Israeli Regulators Form Committee to Consider Greater ICO Oversight

Financial regulators in Israel have become the latest to consider introducing measures that would target ICOs, announcing the formation of a new committee to consider the issue.

The panel, established by the Israeli Securities Authority, will look at whether ICOs can be brought within the current scope of domestic securities regulation, and will publish its recommendations in due course, expected to be before the end of December.

The panel will reflect on positions being adopted by regulators elsewhere in the world, as it looks to draw conclusions about the most effective way to regulate initial coin offerings.

In doing so, it joins growing numbers of similar authorities worldwide turning an increasing focus on the issue of the thus far unregulated pseudo-securities of token issues.

Initial coin offerings, or ICOs, have become an increasingly fashionable way for startups to raise capital from investors at scale, often used as an alternative to traditional securities. To date, just shy of $2 billion has been raised through the ICO mechanism, a figure which has recently started to draw more attention to token issues from regulators worldwide.

Investors are drawn to tokens in the hope of future resale value, much like with initial share offerings. However, tokens are crucially not regarded as securities in the traditional sense, and for the time being, remain outside the scope of financial regulation worldwide.

The Israeli approach could be the next step towards bringing ICOs into the fold, following similar approaches by governments and regulators elsewhere.

The Securities and Exchange Commission in the United States has already declared ICOs to be a form of security, while the Russian Finance Ministry this week proposed that all forms of cryptocurrency be regulated as traditional assets, rather than currency instruments.

Similarly, authorities in Canada last week highlighted that some ICOs do indeed fall within the scope of securities, and offered to help any companies proposing an ICO to deliver compliance with existing laws and regulations.

The key dividing line for regulators appears to be the utility value of tokens beyond merely an investment in the underlying company, with those tokens perceived as having applications beyond mere investment less likely to fall within the remit of regulators.

With the Israeli panel convening ahead of the December report, it remains to be seen which type of approach to regulating the issue is adopted by the regulators there.

 

Kik Concludes $50 million Funding Deal Ahead of ICO

Mobile messaging service Kik has concluded a fundraising drive worth $50 million, ahead of the public launch of its Kin token in the forthcoming ICO.

Kin tokens were issued to a group of private equity investors, including Pantera Capital, Polychain Capital and Blockchain Capital, ahead of an ICO planned for next month which aims to raise a further $75 million, for a combined $125 million in new capital inflows.

The Kik ICO has become one of the most discussed offerings of ethereum tokens to date, marking one of the first attempts by a high profile company to raise funds through token issues.

Regarded as controversial, and a potential target for increased SEC regulation in future, the reputation of ICOs could be dealt a boost by a successful Kik issue in September.

The company, which boasts 15 million active users each month in the crucial 13-24 demographic, announced its intention to create the token back in May, a move that was criticised at the time for being unlikely to yield the results they are striving for.

With the token developed in compliance with ethereum’s ERC-20 protocol, it can be traded through exchanges, and redeemed for dollars, a factor in Kik’s plan to roll out the token as a cryptocurrency for exchanging value between users and content creators on their platform in future.

The ICO will see one trillion tokens sold into circulation, of a maximum 10 trillion tokens built into the system. According to Tanner Philp, of Kik, this structure will prove useful for future use cases on its platform, including the some 180,000 bots already operational on their platform.

“One of the areas of immediate opportunity is the over 100,000 bot developers, who have created over 180,000 bots. Those bots could be anything from entertainment to content creation to games.”

The Kik ICO is expected to be one of the largest of its kind so far, and could contribute significantly to the $1.8 billion that has already been raised through ICOs to date.

With venture capital already on board, analysts are already expecting strong demand for the token on first issue.

With the ICO event fast approaching, attention will now turn to how popular the Kin token proves with early public investors.

Waiting for Bitcoin fees to go down? Don’t hold your breath

If you’ve been using Bitcoin recently, you probably noticed that sending the digital currency from one address to another now comes with a hefty price tag.

Data from blockchain search and analytics engine Blockchair showed that the average Bitcoin transaction fee neared $7 in the past week, which, in effect, makes the cryptocurrency barely usable for microtransactions even though cheap transactions are supposedly one of Bitcoin’s biggest selling points.

There are several factors that are contributing to Bitcoin’s high transaction fees, but one of the main reasons is simply because the network’s transaction capacity is still stuck at 1MB of data per Bitcoin block limit. And this “artificial” limit is causing miners to prioritize transactions, forcing users to compete and outbid each other.

