TILTing 2019 – exploring the journey of crypto-assets across the EU financial legal framework

At TILTing 2019 the Lab presented a study on the legal instruments that are, as of today, applicable to blockchain-based digital assets under European law, and the relative enforcement challenges. The broader question to be tackled is whether and how regulators deal with such challenges, and what are the interests at stake. http://ipkitten.blogspot.com/2019/05/tilting-perspectives-2019-report-2.html

Plans for digital currency spark political crisis in Marshall Islands | World news | The Guardian

The only female leader in the Pacific Islands is facing a no-confidence challenge after pushing ahead with the controversial introduction of a digital currency for the Marshall Islands.In February this year President Hilda Heine announced plans to introduce a cryptocurrency to operate as the country’s second legal tender alongside the US dollar, saying her country must not remain idle but “advance into the future”.The cryptocurrency, known as Sovereign or “Sov” was to be issued by an Israeli start-up company, which, according to the International Monetary Fund has “limited financial sector experience”.

Source: Plans for digital currency spark political crisis in Marshall Islands | World news | The Guardian

Lightning Network Reference Rate.

I am proposing that the second point on Bitcoin’s risk spectrum should be LNRR, the Lightning Network Reference Rate. Routing fees earned on bitcoin staked to Lightning payment channels can be expressed as an interest rate. The rates received on the payment channel or node level can be hashed and cryptographically provable. Node operators can opt-in to publish realized interest rates on their capital. If a consensus can be reached on an interest rate calculation protocol, capital providers can publish interest rates in an open and transparent way. Positive interest rates will attract bank-like entities that believe they can earn positive return using effective payment channel management and security techniques. Some bitcoin previously held in cold storage will seek the income attainable in Lightning Network, the first ever example of an opportunity cost tradeoff in bitcoin that doesn’t require additional counterparty risk. Bitcoin staked to Lightning is the most unique income producing asset in all of monetary history: income with zero counterparty risk. The historical implications of this on capital markets are tremendous.

https://medium.com/@timevalueofbtc/the-bitcoin-risk-spectrum-949f6abec290?source=linkShare-dc7ae094ae3a-1531198863

The State of Cryptocurrency Mining – Sia Blog

The biggest takeaway from all of this is that mining is for big players. The more money you spend, the more of an advantage you have, and there’s not an easy way to change that equation. At least with traditional Nakamoto style consensus, a large entity that produces and controls most of the hashrate seems to be more or less the outcome, and at the very best you get into a situation where there are 2 or 3 major players that are all on similar footing. But I don’t think at any point in the next few decades will we see a situation where many manufacturing companies are all producing relatively competitive miners. Manufacturing just inherently leads to centralization, and it happens across many different vectors.

Source: The State of Cryptocurrency Mining – Sia Blog

Bitcoin Was Prone to Bubbles Until Bears Could Bet Against It – Bloomberg

Limits to arbitrage can help explain why Bitcoin has been so bubble-prone. Until recently, it was easy enough to take a long position, but expensive and risky to bet against the cryptocurrency. Things really changed in December, when U.S. regulators allowed the trading of Bitcoin futures. That move came in the middle of a historic runup in the price of Bitcoin and other cryptocurrencies. But as soon as futures contracts began to trade, an interesting thing happened — futures prices suggested that Bitcoin’s growth would slow.What happened next is historic. Bitcoin’s price crashed from a high of about $19,000 to less than $7,000 as of the writing of this article:

Source: Bitcoin Was Prone to Bubbles Until Bears Could Bet Against It – Bloomberg

Towards a Philosophy of Financial Technologies | SpringerLink

This special issue introduces the study of financial technologies and finance to the field of philosophy of technology, bringing together two different fields that have not traditionally been in dialogue. The included articles are: Digital Art as ‘Monetised Graphics’: Enforcing Intellectual Property on the Blockchain, by Martin Zeilinger; Fundamentals of Algorithmic Markets: Liquidity, Contingency, and the Incomputability of Exchange, by Laura Lotti; ‘Crises of Modernity’ Discourses and the Rise of Financial Technologies in a Contested Mechanized World, by Marinus Ossewaarde; Two Technical Images: Blockchain and High-Frequency Trading, by Diego Viana; and The Blockchain as a Narrative Technology: Investigating the Social Ontology and Normative Configurations of Cryptocurrencies, by Wessel Reijers and Mark Coeckelbergh.

Source: Towards a Philosophy of Financial Technologies | SpringerLink

Crypto-Securities Regulation: ICOs, Token Sales and Cryptocurrencies under EU Financial Law by Philipp Hacker, Chris Thomale :: SSRN

Crypto-Securities Regulation: ICOs, Token Sales and Cryptocurrencies under EU Financial Law

44 Pages Posted: 30 Nov 2017 Last revised: 13 Dec 2017

Philipp Hacker

Humboldt University of Berlin; WZB Berlin Social Science Center

Chris Thomale

Ruprecht-Karls Universität Heidelberg; Heidelberger Akademie der Wissenschaften

Date Written: November 22, 2017

Abstract

Cryptocurrencies, such as bitcoin and ethereum, have not only risen to public attention as novel means of payments. Rather, the current hype is fueled by financial applications built on top of these currencies that stand to potentially upend consumer and investment markets. The most remarkable and economically relevant of these applications are tokens sold via initial coin offerings (ICOs, also called token sales). In 2017 alone, the equivalent of more than $ 3 billion have been raised through ICOs. In these entirely online-mediated offerings, startup entrepreneurs sell tokens registered on a blockchain in exchange for cryptocoins traded on that blockchain (typically bitcoins or ethers). Investors receive tokens that can be understood as cryptographically-secured coupons which embody a bundle of rights and obligations.

