Bitcoin ICO Review

2018 was meant to be the year of security tokens. The number of projects seeking to launch security token offerings (STOs) would mushroom, we were told, and a string of accredited trading venues would emerge where these instruments could be exchanged. The release of two new reports into the STO market provides an opportunity to reflect on whether security tokens have lived up to the hype.

When the utility token craze took off in 2017, raising billions of dollars through initial coin offerings (ICOs), skeptics predicted that the mania couldn't last. Many of these so-called utility tokens, it was claimed, were actually securities, and it was only a matter of time until a lettered agency such as the U.S. Securities and Exchange Commission stepped in to call a halt to proceedings. In the event, the demise of the utility token has had less to do with enforcement, and more to do with market conditions that have made it virtually impossible for ICOs to raise funds. A string of underperforming ICOs, including several that were outright scams and others that simply failed to deliver, have blunted public appetite for this fundraising mechanism.

STOs have the potential to overcome several of the drawbacks to ICOs, including the regulatory uncertainty. Because security tokens represent a claim to an asset, such as equity, investors have a degree of reassurance that, in the event of the project faltering, they will have legal redress. This contrasts with utility tokens, which are sold on the understanding that they may be worth nothing and that holders have zero claim to any sort of assets. Two new reports from Hashgard and ICOrating.com provide an insight into the health of the nascent security token market.

ICOrating.com reports that STOs saw a steady increase in interest during Q2 and Q3 of 2018. The share of projects offering a security token increased by a slender 1.66 percent in Q3 over the previous quarter, while the number of projects offering utility tokens decreased by 10 percent. One impediment to projects seeking to launch an STO is a shortage of platforms that are capable of listing their token. Until traditional cryptocurrency exchanges, including a number of Malta-based entities, receive approval to sell securities to accredited investors, a handful of platforms will hold sway.

Leading security trading platforms and frameworks include Tzero, Polymath, Swarm, Harbor, Securitize and Securrency. Different exchanges often use different token standards to facilitate the trading of security tokens. In the case of Polymath, for instance, it's the ST20 protocol for Ethereum-based tokens. Startengine, meanwhile, has introduced its own ERC1450 standard for digital stock certificates. "To date, we have issued ERC1450 tokens to all 3,500 Startengine shareholders, and there are 165 more eligible companies that use Startengine Secure and are expected to be listed on the ERC1450 smart contract," explained CEO Howard Marks.

Significant progress has been made over the last 10 months in developing security token standards, trading platforms, and obtaining regulatory approval. In terms of capital raised, however, STOs have yet to make any major headway. Singapore's Blockchain Capital raised $10 million via STO, while other security token projects include high-tech investment fund Spice VC and incubator fund Science Blockchain. Many other aspiring STO projects are still waiting patiently for the SEC to approve their Reg A+ application that will enable them to sell security tokens to the public.

As demand for utility tokens continues to decrease, expect to see security tokens outstrip them and become the preferred fundraising method for tokenized projects. From a building perspective, this year has recorded plenty of headway in the security token market. Predictions of 2018 being the year of the security token look to have been overstated however. It seems likelier that accolade will go to 2019 instead.

After the success of the first Bitcoin BCH stress test on the first of September, the group behind that test have decided to ramp up their efforts to showcase the robustness and reliability of the of the BCH Network.

The group plans a more extensive, more professional stress test on November 17, two days after the scheduled protocol upgrade.

Rather than I tell you about the upcoming stress test, Brenden Lee of https://stresstestbitcoin.cash has put some words on the page to give some insight into their group, their processes and what everyone can expect come November 17.

The Professional Stress Test

"Our team came together to bring the first stress test to life, and while the test itself was something of a success, the 2.2 million transactions were a far cry from the target we had set for ourselves of 5 million transactions.

The reasons were wide-ranging and included a lack of automated systems for re-starting tests that failed, issues with the way some nodes were managing transaction buffers, and a lack of people to run the testing and manage the system.

After the test, a small group of us came together to look at forming a professional testing group, and the idea of the professional stress test was born.

Dale Dickins is an early Bitcoin activist and the maker of a documentary called "The Bitcoin Doco." She works tirelessly to build networks of people who use Bitcoin, creating small social worlds to achieve great things. She has recently been part of the group who brought the Bitcoin Cash Jeepney to the streets of Manila and is working on forming long-term business relationships in Bitcoin.

Esthon Medeiros is the wizard behind the curtain, building and managing the test machinery, currently being referred to as the 'Satoshi Shotgun,' which has significantly evolved since the first test. We now can create many geographically dispersed nodes using multiple Bitcoin clients (we currently support Bitcoin Unlimited, Bitcoin SV and Bitcoin ABC) and can easily regather funds and send large numbers of transactions for a sustained period. The machine's power will be on display during the upcoming pre-test which we hope will achieve at least one 32MB block.

