic miracle, but a “minor” one. However, at this stage in which the market valuation of Bitcoin has surpassed that of major banks at $166 bln and the liquidity of Bitcoin is higher than that of most stock markets, it is difficult to justify any aspect of Bitcoin as “minor.”

Bitcoin has had a major impact on the global financial system over the past eleven months, and it will continue to transform the finance industry at a rapid pace. Already, institutional investors have begun to move into the Bitcoin market. Coinbase CEO Brian Armstrong revealed that approximately $10 bln in institutional money are awaiting to be invested in digital currencies such as Bitcoin.

“Over 100 hedge funds have been created in the past year exclusively to trade digital currency. An even greater number of traditional institutional investors are starting to look at trading digital assets (including family offices, sovereign wealth funds, traditional hedge funds, and more). By some estimates there is $10 bln of institutional money waiting on the sidelines to invest in digital currency today,” wrote Armstrong.

Economic miracle

Naturally, as major hedge funds and large-scale investment banks shift towards Bitcoin, general consumers and casual investors will follow. Then, Bitcoin will no longer be a minor economic miracle but a major one, which will inevitably shape the finance sector in the long-term.

Leading economies like the US, Japan and South Korea have already recognized Bitcoin as a legal currency and store of value, providing regulations to cryptocurrency exchanges, businesses and investors.  

As a currency, Hileman also noted that Bitcoin is increasingly being used in the luxury markets, to process or settle large transactions without the expensive and inefficient services of banks.

"If you're only paying a $2 transaction fee on a piece of art that's worth tens of thousands, the fee is basically zero. But if you're paying two or three percent on a piece of art of that value, then the numbers can go up quite a bit,” added Hileman.

Source: Coin Telegraph




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SingularityNET Announces $36mln ICO Funding For AI Platform Expansion

Blockchain AI platform SingularityNET will launch an ICO Dec. 8, looking to raise $36 mln.

Pioneering Blockchain Artificial Intelligence (AI) marketplace SingularityNET has announced a $36 mln ICO to fund its expansion.

Announcing the fairly modest funding goal for the world’s first such AI marketplace, SingularityNET’s robotic ‘chief humanoid officer’ confirmed the 500 mln token event at its recent Web Summit in Lisbon, Portugal.

A combination of private and public sales will distribute the tokens, with the ICO concluding when all are sold or when the $36 mln figure has been reached.

Participants are required to register on a whitelist prior to the sale beginning Dec. 8.

“The exact amount of tokens available in the crowdsale depends on private sales, which have not yet been finalized,” an accompanying press release states.

SingularityNET has sparked considerable interest in its bid to open up the hitherto corporatized nature of AI development and services.

Investors in the project already include famous names from both inside and outside Blockchain, and the network itself is already used by over 50 companies including Cisco and Huawei, according to the company.

“…It’s hard to know what direction the evolution of AI is going to go. I think in the long term, which may just mean a few decades from now, AIs will have a much greater intelligence than human beings,” CEO Ben Goertzel told Cointelegraph in an interview last month.

Source: Coin Telegraph




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Letter From Supposed Confido Lawyer Promises ICO Investors Refund

Dubious letter from supposed lawyers of Confido shared a statement that the investors are likely to receive refunds.

Confido has recently released a statement on its website claiming that the money raised by the company in its initial coin offering (ICO) is being kept in a trust fund until further notice.

The authenticity of the said letter, along with its legal representative is still under question considering that the company’s whole social media accounts, along with its website, have been previously taken down.

In the said letter, the supposed legal representative claimed that the people behind the Confido project have no intention to scam the investors. However, the money raised in the ICO is not enough to advance the initiative, so its developers decided to shelve it for further assessment.

Part of the letter read:

“Our client emphasizes that Confido is not a scam and that there were never any intentions to disadvantage any investors. However, the project – despite the dreams of the developers – is not feasible within the scope of the results of the ICO. Therefore, our client decided to stop the development of Confido.”

