Future ICO Woes & Alternatives to ICOs for Fundraising

[Hyperme.sh]

Future ICO Woes & Alternatives to ICOs for Fundraising

(I didn’t vote in the poll)

[1715128325]

1715128325

[1715128325]

1715128325

[Nexchange.co.uk]

Future ICO Woes & Alternatives to ICOs for Fundraising

This thread is a duplicate.

Please refer to this thread on the same topic:
https://bitcointalk.org/index.php?topic=2167197.msg21709287#msg21709287

[Hyperme.sh]

Every website reporting on the altcoin boom and the initial coin offering boom has an incentive to not look too closely at the claimed numbers. Looks to me that only Bitcoin and Steemit.com have substantial numbers of real users making real arms length transactions […] The crypto coin business is full of scammers, and there is no social pressure against scammers, no one wants to look too closely, because a close look would depress the market. There is no real business plan, no very specific or detailed idea of how the coin offering service is going to be of value, how it is going to get from where it is now, to where it is going to usefully be […] Nearly all of them are furtively centralized, as Bitcoin never was. They all claim to be decentralized, but when you read the white paper, as with Waves, or observe actual practice, as with Steemit, they are usually completely centralized, and thus completely vulnerable to state pressure, and quite likely state seizure as an unregulated financial product, thus offer no real advantage over conventional financial products. When you buy an initial coin offering, you are usually buying shares, usually non voting shares, in a business with no assets and no income and no clear plan to get where they will have assets and income, as in the dot com boom.

Future ICO Woes & Alternatives to ICOs for Fundraising

This thread is a duplicate.

Absolutely false accusation. The quoted linked blog contains the accumulation of years of my research on this issue which has canonical threads that predate yours by years. There’s a depth of analysis in the linked blog which far outstrips your recent thread discussion.

Additionally this thread contains a poll and yours doesn’t.

[Hyperme.sh]

https://www.coindesk.com/regulated-icos-arrive-overstock-open-exchange-legal-token-trading/

Two of you guys sent this to me. My stance is it probably has some validity but with many possible caveats:

https://tzero.com
https://www.cryptocoinsnews.com/retailer-overstock-will-issue-company-stock-on-to-blockchain-platform/

Their blockchain explorer isn’t showing any recent trading activity for the stock they issued in 2016:

http://ledgerexplorer.t0.com/static/search.html

Note StartEngine is also entering this arena (I may try to call them to get some clarifications on my understandings):

https://www.crowdfundinsider.com/2017/08/121005-crowdfunding-platform-startengine-will-enter-initial-coin-offering-space/

But there are very complex caveats that I am going to have to try to distill after I sleep. For example, these tokens even if registered can’t be traded every where as a cryptocurrency to non-accredited investors while still restricted. I think regardless of if the issuing project is still functioning as a common enterprise or not (i.e. still ongoing development which the investor’s profit expectation relies one). Also there are issues with investors from countries outside the USA, as the securities may not be registered for investors there (yet if they’re no longer securities because the funds are no longer being pooled back to the common enterprise given the “horizontal commonality” definition, then perhaps it doesn’t matter in some jurisdiction but this is complicated). Also registering securities with the SEC incurs much more initial and ongoing compliance costs for the issuer common enterprise. Read today’s changes to my prior Filecoin post for some details:

https://bitcointalk.org/index.php?topic=2159815.msg21676934#msg21676934

I am extremely sleepy right now and not coherent enough. Will be updating my blog with some corrections to reflect those edits I made to the Filecoin post.

Appears I have been overzealous and have an important oversight. Apparently holding registered securities for 3 years that were obtained from an issuer, underwriter, or dealer, removes any restriction on who they can be resold to. And apparently unrestricted securities can be traded P2P if the funds transferred (i.e. BTC exchanged for the token) are not being pooled into a common enterprise! I need to sleep first, then do some more research to make sure I understand all the nuances such as impact of issuance under different exemptions and what impacts that being securities have on whether exchanges such as ShapeShift will shun them. This still might not be a solution for me to sell premine, I need to study more after sleeping.

Also the AML requirement for issuers to register as a MSB when selling to investors could perhaps be met by selling on an exchange or ICO platform that is a registered MSB instead of spending on goods & services.

However, my stance (that they will be illegal to trade in any way) against ICO tokens not held for 3 years remains valid, because the “underwriter” (distributor) restriction is transitive indefinitely for those who don’t hold for that duration:

http://scholarlycommons.law.wlu.edu/cgi/viewcontent.cgi?article=1743&context=wlulr#page=8

And apparently if we issue the premine under an exemption (such as Regulation D, A+ or CrowdFund) and do not register them with the regulators, then they are forever illegal to resell to non-accredited investors until an IPO registration (but really I’m ignorant of these details).

However, another huge factor has occurred to me. If the person transferring the premine does not sell it to an investor and instead spends it on goods & services, then I think indeed it has been converted from a security into currency! Aha! Yes because there is no investment contract in terms of what has been transferred. Wow. But will the SEC concur that a spend is not a resale?

But then the follow-on problem is how can I be sure that those who I issue the premine properly converted it to currency when they disposed of the tokens. And thus would exchanges be wary of listing the tokens if they can’t be sure that all units are currency and not securities (that require dealers/exchanges to register and regulate the securities). But if selling the securities to another investor doesn’t pool the funds transferred to a common enterprise, then perhaps those are no longer securities if (the investor is accredited or) the holder is not an issuer, underwriter, or dealer. But again per the link above, the seller is an underwriter if the original (and transitive violations) seller has not held the token for “sufficient length of time” (~3 years).