This limit, as we all know, has been the subject of debate for many years, with many parties proposing different solutions to scale the network. SegWit, in particular, had claimed that its capacity increase is basically equivalent to raising the block size.

But now that SegWit has activated—and clearly showed that it does very little to scale Bitcoin—where does it leave us?

Into a strange, dangerous territory, according to Medium author Jonald Fyookball.

In a new post, Fyookball said the recent events has resulted in Bitcoin becoming “almost entirely speculative,” with those understanding and buying Bitcoin betting on second layer technologies “to be adopted and favored over alternatives.”

“Long term, I think this could be a dangerous bet,” he wrote, stressing that these second layer technologies, the Lightning Network in particular, aren’t even available for use yet.

In conclusion, Fyookball advised against getting our hopes up that Bitcoin fees will drop soon. After all, “they are high by design,” he said.

Meanwhile, there’s Bitcoin Cash, the new cryptocurrency that split off from Bitcoin on August 1.

Bitcoin Cash promises to increase the block size to 8MB and remove SegWit, while also awarding people who own coins on the main bitcoin blockchain the same number of coins on the new Bitcoin Cash blockchain, effectively giving them a free dividend.

“It is Bitcoin as it was designed, and works beautifully with low fees and fast confirmations,” Fyookball said.

Bitcoin sheds dark past as crooks turn to other virtual currencies

Bitcoin is no longer the currency of choice on the dark web.

Due to its secure technology and decentralized nature, the early phases of Bitcoin use were marred by mining and using the cryptocurrency for illegal goods. Deep web black markets, like the now-defunct Silk Road, allowed users to buy and sell illegal drugs and other illicit products using digital currencies.

Those dark days, however, are in the past because according to experts, criminals are turning to other digital currencies that are harder to track. A CNBC report quoted a U.S. Homeland and Security official, who said that miscreants are now “looking more closely at other currencies like monero and ethereum.”

Bitcoin’s promise of anonymity is one of the reasons why it became the black market’s currency of choice. But the dark web failed to take into account that the cryptocurrency is built on the blockchain, which is essentially a public record of all transactions on the Bitcoin network that law enforcement investigators can access to track the movement of funds, eventually leading them to catch the criminals as they try to cash out via exchanges or banks.

In Bitcoin’s place are new digital currencies that have popped up over the years, promising increased user privacy. Among these is monero, an open source cryptocurrency whose underlying technology is capable of hiding the name of the sender, amount and receiver.

Law enforcement agencies, however, are getting better at tracking the criminals and holding the exchanges accountable, according to the Homeland Security official.

“I think [Bitcoin’s] a lot more legitimate than people give it credit for,” the official said.

In 2016, researchers found that Bitcoin has already matured to a point that its market no longer relies on illegal activities to drum up business. According to the study, Bitcoin has already passed through “three distinct phases of growth as a distributed payment system,” and its most recent stage has allowed the cryptocurrency to be driven by “legitimate payments, commerce and services,” a far cry from its days spent on the dark side of the internet.

Mexico’s central bank governor rejects bitcoin as virtual currency

Banco de Mexico Governor Agustín Carstens has ruled out identifying bitcoin as a virtual currency.

Instead, the banker said the cryptocurrency should be classified as a commodity because there is nothing to ensure its accounting in a financial system as it is not supported by any central bank or government. Speaking to students at the Instituto Tecnológico Autónomo de México (ITAM), Carstens argued that managing instruments like bitcoin is a cybersecurity issue because “they are not necessarily immune to hacking” and because they offer “users anonymity,” Mexican newspaper El Economista reported.

And bitcoin, being a “product of technological innovation,” should be implemented in tandem with regulation by the financial regulators, Carstens said in his presentation, according to the report.
“This technological development in the financial system cannot be the result of innovation alone. There must be a free step that does not cause problems to the financial system that in the end affect the whole society,” the bank governor said.

Carstens comments, misguided they may be, are line with the Mexican government’s negative views on digital currencies, especially bitcoin. In 2014, the Bank of Mexico restricted banks from using bitcoin, which it said was not considered legal tender in the country. However, there is no denying that Mexico is experiencing a growing interest in bitcoin trade, and digital exchanges are thriving in country especially following reports that U.S. President Donald Trump is looking at stopping undocumented Mexicans in the United States from sending money home.