Brendan Lee is the author of BUIP086 which extends the functionality of Bitcoin QR codes and developed and now sells the patented Safewords system through his company Coin storage Guru, while more recently has been fortunate enough to be part of the team at Tokenized, recently awarded the Coingeek Token prize. His role has been planning the strategy for ensuring money and resources are available on the day as well as acting as a technical interface for customers.

John Goldberg is the creator of the innovative Pixel Wallet (an Android BCH wallet that uses pictures to send cash) and was a significant contributor to the original stress test and one of the core members of the BCH Jeepney team, who were the first to implement Handcash's POP Retail system in a real-world application.

We also have Spark who created some fantastic data visualizations for the first stress test and is working on ways to capture the essence of what happens during this stress test.

And finally, Yobits who was the originator of the Stress Test idea and as webpage master has done a great job putting together a beautiful website.

As for the stress test itself, we want it known that we are not here to break things. We, as a team, are aligned with Satoshi Vision, however, have decided to run the test in such a way that a network supporting current rules, or the ABC ruleset would face minimal disruption.

The test will challenge mempools, and users may have to pay slightly higher fees than usual (test transactions will carry a fee of just 1sat/byte, so transactions with two satoshis/byte should usually be mined in the next block regardless of the state of the mempool) for reliable transaction confirmations. However, we believe that if a network wants to call itself Bitcoin, it must be able to show the world that it is anti-fragile, and this includes withstanding attacks that I would consider relatively cheap (we will spend about 70BCH over the course of the day) for a well-funded state based actor to execute.

We are very strong proponents of scaling Bitcoin and believe that a successful demonstration of a public network processing over a million transactions per hour will send a huge signal to businesses and the broader public that Bitcoin Cash is serious about adoption, and serious about becoming a global cash network. We hope that we can generate enough hype through this test that companies looking at implementing cryptocurrency-based payments will put Bitcoin Cash first, as it forges a path towards being the best money possible.

Following the stress test, the team is working on a business plan to create value-added services around generating large volumes of transactions on the blockchain for things such as advertising, corporate testing, stress testing and more. The team is very much looking forward to announcing these efforts soon. – Brendan Lee

Malta's Pilatus Bank has been shut down by the European Central Bank (ECB). Its banking license was revoked after its chairman was charged in the U.S. with money laundering and organizing a scheme to evade U.S. sanctions. The bank had also been accused by a murdered journalist of processing corrupt payments. EU authorities now want new powers to crack down on money laundering.

Also read: Yahoo! Japan Confirms Entrance Into the Crypto Space

Pilatus Bank's License Revoked

Malta Financial Services Authority (MFSA) announced on Monday that the ECB has withdrawn the banking license of Pilatus Bank which has been operating in Malta for four years.

The Financial Times elaborated:

The move comes several months after U.S. authorities charged the bank's Iranian-born owner and former chairman Seyed Ali Sadr Hasheminejad with organising a scheme to evade U.S. sanctions against Iran by illegally funnelling more than $115 million from Venezuela to Iranian-controlled companies.

The bank was charged in the United States over money laundering and bank fraud," Reuters added.

Although Seyed Ali Sadr Hasheminejad pleaded not guilty and has been released on bail, MFSA removed him from his roles at the bank and froze the bank's assets. In June, the regulator recommended revoking the bank's license but faced numerous legal hurdles. On Monday, MFSA said that "the ECB had acted on its request to close the bank," the Guardian wrote.

Pilatus Bank, which caters to wealthy clients, reported 308 million euros ($351.64 million) of assets in 2016, according to the bank's annual report. Last year, it opened a branch in London after obtaining a U.K. banking license. The bank "was known to have held accounts for a senior official in the government of the Maltese prime minister, Joseph Muscat, and members of Azerbaijan's ruling family," the Financial Times detailed.

Murdered Journalist's Case

ECB Shuts Down Maltese Bank Over Schemes to Launder Money and Evade US Sanctions

Daphne Caruana Galizia.

Pilatus Bank had also been accused of "processing corrupt payments for senior Azeri and Maltese figures" by Maltese investigative journalist Daphne Caruana Galizia, Reuters described.

Caruana Galizia was killed by a car bomb in Malta a year ago. However, there has been no proven link between her murder and her story about the bank, the publication conveyed. Nonetheless, the event prompted the EU to begin investigating the bank in October last year.

"Three men suspected of killing her – brothers George and Alfred Degiorgio and their friend Vince Muscat – were arrested during a police operation in December 2017," the BBC added.