This is very complex. Need to sleep first.

I believe there are additional complications. For Regulation CF and A+, once 2000 shareholders (i.e. shareholders may split their holdings when they trade some of them) and/or $25 million valuation are exceeded, the company that issued the shares have much more significant ongoing compliance with the SEC.

And what happens to the securities if that company is no longer in existence? I need to research that.

Apparently the shares become deregistered:

Through Tuesday, the SEC had suspended trading in 163 delinquent filers and permanently revoked the registrations of 409; to some extent, the two statistics overlap.

So registering tokens as securities encumbers them with centralized common enterprise reporting for them to remain legally tradable apparently.

https://www.sec.gov/fast-answers/answersdfnctcohtm.html

This is perhaps why the Filecoin SAFT employed a warrant to separate the company shares from the token (even if that makes those tokens initially securities as I argued).

Securities and ICOs are complicated mess (hornet’s nest).

[Raxitto]

TZero, a subsidiary of Overstock, announced on Wednesday, September 27, the launch of the first exchange that will provide a platform for the exchange of tokens issued in the initial crypto derivative (ICO) offers that comply with the guidelines of the Commission of Securities and Securities Regulatory Authority (FINRA) of the same country.
The exchange will be launched in partnership with RenGen LLC and Argon Group.
In short, the exchange will offer a legally approved and regulated alternative to a major ICO stock exchange, such as the New York Stock Exchange and the Nasdaq.

[Hyperme.sh]

TZero, a subsidiary of Overstock, announced on Wednesday, September 27, the launch of the first exchange that will […] offer a legally approved and regulated alternative to a major ICO stock exchange, such as the New York Stock Exchange and the Nasdaq.

Did you not see that I was analysing that press release in my prior post? I quote myself:

https://www.coindesk.com/regulated-icos-arrive-overstock-open-exchange-legal-token-trading/

Two of you guys sent this to me. My stance is it probably has some validity but with many possible caveats…

I will continue my analysis by quoting from the 1933 Securities Act:

Section 2(3) The term ‘‘sale’’ or ‘‘sell’’ shall include every contract of sale or disposition of a security or interest in a security, for value.

Section 2(7) The term ‘‘interstate commerce’’ means trade or commerce in securities or any transportation or communication relating thereto among the several States or between the District of Columbia or any Territory of the United States and any State or other Territory, or between any foreign country and any State, Territory, or the District of Columbia, or within the District of Columbia.

Section 2(11) The term ‘‘underwriter’’ means any person who has purchased from an issuer with a view to, or offers or sells for an issuer in connection with, the distribution of any security, or participates or has a direct or indirect participation in any such undertaking, or participates or has a participation in the direct or indirect underwriting of any such undertaking;

EXEMPTED TRANSACTIONS
Section 4(a) The provisions of section 5 shall not apply to—
(1) transactions by any person other than an issuer, underwriter, or dealer.
(2) transactions by an issuer not involving any public offering.

PROHIBITIONS RELATING TO INTERSTATE COMMERCE AND THE MAILS
Section 5(a) Unless a registration statement is in effect as to a security, it shall be unlawful for any person, directly or indirectly—
(1) to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to sell such security through the use or medium of any prospectus or otherwise; or
(2) to carry or cause to be carried through the mails or in interstate commerce, by any means or instruments of transportation, any such security for the purpose of sale or for delivery after sale.

And the 1934 Securities Act:

TRANSACTIONS ON UNREGISTERED EXCHANGES
Section 5. It shall be unlawful for any broker, dealer, or exchange, directly or indirectly, to make use of the mails or any means or instrumentality of interstate commerce for the purpose of using any facility of an exchange within or subject to the jurisdiction of the United States to effect any transaction in a security, or to report any such transaction, unless such exchange (1) is registered as a national securities exchange under section 6 of this title, or (2) is exempted from such registration upon application by the exchange because, in the opinion of the Commission, by reason of the limited volume of transactions effected on such exchange, it is not practicable and not necessary or appropriate in the public interest or for the protection of investors to require such registration.

REGISTRATION REQUIREMENTS FOR SECURITIES
Section12. (a) It shall be unlawful for any member, broker, or dealer to effect any transaction in any security (other than an exempted security) on a national securities exchange unless a registration is effective as to such security for such exchange in accordance with the provisions of this title and the rules and regulations thereunder. The provisions of this subsection shall not apply in respect of a security futures product traded on a national securities exchange.

[…]

(j) The Commission is authorized, by order, as it deems necessary or appropriate for the protection of investors to deny, to suspend the effective date of, to suspend for a period not exceeding twelve months, or to revoke the registration of a security, if the Commission finds, on the record after notice and opportunity for hearing, that the issuer of such security has failed to comply with any provision of this title or the rules and regulations thereunder. No member of a national securities exchange, broker, or dealer shall make use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce the purchase or sale of, any security the registration of which has been and is suspended or revoked pursuant to the preceding sentence.