Mexico isn’t alone in its struggle to fit bitcoin within its existing regulatory frameworks—after all, bitcoin is its own thing. Carsten’s limited understanding of bitcoin and digital currencies aside, there are indications that the Mexican government is interested in regulating “las tecnologias financieras,” also known as fintech.

Carsten said “financial authorities will soon present” proposed laws to regulate fintech, although whether Mexican regulators will classify bitcoin as a commodity or a currency still remains to be seen.

South Korea rides the Bitcoin thrill: Conglomerates announce plans for cryptocurrency exchanges, remittance platforms

For a country that prides itself as a launch pad for innovation, it had taken South Korea a little bit more time before getting on the cryptocurrency train. But now that it’s in on the action, there’s no turning back for the Asian country.

Many countries in Asia are already making strides in the Bitcoin industry. At the forefront is Japan, which has started recognizing cryptocurrencies as a method of payment. Now, South Korea is poised to follow suit after the government officially legalized international Bitcoin remittances, and will soon have a regulatory framework that will give digital currencies legal grounds in the country.

Kakao Talk-based cryptocurrency exchange

South Korea’s Bitcoin industry may have yet to be fully regulated, but the competition—particularly for cryptocurrency exchanges—is already heating up.

Mobile stock trading app Kakao Stock is the latest to announce that it will launch a cryptocurrency exchange for Bitcoin and ether. Kakao Stock is based on the popular smartphone messenger Kakao Talk, which is used by over 200 million users worldwide.

Kakao Stock provides real-time stock quotes and stock trading capabilities from within the messaging ecosystem. The app sends real-time stock quotes to users as well. The upcoming cryptocurrency exchange, which the company has been developing since June, is expected to operate in a similar manner. According to Etoday, the exchange will be offered through the app only and will handle currencies like Bitcoin and Ether.

Dongbu Group enters Bitcoin remittance market

Another South Korean company eyeing the nascent Bitcoin market is Dongbu Group.

The conglomerate, which produces industry, chemical, shipping, financial and insurance products, has partnered with Bitcoin remittance service provider Sentbe, via its Dongbu Savings Bank subsidiary, in a bid to enter the Bitcoin remittance market. The two companies signed a memorandum of understanding to explore “new business models based on new technology and expertise of the WSBI [World Savings and Retail Banking Institute] overseas affiliate network.”

The partnership comes in the heels of the South Korean government amending the Foreign Exchange Transactions Act. The amended law, which took effect on July 18, legalizes Bitcoin foreign exchange transfers for small sums.

Under the law, fintech companies wanting to provide Bitcoin foreign exchange transfers are required to register with the Financial Supervisory Service (FSS) and must also comply with several financial requirements including a paid-in capital of about $1.77 million, and a debt-to-equity ratio of below 200%.

Russian Deputy Finance Minister Suggests Bitcoin Restrictions

Russia’s Deputy Finance Minister Alexei Moiseev has suggested that bitcoin transactions should be restricted to qualified investors only, a proposal which would exclude retail investors from engaging in bitcoin investments.

The suggestion comes at a time when Russian regulators are pushing for greater oversight of bitcoin and other digital currencies, as the authorities come to grips with the challenges and opportunities posed by the cryptocurrency space.

According to local media reports, the Minister suggested that bitcoin should be regulated as an asset, rather than a currency, and as such, it should be restricted to ‘qualified investors’ – a term which encompasses those with assets over a certain as yet unspecified threshold.

Moiseev’s statements to the press reflect his intentions over the approach, which could soon be referred to lawmakers for drafting.

“We suggest not to call it currencies, do not regulate it as currencies, regulate how…other property, classify it as a financial asset and allow only classified investors to buy and sell them on the exchange.”

Listing bitcoin on the Moscow Stock Exchange would enable the Russian government to bring transactions under their Rosfinmonitoring protocols, a mechanism created by decree of President Putin to ensure Russian authorities have full oversight over certain classes of transactions.

The measures, ostensibly introduced to prevent fraud and provide financial intelligence to central government, would have the effect of halting the growth in digital currency investments from non-qualified investors – i.e. the majority of ‘ordinary’ retail investors.

The approach to bitcoin in Russia has been at times starkly contrasting, with government officials often highly suspicious of the technology and the emerging markets in digital currency. At the same time, the Bank of Russia has been more amenable to these new asset classes, and even senior ministers in the Russian government have on occasion sounded a more sympathetic tone.

Yet the present proposals indicate a hardline approach, and one which is already raising concerns amongst investors, analysts and digital currency commentators.