Maltese Authorities Investigated

ECB Shuts Down Maltese Bank Over Schemes to Launder Money and Evade US SanctionsThe ECB launched two investigations of how Malta dealt with Pilatus Bank last year, Reuters detailed. The first focused on MFSA but the case was closed in September "in part due to the vagueness of EU regulation," European Banking Authority Chairman Andrea Enria told EU lawmakers.

The second investigation focused on the Maltese Financial Intelligence Analysis Unit (FIAU), the country's anti-money laundering agency. Enria emphasized that this investigation has uncovered "serious shortcomings that the body did not remedy," the publication noted. A senior EU official explained:

The European Commission reached preliminary agreement on Monday on new actions against the FIAU over its handling of the Pilatus case, which will force Malta to improve the way its anti-money laundering body operates.

Citing that U.S. authorities played a big role in uncovering alleged illicit banking activities in several European cases, the Guardian reported that "EU authorities want new powers to crack down on money laundering after a string of scandals in Estonia, Latvia and Malta."

The UK's Financial Conduct Authority (FCA) will be holding consultations on a "potential prohibition" of cryptocurrency-based derivatives, in order to protect consumers from risks posed by digital assets.

"[T]he FCA will consult on a prohibition of the sale to retail consumers of all derivatives referencing exchange tokens such as Bitcoin, including CFDs, futures, options and transferable securities," read the policy paper by the Cryptoassets Taskforce, which is composed of the FCA, HM Treasury, and the Bank of England. Not included under the proposed ban are cryptocurrencies classified as securities, which are then to be regulated by the European Securities and Markets Authority (ESMA).

The paper noted that the FCA has already supported ESMA's restrictions on contracts for difference (CFDs) that reference cryptocurrencies, a measure that took effect last August 1.

The report added that the FCA "will not authorize or approve the listing of a transferable security or a fund that references exchange tokens (for example, exchange-traded funds) unless it has confidence in the integrity of the underlying market and that other regulatory criteria for funds authorization are met."

The consultations have been scheduled for some time before the end of the year.

The task force also called for further clarification of general regulations for the cryptocurrency market, expressing similar concerns as the UK Treasury committee in its report released in September, such as price volatility of many virtual currencies.

While acknowledging the benefits of the use of cryptocurrencies, such as increased efficiency of financial transfers and the capacity to raise funds, the task force said, "Evidence of the current generation of cryptoassets delivering any of these benefits is limited and many use cases are unproven at a large scale," leading it to conclude that "in many cases, the risks posed by the current generation of cryptoassets outweigh any potential benefits."

The task force noted that the UK government itself is exploring the use of blockchain technology apart from financial services, having invested more than £10 million for various distributed ledger projects, and creating a £20-million GovTech Catalyst Fund to study applications of the technology for the public sector.

Last year, the FCA had already warned of the risks in investing in CFDs, but without suggesting a prohibition. It also issued guidelines last April affirming its authority over the trade of derivatives.

60% of Americans believe that it should be legal to donate cryptocurrencies for election campaigns, under the same rules that apply to U.S. dollar donations.

Research company Clovr, surveying 1,023 eligible voters in the country, also found that only 21% disagreed that cryptocurrency donations should be allowed.

At present, cryptocurrency donations are treated as in-kind contributions limited to $100 worth at the time of donating. This is based on a 2014 ruling, when the price of BTC was around $440.

54% of respondents said that cryptocurrencies were secure enough to be used for political purposes, while 73% of those who claimed to be knowledgeable about digital currencies said that security was not a problematic issue.

Only 42% saw cryptocurrencies as financially stable enough for political purposes. 52% of self-identified Republicans answered in the affirmative, whereas only 40% of Democrats and 35% independents did so.

Only about 25% said they would be more willing to donate to campaigns if cryptocurrencies were an option like fiat currencies. "[M]ost contributors still prefer to donate with U.S. dollars, but a growing number said they would prefer to either give exclusively with digital currencies or a combination of both dollars and cryptocurrency," Clovr noted.

Even though more than half of respondents supported legality of cryptocurrency donations, 62% said cryptocurrencies were more likely to be used illegally in the U.S. political system, compared to the U.S. dollar. "Even a slight majority of people who were incredibly familiar with cryptocurrency believed illegal campaign activity would increase," Clovr said.

The firm added, "State governments haven't yet jumped on the cryptocurrency bandwagon, but if the FEC [Federal Election Commission] and other federal agencies expand its use, then history indicates many will follow."

Already, several politicians have made use of cryptocurrency donations in their campaigns, including Brian Forde, running for California's 45th Congressional District, who received the support of, among other investors, the Winklevoss twins, founders of the Gemini cryptocurrency exchange.