Conclusions:

• Anyone (including issuers and underwriters) that transfers (i.e. spends) a fungible token (which was issued as a security) in a bona fide transaction in exchange for goods or services isn’t disposing nor transferring a security (regardless whether the security was registered, issued under an exemption, or illegally issued as an unregistered security), because the payee (who receives the token) isn’t entering into an “investment contract” because the payee treats the transaction as income not for a profit expectation on the token.
• Anyone (including dealers, issuers, and underwriters) may sell a fungible token (which was issued as a registered security) while that security’s legal registration is maintained.
• Tokens issued (legally or illegally) as unregistered securities (or whose registration has been revoked) may only be sold by those who aren’t dealers, issuers, and underwriters, unless those tokens are no longer securities.^*
  
  Anyone obtained the tokens from the issuer or another underwriter, with the intent to resell them is an underwriter. Thus for unregistered securities to be legal for resale, they must have been held by some holder other than the issuer for 3 years so as to make it clear they weren’t originally held with an intent to resell them. If so held for 3 years, then when the tokens are sold, they’re no longer securities if the funds aren’t pooled into a common enterprise presuming the “horizontal commonality” definition.
• Exchanges must be registered if they offer public trading (i.e. non-accredited investors allowed) of tokens which are securities. There’s no legal way for any (registered or unregistered) exchange to offer public trading of unregistered securities.

^* _{Even though the funds of the resales are not pooled to the common enterprise per the requirement of the “horizontal commonality” definition, the Securities Act restricts resales which are an extension of distribution of the issuer by underwriters. However, arguably if the common enterprise has ceased and/or the tokens were previously spent on goods or services, the restriction no longer applies because the distribution no longer applies to the former “investment contract”. The Securities Act doesn’t allow dealers (aka exchanges) to offer trading for securities with revoked registrations, but presumably this is because there’s not clarity as to whether speculators would be basing their profit expections on the resurgence of the common enterprise and reinstatement of registration.}

So the Overstock/TZero news merely means that they will streamline registration of token sales under the Securities Act. These issuers will need to maintain the compliance with the SEC in order for those tokens to be legal for dealers (aka exchanges registered with the SEC) to trade. The registered securities tokens will not be tradeable on the unregistered exchanges we have now.

Tokens issued as registered securities is an ongoing centralization requirement and not suitable for a permissionless, enduring cryptocurrency that will trade on centralized registered exchanges (aka dealers) and unregistered exchanges — i.e. not legal for dealers if registration is not maintained and not legal for unregistered dealers unless they have an exemption (presuming the SEC and other nations will begin to crackdown with their preexisting securities regulations as China recently did). Unregistered exchanges (i.e. not registered dealers) can only legally trade tokens which aren’t securities. Also if the tokens (issued as registered or unregistered securities) were never held for 3 years, then every user transitively becomes an underwriter and thus it is illegal to trade the tokens even on decentralized exchanges (which I pointed out in my blog could be hypothetically enforced on investors who comply with tax reporting). However, it is always legal (w.r.t. to the 1933 Securities Act) to spend any tokens for goods or services (and it also avoids AML regulation).

Also bear in mind that the Overstock/TZero option will not be viable for 99.9% of the ICOs that are being issued in our ecosystem, because those issuers do not want to comply with all the disclosure limitations (e.g. they can’t make non factual hyped claims) and oversight on their use of the funds raised. In short, the speculation in our ecosystem doesn’t want realism because the reality is that none of the projects are actually attaining any adoption or use other than selling empty speculation bags to greater fools.

Every website reporting on the altcoin boom and the initial coin offering boom has an incentive to not look too closely at the claimed numbers. Looks to me that only Bitcoin and Steemit.com have substantial numbers of real users making real arms length transactions […] The crypto coin business is full of scammers, and there is no social pressure against scammers, no one wants to look too closely, because a close look would depress the market. There is no real business plan, no very specific or detailed idea of how the coin offering service is going to be of value, how it is going to get from where it is now, to where it is going to usefully be […] When you buy an initial coin offering, you are usually buying shares, usually non voting shares, in a business with no assets and no income and no clear plan to get where they will have assets and income, as in the dot com boom.

Essentially the only way I can see to issue an unencumbered cryptocurrency by token sale, is to enforce on the decentralized ledger that the tokens can’t be sold for 3 years and that all tokens were held by those who aren’t issuers nor underwriters after that 3 year restriction. The 3 year holding period seems to be consistent in the UK also, which is the other significantly developed market for securities. That at least makes it sure that the token is legal for all use, spending, and trading in a decentralized context (regardless whether it’s registered with regulators). However, even with this precaution undertaken, unregistered exchanges (i.e. not registered dealers) might still be wary of listing tokens which were originally issued as securities (before the 3 year freeze on the decentralized ledger) unless perhaps the regulators provide more clarity (and registered dealers exchanges don’t offer trading in non-securities, but they may continue to offer trading if the said tokens were registered as securities and registration has been maintained and not revoked). And it’s possible some jurisdictions’ regulators might claim that the tokens remain securities indefinitely (because it can’t be proven that the prior or future efforts of said common enterprise don’t remain relevant to investors’ investment decisions, c.f. my blog for a quote of jurisprudence in a dissenting opinion). And because it can’t be proven that all the tokens were at some point spent on goods and services (thus removing their securitization).