Brief Confido profile

The project that was intended to disrupt the traditional escrow services and transactions. However, after raising almost $375,000 through an ICO on the platform called TokenLot, the company has suddenly disappeared online. All of the startup firm’s social media platforms like its website went completely dark.

An investigation by a news channel also showed that Confido’s alleged Chief Executive Officer (CEO), Joost van Doorn, has lied about his employment history. Based on the probe, Van Doorn was never an employee of the beverage firm PepsiCo and German online retailer Zalando as he previously claimed on the Confido website.

Promised refund

Based on the letter, the Confido investors may potentially have a chance to recover the money they invested in the ICO. It remains to be seen, however, if this will be the case in the next few weeks as there are also lots of doubts concerning the authenticity of the said letter.

Source: Coin Telegraph




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ICOs Flow Continues As Regulations Fall Around the World: Expert Blog

International tax officer sums up current state of ICO regulation in US

Expert Blog is Cointelegraph’s new series of articles by crypto industry leaders. It covers everything from Blockchain technology and cryptocurrencies to ICO regulation and investment analysis. If you want to become our guest author and get published on Cointelegraph, please send us an email at mike@cointelegraph.com.

Initial Coin Offering (ICO) is a new way of fundraising enabled by digital currencies and Blockchain technology where participants invest fiat currencies and receive ‘‘tokens,’’ digital assets in return.

ICOs are widely seen as an innovative fintech alternative to traditional initial public offering of stock (IPO) as a means for start-up businesses to raise capital. A person, project or company in need of capital creates a new kind of digital coin and sells a tranche of them for fiat currencies on a digital trading platform or exchange.

Prior to an ICO, a business would typically release a “whitepaper” which provides investors with an explanation of their proposed project, the rights behind the virtual tokens they would be issuing, the risks of the investment and details of the ICO itself.

The rights behind the digital tokens can vary considerably, and many tokens are not intended to grant the investor an ownership stake in the business, unlike stock.

Currently, there isn’t a standardized way of preparing a whitepaper in comparison to regulated prospectuses for IPOs.

ICO’s token valuation

With the exception of hedge fund managers who indiscriminately assess ICO tokens for their long and short selling prospects, the underlying motivation of an ICO investor is the expectation that the token’s value would uptick after the ICO, and the investor would sell it to make a tidy profit.

A token’s value is determined based on (1) the demand for the token which may be denominated in a highly volatile virtual currency (2) the underlying company’s financial performance. Currently, there isn’t a standardized way of determining a token’s value. ICO investors trade these tokens at a profit or loss.

ICO’s technology

The Ethereum (ETH) ICO platform is public and open-source and features smart contract functionality. It is still in its early stages of development, and its application is of experimental nature.

Vitalik Buterin, co-founder of ETH, cautioned that there are flaws, technical intricacies of ETH Blockchain networks that support ICOs arising from the centralization problem, which could take up to two to five years to solve. Buterin expects 90 percent of ETH-based ICOs to fail.

Despite information technology (IT) network security measures, software applications, computer hardware, the Internet, Blockchain platforms supporting the ICOs, are also vulnerable to computer viruses, physical or electronic break-ins, attacks or other disruptions of a similar nature (Hacks).

The revelation of the technical vulnerabilities of the ETH-based platform and the risk of Hacks could add operational, technological risks for ICOs.

ICO’s Fraud

This year has been the year of ICOs for countries like Russia, China and Japan. To date ICOs raised $3 bln, averaging 20 new virtual coin offerings a month, that produced an average investment return of 1,320 percent, 293 times S&P 500 return of 4.5 percent during the third quarter of 2017.

There have been many new uses for ICOs, including municipality-funding applications in Japan. But Joseph Lubin, co-founder of ETH,  cautioned that some of the ICOs have been plain old scams.

In the US, the Department of Justice (DOJ) and the Federal Bureau of Investigations (FBI) began clamping down on fraudulent virtual currency transactions after the FBI issued a first of its kind report analyzing the likelihood and consequences of illegal activities involving virtual currencies in April of 2012. Less than a year later, in March of 2013 the Financial Crimes Enforcement Network (FinCEN) enacted registration requirements for money service businesses (MSB) dealing in virtual currencies before the first ICO launched in July of the same year.