Pavel Durov, founder of Telegram and VKontakte, said that by “voicing ideas to ban and restrict” the use of digital currencies, the Russian government was hindering steps to decentralise the global financial system, comments which are being supported broadly by analysts in favour of a more liberal approach.

SEC halts trading of yet another bitcoin firm over rebranding plans

A Canadian company’s announcement to rebrand as a cryptocurrency exchange has resulted in a trading suspension from the U.S. Securities and Exchange Commission.

American Securities Resources Corporation (ARSC) announced that it has officially changed its name to Bitcoin Crypto Currency Exchange Corporation “as it prepares to enter the booming cryptocurrency markets.”

In a statement, CEO Frank Neukomm said the change is aimed “to better reflect the new activities” of the company. The publicly-traded company is developing BitCoinMWallet, a mobile payment application that allows “trade and redemption of bitcoins using iOS or Android devices.”

“We believe the company is now positioned to aggressively pursue cryptocurrencies and bitcoin opportunities, and have changed our name to accurately reflect our new direction,” Neukomm said.

The company’s announcement, however, has sparked questions from the U.S. regulator, which ordered a temporary suspension of Bitcoin Crypto Currency Exchange Corporation starting Aug. 25 until at least 11:59 p.m. EDT on Sept. 8.

In its Aug. 24 suspension order, SEC expressed concern over the “lack of accurate information” about ARSC’s securities.

“The Commission temporarily suspended trading in the securities of ARSC because of questions that have arisen regarding publicly available information about the company in press releases… concerning, among other things, the company’s business transition to the cryptocurrency markets and early adoption of blockchain technology,” the regulator stated.
ARSC is the third bitcoin-related company that the SEC has suspended since the beginning of August. Last week, the U.S. regulator suspended trading in securities of First Bitcoin Capital Corporation (BITCF) citing concerns that the Vancouver-based company may not have been telling the whole truth about its corporate structure. BITCF said the suspension was an “unfortunate” incident, which they are working to resolve.

Meanwhile, CIAO Group recently resumed trading after its stock was suspended earlier this month, according to data from Bloomberg.

Prime minister prepares to embrace bitcoin legalization in Vietnam

It may have been a long time coming, but Vietnam is finally ready to get on board the cryptocurrency train.

On Friday, Vietnamese news agency VNA reported that Prime Minister Nguyen Xuan Phuc has approved a plan to examine and “streamline the legal framework” for managing digital currencies like bitcoin in the country.

The plan seeks the input of relevant ministries and institutions, including the State Bank of Vietnam, the Ministry of Information and Communications, the Ministry of Public Security, the Ministry of Industry and Trade, the Ministry of Finance, and the Ministry of Justice, who are tasked to “provide a comprehensive assessment and propose suitable solutions and revisions” in the current legal framework.

The ministry officials have until August 2018 to complete the assessment, with all legal normative documents on the currencies ready by the end of next year, according to the announcement.

By June 2019, the ministries are expected to have finalized an application for the compilation of a legal framework on taxes for digital currencies, followed by proposals for prevention and handling of digital currency-related violations by September of the same year.

The prime minister’s approval is a sign that cryptocurrencies like bitcoin will be recognized legally in Vietnam, opening up opportunities in financial technology and online payments in the country.

Vietnamese lawmakers admitted the country is behind other countries when it comes to defining and regulating digital currencies, which is needed especially now that electronic payments and e-commerce are booming in popularity in Vietnam. However, the government was concerned that bitcoin will be used for money laundering activities, or even buy illegal weapons and arms, and enable corruption and bribery. Additionally, state regulators were worried that bitcoin transactions will make it difficult for the government to collect taxes, resulting in losses to the budget revenue due to tax evasion.

If all goes according to the prime minister’s plan, Vietnam will soon join countries like the United States, France, Germany, Britain, Japan and Canada, which have already built legal frameworks and policies to manage business operations that deal with digital currency.

Here’s why Bitcoin Cash WILL Succeed

‘Genesis Bitcoins’ are the first movers. Irrespective of which fork you are looking at, whether Bitcoin Cash, Segwit2x, or Bitcoin Core – all have one thing in common. They share a common seed from the 3rd of January 2009.

This means that on either chain, the majority of the coins have already been mined, and both have very little left to mine, compared to the majority of altcoins. Scarcity creates value. And this value has a capacity to explode into realisation at any moment.