Additionally although afaics not strictly required by the law, it would be advantageous to also insure that ecosystem is sufficiently decentralized that the common enterprise that pooled the funds of the original token sale is no longer the basis of investors’ expectation profits.

been trying to follow ico related stuff on the legal side as i am in the usa. i have to be careful that all my crypto stuff is legal etc for taxes and such.

As explained above and in the blog for this thread, the ICO issued tokens so far have made all the holders underwriters and thus illegal traders. The exchanges trading these are illegal and going to be in trouble. Especially for someone in the USA, I would stop trading these ICO issued tokens. And wait for token sales that are compliant as I wrote about above in this post.

Non-securitized Issuance Without Proof-of-work

Tokens can also be issued/distributed by spending them for goods or services to avoid the “investment contract”, but the payee must have some reasonably liquid market to exchange them, otherwise it would be construed they’re holding them with a dependency on their future exchange value and the value they transferred to the issuer or underwriter was an investment in those tokens. As another way to avoid the Howey test requires of an “investment contract”, tokens can be distributed by giving them away where the recipient acquires them only for their utility (such as a currency) and not to resale them to another investor, and/or any value (the recipient transferred to the common enterprise, such as their ongoing use and promotion of the common enterprise) is not managed solely by centralized managers who the recipient relies on.

Disclaimer: IANAL. This isn’t legal advice.

Re: Don't be afraid of ICOs

What are your thoughts on this?

Study the facts.

Be afraid of every token sale which is not locked on the blockchain for 3 years before trading (or unless it’s a registered security and you only expect to sell it to other investors on registered exchanges). Your token will likely get delisted eventually from exchanges (unless it can be registered which is not the case for all the current token sales). Legal and criminal implications for you personally possibly for illegal trading on unregistered exchanges.

Crackdowns are coming eventually. China just the first salvo of what is coming from regulators in major nations.

Steem started dropping when the Poloniex wallet got disabled for "maintenance". That was 2 months ago, and I think when a lot of people realised they couldn't withdraw their Steem from Poloniex, they sold it for bitcoin, which they could withdraw. And the Steem price hasn't really recovered, because the wallet on Poloniex hasn't been re-opened.

It's a shame when exchanges mess with coins like that.

That’s an example of what is going to happen to all ICO issued tokens when the delistings come forth.

And STEEM is still trading on Blocktrades and Bittrex, so imagine the utter collapse towards 0 of the STEEM price if it had been delisted from every significant exchange.

Everybody going to get plenty of warnings but they will ignore the warnings of course.

Bitcoin, Litecoin, Bitcoin Cash, and other tokens issued competitively with proof-of-work aren’t securities, because none of the funds paid for tokens was pooled into a managed common enterprise.

I'm just more thoroughly reading through your assessment and so my own summary is that essentially you have tokens issued as “securities” and then tokens which are not considered securities due to the way in which they were distributed.

Can you maybe highlight or make clearer why tokens such as ETH and the these ETH derived ICO's are considered securities? I know they are like crowd fundings and many of them are simply IOUs with some promise of a valuable token/platform in the future. Also, please clarify why the token for your Hypermesh project can't be issued similar to BTC to avoid these legal issues. (I haven't read through the XxXX (technology for Hypermesh project) details yet, but I assume it's because of the way it's mined or lack thereof.) Thanks!

The secret Gist link I provided to my yet unpublished blog about XxXX (technology for Hypermesh project) has nothing to do with the securities issue. XxXX is the technology for my decentralized ledger that enables it to achieve true decentralization unlike how proof-of-work and proof-of-stake must become centralized (oligarchy) controlled as explained in that Gist. XxXXis one of my many technological and marketing advantages. But I don’t want to go off on explaining that right now. Let’s stay on the securities and fundraising issues for now.

Tokens are securities if they’re issued as “investment contracts” as per the Howey test and “horizontal commonality” as explained in my recent Steemit blog. That requires the funds transferred are pooled and managed by the issuer(s) who manage the common enterprise. The DAO, ETH, and ERC-20 ETH token sale tokens all seem to be issued as securities (some portion of ETH was issued by proof-of-work though).

Securities can be traded P2P (i.e. not on public exchanges) by those who aren’t issuers, underwriters, or dealers/exchanges regardless if they were registered or not (even if they were illegally issued). But the problem is that every trader of the token becomes an underwriter if the token wasn’t held for 3 years by someone in the chain downstream from the issuer. So basically the only way I can see to issue a security that remains legal to trade P2P, is for it to be locked on the decentralized ledger (aka blockchain) for 3 years after issuance. So afaics, any token which was a security and wasn’t locked for 3 years, is thus illegal to trade for anyone any where, except for those securities which were registered. Registered securities can be traded by anyone P2P and on registered exchanges (but not on unregistered exchanges) but only for as long as their registration is maintained by the issuer (with annual reports, etc). None of the token sales have been registered (and the token sales up to now afaics haven’t even be issued legally with correct exemptions so they can never be registered). The securities which aren’t registered but locked for 3 years, can afaics subsequently trade legally P2P, but whether they can trade on unregistered centralized exchanges is unclear. I reasoned that perhaps they can.

Tokens issued by proof-of-work or the other means I explained at the end of my recent BCT post, aren’t securities and thus can be traded legally P2P and on unregistered exchanges.

