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The situation with the regulation of cryptocurrency assets and blockchain technology for 2019

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In 2017 and 2018, the number of litigation related to cryptocurrency blockchain assets has increased dramatically, mainly in the United States. These litigations are of a different nature and include corporate disputes (R3 versus Ripple), claims of clients versus service provider companies ( US versus Coinbase ), regulatory actions in court ( SEC versus AriseBank ) and others.

The overwhelming majority of cases are related to allegations of fraud or claims for unregistered offers of securities made by supervisory authorities or individuals who participated in the initial offers of coins (ICO) .

The key legal question in such disputes is whether the token is considered a security by the law of the country where the company attracting the funds is located or by the law of the country where the person participating in the proposal was located or lived?

Tokens, in most cases, are classified according to:

  • Functional;
  • Technical specifications;
  • The way of creation;
  • Legal criteria.

Today, in terms of the right, cryptocurrency blockchain assets are correctly divided into two main categories: security tokens and all other tokens. This is due to the fact that the key differences in the legal regime for the existence of these rights objects take place precisely in this plane.

Inside these generic concepts, tokens can be classified into different types. When we talk about security tokens, we mean securities issued using blockchain technology. However, is a tokenized security a new object of law for which special regulation needs to be developed?

If we turn to history, the security, as an object of law, emerged as a way of securing a certain amount of rights on a certain carrier in order to simplify the transfer of such rights between the participants of civil circulation. Initially, such a carrier was paper, hence the name – “valuable paper”, that is, paper that represents value. With the advent of computers, this storage medium has become electronic. Now all the securities that are in circulation on the public market exist in electronic form and are recorded by the registrars and depositaries.

Blockchain technology is just a new way of securing rights to a security in electronic form. In theory, this is a more efficient way than current centralized accounting. Thus, a tokenized security is not a new object of law, which is somehow different from an ordinary security, but a new way of accounting for such rights.

Different jurisdictions have different views on the term “security”. The approach to the definition of what exactly is a security in the whole world (Europe, Russia, Asia) is more formal and is based on reading the corresponding definition in the relevant legislative act of the respective country. The list, as a rule, includes a share, a bond, another debt instrument, a certificate of ownership of shares in the fund, and so on. That is, everything that does not fall under this definition is not formally a security from the point of view of the law.

The American SEC regulator broadly interprets the term “security” and looks not only at the lists of instruments specified in US securities legislation, but also draws attention, first of all, to what particular rights such securities provide to their holders. For example, in the release released in mid-2017, the SEC analyzed in some detail the fact that tokens can be recognized as an investment contract, that is, a tool in accordance with which their owners invest money in certain enterprises for the purpose of making a profit and do not accept participation in enterprise management.

Hence, the key thesis of the crypto industry 2017–2018 – structure the token so that it is not a security, and sell as you want everywhere except in the United States and those countries where the sale of tokens is prohibited. The phrase “so that it is not a security” just means the requirement that the token does not consolidate the rights usually associated with the rights to such securities as stocks and bonds.

In general, the concept of financing for utility tokens has grown out of the crowdfunding industry of startups through prepaid products that are still being created. It was known before the appearance of the ICO, but there were other amounts of funding. The 2017–2018 ICO brought funding to the promise of future products or services to a completely different level, and this in itself should be alarming. But the key here is not this: the acquisition of a still uncreated product, for example, on Kickstarter, does not imply the creation of a secondary market for this product before its appearance.

In 2017 and 2018, the overwhelming majority of projects initially understood that the success of raising money for the realization of their ideas is possible only with the promise of a secondary market. The presence of a highly liquid secondary market on an empty, from the functional point of view, utility-token puts a big question mark regarding the correctness of the thesis that once such a token formally does not fall under the definition of securities, you can do anything with such an investment special regulation should not be applied. The correctness of this thesis is still subject to verification.

The issue of tokenized securities is not an improved version of ICO; rather, it is a traditional, in accordance with securities market legislation, method of raising capital, presented in digital format. From the point of view of the right, the issue and circulation of such instruments is subject to the same rules as the issue of classic securities. That is why the largest and most well-known tokens on the market structured the supply of tokens, taking into account the rules governing the global offering of securities.