Right now we have two viable options with two very different visions for what Bitcoin is, and what Bitcoin ‘should’ be. Bitcoin Cash (BCC,BCH), maintains Satoshi’s goal of a global peer to peer currency, while Segwit (either variation), intends to move the Bitcoin blockchain into a settlement layer for which Lightning Network hubs and other second layer solutions will provide subscription services for fast transactions.

When Bitcoin Cash first forked, it relied heavily on an Emergency Difficulty Adjustment algorithm in order to bring the mining difficulty down, in order to make it profitable, and fast. The EDA, was an important step in ensuring the survival of Satoshi’s envisioned coin.

The fluctuating difficulty has meant that miners switch back and forth to the more profitable-to-mine coin. This has resulted in inconsistent oscillations of block times, hashrates, and particularly for BitcoinSegwit, extreme fees. In fact, fees recently reached an all time high, averaging over 10 USD! The oscillation observed is actually not unusual. Similar fluctuations are observed on alt-coins, particularly those based on GFX processor mining. Bitcoin Cash just happens to be the first legitimate competitor to Bitcoin Core, with significant market presence, and is able to cause wild swings in hashpower.

The oscillation, although frustrating for both coins, has in fact brought to fore the inevitable issues surrounding a capped blocksize. Extreme congestion on the Segwit chain is having far reaching ramification for users, and businesses. The price however, hasn’t reacted, yet – but the graph is beginning to look heavy, and some analysts are calling it “time to short”.

There is no need to ‘rush’ into a solution to mitigate issues concerning the EDA, however, and Bitcoin Cash devs are presented with a range of options (and are spoiled for choice) on how to best tackle the hash-dance. For many of the options available, we can look to the alts, and cherry pick the best options. Certainly, a difficulty adjustment algorithm that has a smooth curve would almost surely be a better bet to reduce the sudden shifts in hashpower.

In the interim, how Core chooses to handle these fluctuations remains to be seen. A do-nothing approach may be the easiest avenue, but may not be a popular one with disgruntled users and businesses.

As for Bitcoin Cash, having no permanent blocksize cap means these issues, even though evident, can effectively be mitigated in the next block, even after hours. Any backlog is dealt with, and transaction fees don’t have to rise. It genuinely is refreshing to see the mempool dealt with ever so efficiently. With Bitcoin Cash, a backlog doesn’t build and build.

The market will come to realise this in time.

Now that transactions are cheap again, online businesses and merchant accounts can rebuild an entire eco-system (which actually was up, but was cut down due to the fees). These businesses will be re-engaged, and trust rebuilt. Once again, businesses have an opportunity to transact for a median price of $0.05 per transaction, saving heavily on merchant fees and third party implementations. Bitcoin Cash is an enabler.

Bitcoin ATMs now seek a revival. Although practically killed off due to the fees, they can now operate with Bitcoin Cash without being hindered by mining fees. And these ATMs are coming.

Admittedly, it is indeed frustrating that an entire eco-system now needs to be re-introduced. But it is happening on the express lane this time. The code for all Bitcoin applications is already there – it simply requires minor adjustments in order to fork to the Bitcoin Cash equivalent. Many exchanges and wallets which stated they would not honour a Bitcoin fork have turned back on their words, and now openly support Bitcoin Cash. The Bitcoin Cash economy is catching up – fast.

But I want to finish off on one point which BCC/BCH has over the other Genesis Bitcoins. Bitcoin’s capacity to run smart contracts and other applications as evidently expressed in nChain’s recent papers. Bitcoin as a 2PDA is capable of doing everything that is already thought of in the ‘Smart Contract’ world, and more. As a 2PDA, Bitcoin isn’t restricted in cascading calls which require every single node to run every single function. This is a limitation of Distributed server processing system Ethereum and other equivalents. Nor does Bitcoin have the ‘gas’ problem here.

I am working on a large paper which will highlight some of the potentials here, and the capabilities that are in store – I look forward to publishing this soon. But once a programming language is developed, things can really start to fly. At present, we are restricted to low level language that a 2PDA is capable of processing.

But here’s the kicker. In order for this to work, you cannot have a limited blocksize. Bitcoin Cash can realise Satoshi’s purpose for the ALT-STACK and use it to its advantage. Segwit and Segwit2x cannot. Not with their limited blocks. Choking transactions was never a part of the intended design.

We are witnessing early days of Bitcoin once again, and there is much room to grow indeed.

Eli Aram
@justicemate