It’s quite a convoluted mess to wrap one’s mind around. I hope that explanation helped you better understand my recent posts:

https://steemit.com/cryptocurrency/@anonymint/future-ico-woes-and-alternatives-to-icos-for-fundraising
https://bitcointalk.org/index.php?topic=2208231.msg22330424#msg22330424

P.S. I want to research more the 3 years issue after I sleep.

P.S.S. For my Hypermesh project’s token (which has been renamed as you know to a shorter name which we have not yet announced), the premine is locked for 3 years. The onboarding tokens which are issued to users who signup are issued as I explained in the section Non-securitized Issuance Without Proof-of-work. I explained why issuance that way makes them not securities. So the Hypermesh token is issued in two ways, the premine is a security and the onboarding tokens are not. So for 3 years, there’s no ambiguity whatsoever because all the unlocked, tradeable tokens were issued not as securities and so the tokens can be traded P2P and on unregistered exchanges (just like Bitcoin and other tokens do now). After 3 years, the premine is unlocked for trading, but even though it was a security, then since it was locked for 3 years, then no one is an underwriter and thus it can be legally traded P2P. Whether the project’s token (including onboarded tokens since all tokens are fungible with each other) can be traded on unregistered exchanges after premine is unlocked is a matter of intepretation, but there will be a decentralized exchange built into my project any way:

…There’s no benefit for us to register the premine as securities, because they must be held and not traded for 3 years (and maintaining registration is the antithesis of a decentralized ledger). However, as I wrote in that BCT post linked above, its possible the ecosystem will be so decentralized after the said 3 years, that those premine can no longer be construed to be securities. And thus the unregistered exchanges wouldn’t delist our token if that is the correct interpretation. In any case, if we assure that all premine that was held for 3 years was held by those who aren’t the issuer and/or that all premine held by the issuer were never sold and always spent for goods and services, then after the 3 year period our token will continue to be legal to spend and trade in a decentralized context (and we’re planning a built-in decentralized exchange any way).

Note I just realized we should probably unlock the premine gradually so the market could gauge the level of premine selling so hopefully less potential the market could panic and sell off in anticipation if premine holders don’t intend to cause a sell off.

Disclaimer: I’m not advertising any sale of anything. Nothing has been decided yet. Just sharing/brainstorming/researching ideas at this point.

[Hyperme.sh]

Yet again, I prophetically I warned everyone:

Reuters report South Korea has banned all forms of initial coin offering

http://v.media.daum.net/v/20170929100212900

What it says is "Korea will ban any kind of ICO." It is official from the Government.

We had many warnings that this was coming (which my blog from Sept 2 had mentioned South Korea’s warning):

https://www.cryptocoinsnews.com/south-korea-tightens-bitcoin-regulations-will-punish-icos-report/ (Sept. 4)
http://www.the-blockchain.com/2017/09/04/south-korea-plans-crackdown-icos/ (Sept. 4)
https://cointelegraph.com/news/china-forces-icos-to-return-funds-as-korea-warns-of-punishments (Sept. 5)

I had been reiterating these warnings this week.

Including my warnings a few hours ago:

Re: Will ICO fundrising survive at 2018+?

There are so many fears and rumors around ICO. I think that ICO format is very convenient for projects as well as for investors. There are too many scam ICOs and I understand what is the point of the governments fear. But I wonder what do you think about ICO in 2018+. Will it survive?

Probably not for those which are not issued in a more compliant way.

Study the facts.

Investors are risking legal and criminal culpability for illegal selling on unregistered exchanges.

Crackdowns are coming eventually. China just the first salvo of what is coming from regulators in major nations.

Steem started dropping when the Poloniex wallet got disabled for "maintenance". That was 2 months ago, and I think when a lot of people realised they couldn't withdraw their Steem from Poloniex, they sold it for bitcoin, which they could withdraw. And the Steem price hasn't really recovered, because the wallet on Poloniex hasn't been re-opened.

It's a shame when exchanges mess with coins like that.

That’s an example of what is going to happen to all ICO issued tokens when the delistings come forth.

And STEEM is still trading on Blocktrades and Bittrex, so imagine the utter collapse towards 0 of the STEEM price if it had been delisted from every significant exchange.

Everybody going to get plenty of warnings but they will ignore the warnings of course.

[jules-jules]

Right now we're in the Wild West Capitalism ICO phase. I expect the market to get somewhat regulated over time as gov regulation catches up. However, the cat is out of the bad and there is no turning back anymore. 

[Hyperme.sh]

EDIT: see my latest post on this.

Right now we're in the Wild West Capitalism ICO phase. I expect the market to get somewhat regulated over time as gov regulation catches up. However, the cat is out of the bad and there is no turning back anymore.

I presume you voted No in the poll and are justifying your No vote with the bolded (my emphasis added) assertion.

You do not seem to understand the point that the authorities do indeed have the power to compel investors to not trade illegal ICO issued securities, because investors have to report their itemized capital gains on tax reporting.

I guess we will find out how significant tax avoiding cash markets are if authorities delist and make illegal the trading of unregistered securities (i.e. ICO issued tokens that were not registered).

Personally I am not against the rise of decentralization. I am just trying to be pragmatic and understand implications and how to best position for the outcome.

As my prior posts in this thread explained in great detail, the future of ICOs are registered securities, but these will only trade on registered exchanges, but each nation has a different registration policy for both securities and the exchanges of securities. This will be a huge non-fungible mess (analogous to how stock trading is not international). And if the issuer does not maintain compliance and reporting, the registration can be revoked and then it is illegal to trade the token to other investors (unless the token had been held for 3 years by everyone). That is an unworkable mess. Nothing like the global ICO trading we have now.