The blockchain-ecosystem ecosystem is a combination of a number of elements that together ensure the implementation of a whole range of actions: from creating tokens to trading digital securities. Issuing tokens, complying with legal requirements, storing, carrying out subsequent transactions and realizing rights for such tokens — these relationships can be automated in many aspects.

Blockchain provides an interesting opportunity through the use of smart contracts . The release of securities as tokens theoretically allows you to automate the fulfillment by the issuer of its obligations under the securities (for example, to automate voting, dividend payment), which certainly provides very interesting and attractive opportunities.

Accounting for rights to securities and fixing the transfer of the right to them in many jurisdictions should be carried out in accordance with certain rules, often with the involvement of special professional intermediaries (registrars, depositories, custodians). In this sense, rights accounting using blockchain technology may contradict the law.

The main problem is that different countries have different systems of law and use different approaches to their accounting. In many states with a continental law system (for example, Germany) there are strict requirements regarding the registration of rights to securities of private companies (the need to attract a notary, keeping a register in paper form, and so on).

In other countries, such as Cyprus, there are no strict requirements as to where the registry is maintained. For the securities rights accounting system to work, changes will be required not only in the laws of countries with a continental law system, but also in the laws of countries with a common law system.

At the moment, special regulation for recording rights to securities using blockchain technology exists only in the state of Delaware and in France. The state of Delaware, in which most of the US companies are registered and which has the most developed corporate legislation, in 2017 approved a law allowing the use of the blockchain to record securities (rights accounting using a distributed registry).

In December 2018, a decree was passed in France, effectively securing the possibility of using the distributed registry technology for registering securities, fixing the transfer of rights on them and identifying the owner without the involvement of registrars, depositories and custodians as intermediaries. In a number of jurisdictions, such as Luxembourg, the countries of the Baltic region, as well as in Russia there are similar bills.

Thus, the recognition at the legislative level of the possibility of recording rights to securities using advanced technologies and systems, including blockchain technology, is one of the prerequisites for the development of the market for tokenized securities.

Publication date 06.02.2019
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Central Bank of Tunisia and Afghanistan can create crypto bonds to attract investment

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The heads of central banks of Afghanistan and Tunisia said that their countries are considering the possibility of issuing sovereign cryptocurrency bonds. Officials reported this at the annual Spring Meetings of the Board of Governors of the International Monetary Fund and the World Bank Group in Washington.

Governor of the Central Bank of Afghanistan, Khalil Sediq, said they are seriously considering crypto bonds as a tool to attract the $ 5.8 billion private investment needed by the country's mining, energy and agricultural sectors.

Since the country is limited in opportunities for concessional lending due to the ongoing internal armed conflict, the issue could be the issue of bonds and futures for metals, said Sedik. The country hopes to use for this its reserves of lithium, estimated at more than $ 3 trillion.

The head of the Central Bank of Tunisia, Marouane El Abassi, in turn, said that the country has already established a working group, which is also seriously studying the issue of issuing sovereign bonds to Bitcoin . He recalled that Tunisia was one of the first countries in the world to issue electronic currency, an e-dinar, in which payments are received by national mail.

Publication date 04/22/2019
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How do transactions occur in the Bitcoin network? The whole cycle from start to finish

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Bitcoin (BTC) and its complexity have become a concept that many cryptocurrency users have been trying to understand since its inception. In his latest video, the famous Bitcoin enthusiast Andreas Antonopoulos and the author of the book “Mastering Bitcoin,” spoke about the life cycle of a Bitcoin transaction with a wallet from start to finish.

Antonopoulos said that since the transaction was sent from the wallet for confirmation to the Bitcoin network , the wallet creates a transaction, accumulating BTC in the user's wallet and assigning addresses. Then the user's wallet transfers the transaction information to one of the many nodes to which it is connected, from where it can be sent to “1, 2 or even 8 other nodes”.