In July 2017, the SEC released an investigative report that highlighted that such tokens can be subject to the full scope of US securities regulation. As a result, issuers increasingly structure ICOs such as to prevent US citizens and residents from obtaining tokens in order to exclude the reach of US securities regulation. However, for the time being, EU citizens and residents are free to invest in tokens. This raises the question to what extent EU securities regulation is applicable to ICOs and, particularly, whether issuers have to publish and register a prospectus in order to avoid criminal and civil prospectus liability in the EU. In conceptual terms, this depends on whether tokens are considered “securities” under the EU prospectus regulation regime. The question is of great practical relevance since, despite the high stakes involving more than $100 million in some ICOs, to our knowledge, up to now not a single token issuer has published or registered any such prospectus.

Against this background, this paper develops a nuanced approach that distinguishes between three archetypes of tokens: currency, investment, and utility tokens. It analyzes the differential implications of each of these types, and their hybrid forms, for EU securities regulation. While the variety of tokens offered necessitates a case-by-case analysis, the discussion reveals that at least some types and hybrid forms of tokens are subject to EU securities regulation. By and large, pure investment tokens typically must be considered securities, while pure currency and utility tokens are exempted from securities regulation in the EU. In identifying these archetypes, regulation and market oversight will have to put substance over form. Finally, we spell out criteria for the application of EU securities regulation to hybrid token types.

The paper closes by offering two policy proposals to mitigate legal uncertainty concerning token sales. First, we suggest tailoring disclosure requirements to the code-driven nature of token sales. Such an ICO-specific safe harbor would offer a clear and less burdensome path to EU law compliance for token sellers who suspect that their tokens may qualify as securities. This only requires the Commission to amend its delegated 2004 Commission Prospectus Regulation. Second, we propose that, on an international level, governments form a compact to bestow certainty about the application of their respective securities regulation regimes to token sales. This is, first, to avoid regulatory overkill on the one and regulatory lacunae on the other hand in online-mediated, global token sales. Second, overlapping, and partially contradicting, securities regulation regimes can nullify each other. In the end, only a joint international regulatory regime can efficiently balance investor protection and investor access in the face of the novel generation of decentralized blockchain applications.

Keywords: blockchain, ICO, token sale, initial coin offering, bitcoin, ethereum, prospectus, EU law, smart contracts, DAO, utility token, investment token, safe harbor, cryptocurrencies

Source: Crypto-Securities Regulation: ICOs, Token Sales and Cryptocurrencies under EU Financial Law by Philipp Hacker, Chris Thomale :: SSRN

Virtual Currencies: A Hazard or a Boon? A Perspective from the Digital Finance Ecosystem and Associated Legal Issues by Nakul Sharma, Rahul Vyas :: SSRN

National Journal of Multidisciplinary Research and Development, Volume 2, Issue 3, September 2017

7 Pages Posted: 30 Nov 2017 Last revised: 6 Dec 2017

Nakul Sharma

Pacific University (India), Students

Rahul Vyas

Pacific University (India)

Date Written: September 12, 2017

Abstract

Digital India is a flagship program of the Government of India with a vision to transform India into a digitally empowered society and knowledge economy. “Faceless, Paperless, Cashless” is one of professed role of Digital India. As part of promoting cashless transactions and converting India into less-cash society, various modes of digital payments have been put out.

Financial market regulators and central banks around the world regularly warn consumers about the risks related to virtual currencies. The Institute for Development & Research in Banking Technology (IDRBT), the research arm of RBI had published a report in which it stated that the time had come to adopt the blockchain technology in India, in the bid to evolve towards a cashless society.
As regards non-fiat crypto currencies, the RBI is not comfortable; the intrinsic value of the VC seems to be a matter of speculation, moreover the legal status is definitely missing, finally, the usage of VCs for illicit and illegal activities in the dark net has been reported to be hitting the roof across the world. The present paper takes into perspective the rapidly evolving Technology of the Digital Virtual Currency landscape from the Indian standpoint and the related Legal Conundrum.

Source: Virtual Currencies: A Hazard or a Boon? A Perspective from the Digital Finance Ecosystem and Associated Legal Issues by Nakul Sharma, Rahul Vyas :: SSRN

Metcalfe’s Law as a Model for Bitcoin’s Value by Timothy Peterson :: SSRN

Metcalfe’s Law as a Model for Bitcoin’s Value

23 Pages Posted: 2 Dec 2017 Last revised: 21 Dec 2017

Timothy Peterson

Cane Island Alternative Advisors

Date Written: October 9, 2017

Abstract

This paper demonstrates that bitcoin’s medium- to long-term price follows Metcalfe’s law. Bitcoin is modeled as a token digital currency, a medium of exchange with no intrinsic value that is transacted within a defined electronic network. Per Metcalfe’s law, the value of a network is a function of the number of pairs transactions possible, and is proportional to n-squared. A Gompertz curve is used to model the inflationary effects associated with the creation of new bitcoin. The result is a parsimonious model of supply (number of bitcoins) and demand (number of bitcoin wallets), with the conclusion bitcoin’s price fits Metcalfe’s law exceptionally well. Metcalfe’s law is used to investigate Gandal’s et.al [2017] assertion of price manipulation in the Bitcoin ecosystem during 2013-2014.

Keywords: Bitcoin, Metcalfe, Finance, Investment, Economics, Network Economics, Currency

Source: Metcalfe’s Law as a Model for Bitcoin’s Value by Timothy Peterson :: SSRN