⛱ Blockchain: Worldwide Regulations and Case Studies Series #3
Hello friends! 👯♀️ My name is Elif Hilal! I produce content in the fields of blockchain, software, smart contracts, and law. If you are reading my articles for the first time, welcome to my world 🎀 I am sharing the third article of my series with you.
🙂 Now you are about to read the third article of the series. I hope you’re excited, it’s okay if you’re not, the important thing is to offer you different ideas and perspectives on Blockchain🐝
In previous articles, we have reviewed the most important and current Regulations, including SEC in the USA and MiCA in the EU. We even touched on how the Howey test is applied and previous regulation studies. For those who have not read my previous articles, I am adding the other two articles of my series:
1- ⛱ Blockchain: Worldwide Regulations and Case Studies Series #1
2- ⛱ Blockchain: Worldwide Regulations and Case Studies Series #2
You can reach my article where I shared my favorite resources about Blockchain, here. Okay, now I want to get back to the main topic right away. A long post is coming 👉🏻👉🏻👉🏻
We have come to my favorite part 🙂 Sample cases from the world, the causes and consequences of these cases, how the legislation is used, and ICOs… Are we ready? 😉🐝
ICO’s
Now, in order to understand the following cases, we need to have a very good understanding of the concept and context of the ICO. This concept, which appears as an Initial Coin Offering, is used very similarly to an IPO (initial public offering).
An ICO to people; provides an opportunity to get involved and invest in a project before entering the stock markets.
So what does this mean? One way to crowdfund a project in the cryptocurrency space (especially token projects) is an ICO.
An ICO provides a source of capital to the project or startup.
Since its inception, many ICOs have been used for fraudulent transactions and for very wrong purposes. Because investors and entrepreneurs trust the project with the ICO process. There are too many fraudulent ICOs with the goal of using potentially innocent investors’ money. But the truth is, if you invest in the right ICO at the right time, chances of becoming an early investor in the next Google, Facebook, or Bitcoin are a real possibility 😉
ICO Risks
Some ICOs offer huge bonuses and other incentives to attract investors. For example, you can get some tokens for free with your initial investment. While this encourages investors to enter an ICO, it poses a risk as some investors may sell the coin or token as soon as it is listed on an exchange, leading to a price drop.
Moreover, if you are a big investor in an ICO if the project claimed to give you some tokens and they didn’t, there isn’t much alternative you can go for. (MiCA regulation mentioned the necessity of a Whitepaper for these situations. There is now an alternative solution in Europe)
But there have also been very successful and promising ICOs. There is a concept in the blockchain ecosystem, DYOR, which means you have to do your own research and decide for yourself whether the project is trustworthy. Then it’s up to you to invest or not. For example, do not make the mistake of investing by relying on someone else’s word, even if it is a famous YouTuber or Influencer. ALWAYS make your own decision based on the information you have gathered for yourself.
ICO PROCESS
1- Advance planning process
2- Actual planning (Token, Whitepaper, Website, Communication, etc.)
3- Before the ICO
4- After the ICO
5- Managing the post-ICO project and sustainability
Advance Planning Process
This process is the first phase of an ICO project. There are a few questions to consider first:
— What is the purpose of your token? Is there any utility you want to do with the token project?
— Are you sure you want to do an ICO? And are you ready for the risks involved?
Token
— What is the purpose of your token?
— What function or purpose will you serve? Who will benefit from it?
— Is the token a must for your project or is it absolutely necessary? Or can your project go into effect without a token?
— Why does your project need to be on the blockchain? Or does it have to be on the blockchain?
— Can you describe a viable economic model for the project?
It would be useful to add a small footnote here. If your project doesn’t need to be built on a blockchain protocol, you should think hard before moving forward.
For example, the computational costs of building a project or app on Ethereum are much more expensive than something like AWS.
You better have a strong reason to build a decentralized app versus a centralized app.
When you are ready and committed to an ICO, the key components of planning are:
- offer
- whitepaper
- token design
- legal status/type
- serious measures against inevitable hacking attacks
- preparation for communication (website, loose, social, press, interviews…)
In the next article, we will devote much more time to the details of the ICO. It’s important that we understand the logic and process right now. This process will come up a lot when we go through the lawsuits.
Whitepaper :)
A whitepaper is essentially a technical review. It is a report where everything I wrote above comes together and is expressed in a single key document.
— The whitepaper should cover all the inner workings of your application/project, how the whole system works and how the token will be used.
— The whitepaper will contain all the technical information about your project, all the token-related information, and all the information about your team. For example, the risks, the roadmap of the project, how much of the capital will be used for what, your strategies, your products, what you will serve…
— This single document should give a prospective participant or investor a complete picture of your project and give them enough information to make an informed decision.