ICO’s regulation

With the known ICO related risks in mind, global regulators, legislators and central bankers have been working on devising effective regulatory measures to mitigate concerns over security, consumer protection and financial crime.

The first country to regulate ICOs was the US Securities Exchange Commission (SEC), which on July 25, 2017, issued a landmark opinion concerning digital assets stating that ICOs can sometimes be considered securities — and as such are subject to strict laws and regulations.

Putting the new SEC law to use: (1) the SEC brought charges against two companies and their operator for defrauding investors in a pair of fraudulent ICOs and (2) ICO token holders served Tezos with two potentially groundbreaking class action lawsuits alleging that its $232 mln ICO violated US securities laws and misled investors.

Since SEC’s ICO pronouncement, twenty-eight countries have proposed or enacted ICO legislation in an uncoordinated fashion. Some countries mimicked the SEC in regulating ICOs as a security. Other countries like China abruptly banned ICOs and shut down all virtual currency exchanges.

Other US laws applicable to ICOs in addition to SEC laws

With the enactment of ICO regulations, institutional investors have become increasingly interested in investing in them. Here are other US laws they should take into consideration in addition to the SEC laws when evaluating an ICO for investment.

  • CFTC on ICO Tokens: Commodity Futures Trading Commission (CFTC) regulates virtual currencies/tokens as commodities. A commissioner explained, “crypto-tokens offered in a pre-sale can transform. They may start their life as a security regulated under SEC from a capital-raising perspective but then at some point – maybe possibly quickly or even immediately – turn into a commodity." This is how many understand the simple agreement for future tokens (SAFT) concept because no bright-line rule determines which types of tokens are securities and which are not. Instead, what qualifies as a security can only be determined by a facts-and-circumstances-driven analysis of particular tokens.
  • FinCEN on Foreign Virtual Currency Businesses: According to a spokesman for FinCEN, “A foreign virtual currency business may have to register with FinCEN depending on several factors. If the foreign virtual currency company is registered with, and functionally regulated or examined by the SEC, CFTC or if it engages in activities that, if conducted in the US would require it to register with the SEC or CFTC, then it would not have to register as an MSB with FinCEN. If it does not satisfy this condition, the answer depends on how it operates, on behalf of whom and where its customer base is located based on a facts-and-circumstances-driven analysis.”
  • IRS on Foreign Virtual Currency Businesses: A foreign virtual currency business may be subject to US tax laws because virtual currencies are characterized as property according to Notice 2014-21, gains of which are subject to federal taxation and tax reporting requirements under Information Reporting and Backup Withholding, Foreign Account Tax Compliance Act (FATCA), Country-by-Country Reporting (CbCR). The IRS may claim jurisdiction over a foreign virtual currency business that lacks any physical presence in the US, so long as they do substantial business in the US based on a facts-and-circumstances-driven analysis. According to the new chief of the IRS Criminal Investigation division, “in 2018: (1) the Nationally Coordinated Investigations Unit, and (2) the International Tax Enforcement Group will be increasingly focused on the cross-border use of virtual currencies.”

Conclusion

As regulations fall on ICOs around the world, it opens the doors for institutional investors to partake in ICOs of companies that may have a global footprint from a business, technological and legal structure standpoint. This requires sophisticated evaluation of all ICO related risks in all jurisdictions the company operates. “ICO companies, their executives and institutional investors should carefully take into consideration the ever-changing regulatory landscape around the world and implement a good compliance program. An ICO company needs to comply with various countries regulations including money-laundering regulations and anti-bribery laws, while minimizing risk,’’ advised John Kearney of MyComplianceOffice.

Disclaimer: This article is adapted with permission from Tax Management Memorandum, 58 TM Memorandum 418, 10/16/17. Copyright 2017 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com.

Selva Ozelli, Esq., CPA is an international tax attorney and CPA who frequently writes about tax, legal and accounting issues for TaxNotes, Bloomberg BNA, other publications and the OECD.

Source: Coin Telegraph




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