So I went last night to a meeting with iComplyICO, concerning what is happening in regards to the future of ICOs. The powers that be, want to regulate ICOs in a similar way that IPOs are. This isn’t just happening in British Columbia, Ontario, or Delaware… but literally everywhere. And it’s a total crap shoot.There was some good stuff I learned at the meeting, somethings that they want to enforce in regulations over ICOs I actually agree with, to a point, and under certain conditions. So will try to break this down into two parts or sections, giving the good stuff first (for the most part), and what will likely turn into a bit a of rant in the second part.
In regards to an ICO that comes out in the future, that are “proof of stake”, there are common themes that make sense to a point on how they should be handled by investors. A “white paper” is not a business plan. No one should invest their money into a model that lacks a realistic business plan. In my humble opinion, crypto-coins fall into one or more of three categories. They offer a valued service, they offer a product, or a combination of both.
Let me take a step back here for a moment to describe what I think of the most well known coin, that being Bitcoin. Bitcoin clearly falls into the category of a service. I often compare Bitcoin to a Western Union Money Transfer. Its a service that allows an individual to transfer an amount of cash from point A to point B, it’s value is in it’s cost compared to it’s competitors like Western Union. The way Bitcoin handles this, is by creating a “Proof of Work” in each coin. That coin is traded at a free market exchange, for a value of money or another crypt-coin, the value of the coin goes up, and down depending on demand.
Other coins, provide another service, such as Euthreum, in this case the core of it’s service, in my opinion, is it’s block-chain, rather then the coin itself. ETH like a majority of coins, is also based on a “Proof of Work”.
All of the regulations that I heard about last night, were related to “Proof of Stake”, if there is a coin offering that is connected to real-estate, the stake is the land, the house, the condo complex etc. So on that note, I can understand why the SEC in each state, and province wants to place watchdogs to monitor what is going on. If invest $100k into a token of an ICO, I would want some regulator backing for my risk.
The reason this has become an issue is three-fold. First, there have been a lot of scams involved with ICO recently, and people have lost their money. Second, there are also concerns about wallets being hacked, and out right stolen, the nature of crypt-currencies places the responsibility of security on the wallet owner, which makes it almost impossible to recover losses of this nature. Third, and here is the killer folks… taxes.
Prood of Stake
The Security Exchange Commission, in the United States, Canada, and the EU have a plan. They want ICO to fall in-line with the rest of the world’s IPO regulations. From a practical point of view, this means that the tradition white paper is now nothing more then a preamble to a full disclosure business plan. Like IPOs a regular, an annual third party audit of the businesses will likely be a requirement to remain “legal”, and full token development has to be clear cut and dry. No wet blankets will be allowed. This means beta testing before the ICO even starts.
Now so far, this isn’t to much to ask for. It can be a killer for a startup since the costs incurred can not be easily managed by a small group of University students for example.
The first real problem with regulating ICOs is jurisdiction.
If I start an ICO in Delaware, USA and want to sell some tokens to a citizen in British Columbia, Canada I am solely responsible, according to this panel last night, to see to it that I am not breaking SEC regs in BC, Canada. Failure to do so could result in a $20 million dollar fine.
I’ll let you read that last sentence again, before I drop more BS on you.
If you think that’s insane, your right, on so many levels I have no idea where to start. But do take note, so far all I have really talked about are ICO tokens related to “Proof of Stake”. But before I tell you some other crazy stuff, let me drop another example on you of nanny.gov BS.
If I start an ICO in BC, Canada and sell some tokens to an investor in the EU, and then later after the ICO he turns around and sells them on an exchange to some guy in Delaware….. I am solely responsible, according to this panel last night, to see to it that I am not breaking SEC regs in BC, Canada, the EU, and Delaware….. you see where this insanity is going right?
In the real world, as in the world these SEC seat warmers come from, this can actually be done with IPO’s . If you sell shares via the stock market in Vancouver, BC and in turn those shares end up in the EU… you can easily figure out that they are owned by some Guy Fawkes in the UK. In the virtual world, ICOs do not work that way. (And no, I am not even touching Dark Coins, TOR Onion exchanges, or other nasties that this is going to hit a brick wall with).
Flight to Quality:
The argument, which was only used once, is that investors will go after and invest in only those ICO that are regulated because they will be of higher quality then the ICOs that are shady by means of not being regulated. Seems a bit like a logical fallacy to me. It’s better this way because we say it’s better and we appeal to our own authority, and if you don’t follow what we believe we will slap you down the rabbit hole. To that, I have only one thing to say, good luck with it.
What is really going to happen:
One of the reasons that Bitcoin is so successful is that it told the world banks to go F&%$ themselves. Watch what happens to ICOs, there will be changes, it will move to trust ring style authority, and incorporate a dark net like block-chain that totally avoid the SEC. Sure there will be open and public ICOs in the future that jump through all the hoops, but think of the costs involved, and the fact that the SEC is in essence creating a closed system. And that has to compete with an open one, one in which anyone who want to have a go at hard work on an ICO can do so. And again, this is only concerning the coins that have stakes….
What about Proof of Work?
Here where insanity goes off the wall bonkers…
The SEC wants ICOs that are based on proof of work to follow the same system. Part of the requirements for any ICO is that they all follow GDPR (Global Data Privacy Regulations), but Dark Coins already surpass such ideals, in fact, any ICO that follows GDPR is less private then almost any dark coin. The illogical reason behind this, is that the view that any coin has the “hallmarks” to be securities, and token issuers are legally considered to be “financial institutions”. (That includes a class of grade eight students that run an ICO to make a new skate board park). And how, I asked, is it going to be enforced that a miner, (or for that matter a minor) is going to fall under the jurisdiction of a SEC based in Ohio, who lives in France? There was no answer.
When you cut through all the crap, the final answer is this. The SECs of the world are running scared, ICOs are going to replace them. Just try and make a sound, adult decision to invest less then a thousand dollars in the stock market and compare that to investing in ICO as they are today. Where are you more likely to make some money? Doesn’t matter, there is simply less red tape with the ICOs as they are now. That “free” market is simple.