@CoinHoarder’s summary and I agree that just like in the Dot.Com bubble burst, most of the ICOs will end up worthless and useless.

Note Australia has just pointed out that my blog is correct and that most ICOs are securities per the pooled funds and common enterprise test. Every nation is preparing to crackdown on unregistered ICOs.

Disclaimer: IANAL. This isn’t legal advice.

Re: ICO's killing crypto

[…]

Not that extreme. They’re just going to use the ICO regulation to increase the digital tracking of everything we do:

In December meanwhile, more stringent identification of virtual currency holders who convert funds to fiat will come into being, with the onus on businesses to ensure they can identify customers behind the conversions.

Banks will also monitor “unusual” cashflow events.

“We will start the transaction by confirming the identity of the bank and monitoring the flow of funds,” the official continued.

“It will facilitate tracking of funds … and provide a basis for preventing money laundering such as suspicious transaction reports."

Japan on it's move to regulate cryptocoins, has started licensing exchanges operating inside it's jurisdiction.
https://www.bitsonline.com/japanese-exchanges-licenses/

Quoinex becomes the first to get such license followed by bitflyer.

So, are we going towards more kyc, identity verification, source of income, income tax, profit tax, remittance tax?

[Hyperme.sh]

Even Austria and Switzerland got into the ICO crackdown mode.

And Singapore’s banks are also going after the bank accounts of those facilitating ICO issued projects.

[Hyperme.sh]

Re: Bittrex's delisting Bitshares (is it a SEC action)?

2‍. Bitshares is a TXSRB clean token and will not be subject to SEC or other government crackdowns (happening right now!)

No where do I see the TXSRB explain why a “Fat Protocol” token fails to meet the Howey test.

What is the logic?

3‍. Bitshares is being used to create the STOKENS exchange for issuing and trading SEC-compliant tokens. Most/all ICOs will be moving to Bitshares instead of Ether in the future as companies are forced to follow the rules set by the SEC and other government/regulatory agencies. Already there are many ICOs happening on Bitshares - Smoke, Kexcoin, Bitspark, Satoshi.fund, Bondonblockchain, Crypviser, YOYOW from the top of my head - many more on the go!

7‍. China is shutting down centralized exchanges; the US and other countries will follow soon. SEC has recently filed charges against a US based-ICO and they are using it to build a model to crack down on all the other ICOs. Decentralized exchanges are the future of trading crypto and Bitshares is the No. 1 DEX on the planet by any metric - transactions per second, scalability, security, volume, adoption, speed, number of assets, etc.

Well there is a likely reason to delist it if an exchange is concerned about securities regulations exposure.

Stokens are the TXSRB’s attempt to subvert nation-state regulations and create a global self-regulated authority, but that does NOT make them SEC-compliant. It makes them a competitor to the SEC’s jurisdiction.

All I see is dire warnings from the TXSRB and no details about solutions:

As we move forward we must both create legal coins and clean up the old mess created by the Swiss, Singapore and other countries who skirted security laws globally.  There is a possible path forward with the SEC if nothing nefarious occurred in a company.  For those who pumped and dumped, where insiders sold or manipulated markets, where advisors took broker/dealer fees of 25% and added no real value, where investors were purposely lead astray or worse, you can expect no free ride.  For the Swiss law firms who represented the bad firms I personally hope they're held personally liable when SEC v. Traffic Monsoon finishes and global jurisdiction and class action lawsuits become the new thing.

A mess was created in Switzerland and cloned in Singapore, Gibraltar, Luxembourg, Estonia and similar countries who promised to magically transform companies into not being companies, with the sole purpose of avoiding global securities & exchange laws, KYC/AML, taxes and provisions to protect investors from fraud. That anyone in Switzerland wants to represent a regulatory authority to tackle the problem they made fortunes creating, now that the founders they guided could face fines and jail time, is sad and ironic.

[…]

(2) Once/if tokens trading on an exchange are deemed securities an exchange must comply with the SEC & FINRA or cease operations and that would include delisting identified toxicoins deemed as illegal, unregistered securities in the hands of non-accredited, un-documented, un-KYC/AML'd individuals who could be bad characters. More than likely the exchange would be shut down as well or at least investigated and sued by the SEC for non-compliance. Hopefully users would have time to take their tokens before/if assets are frozen.

The very bad news is that potentially most tokens and exchanges are illegal and could be investigated or shut down, and the founders/lead engineers/lawyers brought before US courts, regardless of being distributed or autonomous, based on a SEC victory in SEC v. Traffic Monsoon, which could literally see that outcome any day.

The dominoes are falling.  On July 25th the SEC let the world know they think some tokens are securities and specifically the DAO token.  India, China, Japan, Singapore… announced they are going to regulate some tokens as securities and will likely decide which tokens are, or are not, securities. The SEC could begin investigating individual tokens, creating great inconvenience, cost and damage to the value of that token with the potential years of uncertainty about the outcome weighing on the minds of that specific token’s owners.  There is also uncertainty for centralized exchanges, and perhaps even decentralized exchanges, who allowed the DAO token to trade; or how about all of the tokens that will/may be deemed securities trading on those exchanges now.