“Then the transaction is transferred to other nodes, which can be mining nodes, e-commerce payment gateways and other options. Each of these nodes will receive a transaction from yours, and each will verify each transaction. When nodes receive transactions, they do not know whether it was created by you or was redirected, and therefore each of these transactions must be checked individually. ”

Then Antonopoulos said that if all the nodes are checked, i.e. if the payment details are correct and it is confirmed that there were no double costs in the blockchain, then the transaction information will be sent to every other node.

“As soon as a transaction reaches the mining pool , it enters the pool of unconfirmed transactions, for example, a basket in which all unconfirmed data is stored. In another way it is called mempul. The information in individual memoplahs may coincide by 99%, but there will never be complete similarity. ”

According to the expert, the memory also serves to submit the transaction to the BTC miner to add a new block, after which the race is turned on for the next block. As a rule, miners have to build a block, and then solve it with the help of Proof-of-Work , making it ultimately confirmed.

Once the unit is ready, the information will be sent mayningovomu equipment to solve the problem in this particular block, and probably after the "billion hashes" miners will block.

“As soon as PoW is resolved, the mining node will return the node back in the same way as it received. The nodes check the block on the way back, and as soon as all the nodes confirm its validity, the user's wallet will know about the confirmation of the transaction. This is the full life cycle of a transaction. ”

Publication date 04/22/2019
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At the upcoming bull rally, Bitcoin (BTC) capitalization will exceed $ 1 trillion

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Chris Berniske, who previously led cryptocurrency investments in ARK Invest and is now a partner in Placeholder, a $ 150 million asset management venture fund, said that Bitcoin's market capitalization will exceed $ 1 trillion. in the next bull market:

“Estimates of the top 10 cryptoactive assets at the end of each year give me the idea that only Bitcoin will reach $ 1 trillion. in the next bull market. ”

Recall that during the cryptocurrency boom at the end of 2017, when the price of Bitcoin reached $ 20,000, the market capitalization of the entire crypto market reached a maximum of $ 813 billion. If the capitalization of only one Bitcoin exceeds $ 1 trillion, it will trade at a rate above $ 40,000.

How can bitcoin reach a market capitalization of $ 1 trillion?

Like gold and other commodities, Bitcoin must become a recognized store of value with a developed infrastructure in order to cope with a huge influx of capital. In the near future, the development of this infrastructure may take several years.

In a Fortune interview last year for the New York Stock Exchange, Jeff Sprecher said that buying Bitcoin today is quite problematic for institutional investors.

“Bitcoin does not have a good market structure. Even for Bitcoin, different markets publish a lot of different prices. And you can pay up to 6% of the spread to exchange dollars for bitcoins, which means that bitcoin must grow by as much as 6% so that you can break even. ”

Many investors, including billionaire Mike Novograz, believe that those that lead Bitcoin to a trillion-dollar market capitalization are likely to be institutional investors. In an interview with Bloomberg, Novograz said:

“Maybe one of the fearless pension funds, one of the market leaders, will say:“ you know what? We have custodial services, Goldman Sachs participates, Bloomberg has an index by which I can track results. ” And they will buy. Following them, others will also start shopping. There will be a similar FOMO, which we have already seen among retail investors, only at the institutional level. ”

The imminent arrival of institutional investors to the cryptocurrency market was mentioned as early as 2017. According to a survey conducted by TRADE Crypto in partnership with BitGo, 94% of the 150 surveyed endowments in the US have already invested in the cryptocurrency market.

Morgan Creek Digital, the first US pension fund that invested in cryptocurrency, said that 66% of investments in cryystocurrency products of Grayscale come from institutional investors .

Publication date 04/22/2019
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Name Price24H (%)
Bitcoin (BTC)
$5,312.00
1.36%
Ethereum (ETH)
$171.52
2.98%
XRP (XRP)
$0.325984
2.68%
Bitcoin Cash (BCH)
$293.60
4.10%
EOS (EOS)
$5.23
3.40%
Stellar (XLM)
$0.113992
3.20%
Litecoin (LTC)
$77.29
3.48%
Cardano (ADA)
$0.075930
5.84%
Tether (USDT)
$1.00
0.01%
Monero (XMR)
$69.78
2.28%
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