[…]

The TXSRB is a private organization but is subject to any government-imposed regulations to the extent an applicable governmental regulation or law applies, supplemented by the internal regulation put in place by the TXSRB.

[Hyperme.sh]

This is perhaps why the Filecoin SAFT employed a warrant to separate the company shares from the token (even if that makes those tokens initially securities as I argued).

Securities and ICOs are complicated mess (hornet’s nest).

New ADA Token

That same legal risk (and risk of future delisting) that applies to the Filecoin SAFT, I believe may also apply to Charles Hoskinson’s new ADA token.

Per my prior post, note these former Ethereum founders have been “involved with” the Swiss transgressions of global securities law and even they are involved with that TXSRB presumed attempt to defy nation-state regulators and form their own global self-regulatory body. What are these guys thinking   We can’t defeat the corrupt power of nation-states by walking directly into the jurisdiction of “their” JUST-US laws already on their books regarding securities and AML. Instead we must paradigm-shift away from securities issuance which is what proof-of-work does.

So this group issued ADA vouchers primarily to Japanese investors (and btw their websites are designed so they can’t be captured by archive.org nor archive.is!), which afaics have no purpose other than to be exchanged for ADA tokens which are now being sold to US investors on Bittrex!

Afaics, this is a violation of Regulation S safe harbor exemptions because even though the vouchers were offshore transactions and were not directed sales in the USA, the exchange of the vouchers for tokens (which are now offered for sale to USA person on Bittrex) is just an obfuscation of the economic reality of the “investment contract” per the Howey test!

I presume they have good attorneys and may also be well connected in FinTech, but I predict the way this will play out is ADA tokens will become highly regulated.

This is not cryptocurrency in the (popular interpretation of the) spirit of Satoshi Nakamoto (although “Satoshi” had a sinister hidden objective which is just now coming to light), as they admit. As well, their Ouroboros ledger technology is not decentralized.

IMO, Charles has lost the plot. I am of the opinion that their group and project(s) are headed not in the direction of world changing paradigm-shifts but rather encumbering the tokens and ecosystem with rigor mortis regulatory morass right into the lap of the evil motherfucking powers-that-be and the morass of centralization that retards degrees-of-freedom and permissionless network efforts.

I am going the other direction towards scalable, permissionless, decentralized!

Seems proof-of-work was specifically created to avoid encumbering the tokens with regulation, so that it survives as a globalization phenomenon (which is one of the big hints as to who created Bitcoin). I expect the nation-states’ TPTB (regulators, fat cats, etc) are going to have an eventual feast on these token-sale-issued tokens (no matter how they were obfuscated with vouchers and SAFTs).

These “useful idiots” are playing right into the plan of how Bitcoin would globalize (while necessarily becoming entirely centralized mining as has recently been proved in research!) while the scammers would drive the excuse for massive regulation:

It's a very good time to be a money launderer, and you can thank cryptocurrencies

Cryptocurrencies have exploded in popularity in recent years that has led to a red-hot fundraising trend where start-ups bring in millions of dollars in capital by issuing virtual tokens to investors in exchange for money.

Initial coin offerings (ICOs) have become a primary means of fundraising for projects built on blockchain technology. Companies create and issue digital tokens that can be used to pay for goods and services on their platform or stashed away as an investment. They put out whitepapers describing the platform, software or product they're trying to build, and then people buy those tokens using widely-accepted cryptocurrencies (like bitcoin and ethereum) or fiat currencies like the U.S. dollar.

All of that is done without any regulatory oversight, and that has regulators — and members of the financial industry — worried about the potential of widespread money laundering and fraud.

ICOs are enabling the media to associate cryptocurrency and blockchains with money laundering, terrorism, North Korea, World War 3, etc..

I think the differences in approach here is due to different world view of the negative value of democracy and the reality of democracy (i.e. what really happened on 9/11 that everybody really wants to sweep under the rug).

Let the competition of ideas, designs, concepts, and financial structuring ensue.

Disclaimer: IANAL. This is not legal advice.

[Hyperme.sh]

The plot thickens.

Well connected New York attorneys are for sale to issue incorrect opinions on ICOs?

Will governments be fighting between themselves over the spoils of “stealing” from ICOs?

Disclaimer: IANAL. This is my n00b ramblings, not a legal advice.

[Hyperme.sh]

Oh my why didn’t I think of this.

Air dropping after the fact, the token sale issued tokens, could be a way to convert an illegal security into an unencumbered token!

Is this the way to issue an ICO and get away with it without actually encumbering the future of the tokens?

Actually I did think of this before but I was thinking that the new tokens need to be held for 3 years because I was thinking the same issuer (of the ICO) would issue also the air drop. But if the new issuer is non-affiliated with the ICO issuer, I think this air drop might be the way to convert the illegal ICO tokens to legal tokens.

If a Token is a security, is a fork the same as a share split?

I’m thinking that if the new issuer is non-affiliated with the prior one, then no it isn’t a split. The investment contract was with the original issuer and common enterprise. The new non-affiliated issuer has no investment contract with the investors in the ICO.

[steveouttrim]

If a Token is a security, is a fork the same as a share split?

[Big Naturals]

Oh my why didn’t I think of this.

Air dropping after the fact, the token sale issued tokens, could be a way to convert an illegal security into an unencumbered token!

Is this the way to issue an ICO and get away with it without actually encumbering the future of the tokens?

Actually I did think of this before but I was thinking that the new tokens need to be held for 3 years because I was thinking the same issuer (of the ICO) would issue also the air drop. But if the new issuer is non-affiliated with the ICO issuer, I think this air drop might be the way to convert the illegal ICO tokens to legal tokens.

If a Token is a security, is a fork the same as a share split?

I’m thinking that if the new issuer is non-affiliated with the prior one, then no it isn’t a split. The investment contract was with the original issuer and common enterprise. The new non-affiliated issuer has no investment contract with the investors in the ICO.

Afaik this is what DecentralizedEconomics is doing with his YourChain project,

[Dorky]

I believe the future of cryptocurrency cannot thrive without a commercial ecosystem to work with, such as the one that Ethereum's ICOs are creating.

In the conventional world, we have physical gold, fiat currencies, and enterprises/corporations working together as one thriving system.

If the future is without the ICOs, it would be like a world where we have physical gold and fiat currencies, but without enterprises/corporations.

Despite posing the highest level of scam and fraud, I believe the ICOs will remain the most rewarding sector of the crypto world.

Imagine this scenario whereby you have all the BTC, LTC, ZCASH in the world, and nothing else.

On the other side, another person has all the enterprises in the world, and nothing else.

Somehow you will have the need to acquire some of the products and services produced by the enterprises.

And enterprises being profit-oriented, will not sell you its products/services at fair price, but at a profit.

Thus the change of wealth will ultimately be a net positive flow from you (the one having all the cryptocurrencies in the world) to the person with all the enterprises in the world.

Buying BTC is like buying physical gold.

Buying LTC, BTH, ZCASH, DASH, etc is like buying the USD, GBP, YEN, etc.

Buying ICOs is like buying shares of enterprises and corporations.

And the level of reward you will get from the ICOs will depend on participating in legitimate ICOs with viable commercial projects.

Just my speculation.

[otunayode]

Many government around the world are now looking into crypto currency its self. I am sure many nation don't understand it yet. Ico are still going to be here.

[Hyperme.sh]

Oh my why didn’t I think of this.

Air dropping after the fact, the token sale issued tokens, could be a way to convert an illegal security into an unencumbered token!

Is this the way to issue an ICO and get away with it without actually encumbering the future of the tokens?

Actually I did think of this before but I was thinking that the new tokens need to be held for 3 years because I was thinking the same issuer (of the ICO) would issue also the air drop. But if the new issuer is non-affiliated with the ICO issuer, I think this air drop might be the way to convert the illegal ICO tokens to legal tokens.

If a Token is a security, is a fork the same as a share split?

I’m thinking that if the new issuer is non-affiliated with the prior one, then no it isn’t a split. The investment contract was with the original issuer and common enterprise. The new non-affiliated issuer has no investment contract with the investors in the ICO.

Afaik this is what DecentralizedEconomics is doing with his YourChain project,

I hope not. On further analysis, it appears to not solve anything.

[Hyperme.sh]

Proof-of-work Case

Let’s think about what makes proof-of-work distribution not a security:

1. it’s issued by competitive decentralized algorithm which is resistant to non-objectivity in terms of value awarded to whom, so no one entity or colluding group is an issuer (thus no common enterprise)

2. the funds expended for mining are not pooled by a common enterprise (i.e. no horizontal commonality)[1]

So actually if a group colludes to sneakyinstamine, then the reasons above can both be subverted. The reason #2 is subverted because the future appreciated value of the tokens is pooled.

So this is why a reasonably diverse fair launch is critical for proving that the issuance is sufficient diversified.

Note however that in the case of even for example Bitcoin and Monero, the circle of initial miners when the issuance rate was greatest was much smaller than the eventual diversification. The key is that the mining continued for a long duration to enable the distribution to become sufficiently diversified. But the possibility of more exclusive distribution in the early phases wasn’t entirely (provably) eliminated.

So it seems that an initial mining period that is somewhat more exclusive (due to lack of awareness of the market) is not antithetical to avoiding a common enterprise and securization of the tokens. Whereas, the securization issue is more dubious if the initial more exclusive phase of mining is perpetuated with a subterfuge scheme that continues to funnel much of the ongoing issuance to the same exclusive group in an uncompetitive manner that can’t reasonably be competed with mathematically, such as the Dash sneakyinstamine followed by compounding of ongoing issuance flows to masternodes. Yet without significant forensics or insiders squealing due to for example the SEC’s whistleblower bountry program, perhaps securities enforcement against Dash could be difficult to prove.

[1] Even though they don’t form a common enterprise, I originally thought the AML regulations singled out issuers of (even decentralized) virtual currencies as being money transmitters (subject to registration as MSBs) if they dispose the mined tokens to another person without employing an AML regulated exchange instead of spending them on goods & services, But a more recent AML guideline clarified that it’s not being an issuer that is relevant to money service businesses classification, but rather whether one is acting as an exchanger for others as service/business to the others. IOW, if you regularly offer to convert exchange real currency or other virtual currencies, then AML regulation applies. So doing such exchanges on an AML compliant exchange would eliminate any potential culpability. Note my reading of the AML guidance is that miners of decentralized virtual currencies are issuers (they created new money supply by mining and issue the tokens to themselves), but they’re not administrators because they don’t have the power to redeem tokens in order to reduce the money supply.