Once you have completed the whitepaper writing process, I recommend seeking detailed feedback from respected figures in the crypto space and in the field you work with, as well as from the audience you are targeting for your ICO. And incorporating feedback into your whitepaper will both empower you and gain confidence in your project.
Now, if you don’t have a question mark so far, let’s move on to the cases ✌🏻✌
What Are Example Crypto and Blockchain Cases From The World? 🤍
Below I am including the contents of some Blockchain Cases that I love. These cases are; I think it’s the cases that allow us to better understand the blockchain and this structure. For this reason, I will start to tell about these cases 👉🏻👉🏻
Swiss FINMA Decision
I would like to start with the Swiss FINMA decision. The Swiss Financial Markets Supervisory Authority is FINMA. The Financial Markets Supervisory Authority (FINMA) in Switzerland has ruled that the initial digital currency offering (ICO) by cryptocurrency mining company Envion AG is illegal. Now, when we combine the dozens of information above, we come across a wonderful situation.
FINMA says that “if investors and entrepreneurs in my country are investing in an ICO project, I should review the Whitepaper”. Then they begin their investigation, during which time it seems that a really neatly worded whitepaper has been written. BUT; information asymmetry is not followed in this whitepaper. In short, the progress of the project and the situation written in the whitepaper do not progress SYMMETRIC. So this ICO is penalized. This is exactly why I mentioned ICO and the whitepaper above. Although legislation is progressing very slowly at the moment, countries are focused on protecting investors. And we understand the importance of the whitepaper. ✌🏻
ReCoin v. SEC
In this project, we will see how the SEC penalizes as a result of research. The US Securities and Exchange Commission (SEC) has accused a businessman and two companies of defrauding investors in a pair of so-called initial coin offerings (i.e. ICOs) backed by real estate and diamond investments.
When we go into the details of the case, we see this:
— — The SEC alleges that Maksim Zaslavskiy and his companies are selling unregistered securities and that the digital tokens or coins being marketed do not actually exist.
— — In the whitepaper of the project, it was stated that this token project was announced as a stablecoin linked to diamonds and real estate. BUT UNREAL.
— — According to the SEC’s complaint, investors in the REcoin Group Foundation and DRC World (also known as the Diamond Reserve Club) have been told that companies can expect huge returns from their operations when neither of them has real activity.
— — Despite their statements to investors, the SEC claims that Zaslavskiy and Diamond did not purchase any diamonds or engage in any commercial activity.
Now, I want to say the good part about this incident right away.
With this guide, the SEC, using both guiding and descriptive language, also states that they are trying to protect the investor and prevent money laundering and stealth in crypto.
Returning to the above case,
Let’s look again at the SEC’s (Brooklyn) complaint to the federal district court in NY. The SEC accuses Zaslavskiy, REcoin, and Diamond of violating the anti-fraud and registration provisions of federal securities laws.
The SEC is seeking complaints, permanent injunctions, liquidations, interest, and penalties. For Zaslavskiy, the SEC also seeks a bar of officers and directors and a ban from participating in any digital securities offering. 🍀
Archer v. Coinbase Inc. case
This case concerns the ownership of cryptocurrencies held on exchanges. It is a case that literally sums up the phrase not your keys not your coins.
Here, the plaintiff is a Coinbase cryptocurrency exchange user and we see that the defendant is the Coinbase Exchange (crypto asset service provider).
Let me leave the petition here, it’s a great case for those who are wondering. The best summary of this case is this: If you store your Bitcoin (or other digital currencies) in a wallet with private keys that you do not control, pretty much anything can happen to them and the law cannot protect you in this situation.👻
In the lawsuit, as of October 23, 2017, plaintiff Darrell Archer sued Coinbase for violating its user agreement after the company refused to provide him with Bitcoin Gold produced in a Bitcoin fork.
Archer had 350 Bitcoins stored on Coinbase at the time of the fork, which would have produced around $159,000 worth of Bitcoin Gold at its peak.
Archer transferred control of his Bitcoin to Coinbase, and as Wales points out, “Access to your forked coins is only guaranteed if you have your own private keys!”
Bitcoin Gold and Bitcoin Cash (BCH) were separated from the Bitcoin blockchain network by a hard fork. Each blockchain network continues to work with different working principles.
The California Court of First Appeals found that Coinbase’s user agreement does not impose an obligation to deliver Bitcoin Gold. Coinbase cited a number of reasons for not supporting the Bitcoin Gold fork in the same way that it has supported forks like Bitcoin Cash in the past, including its inability to review the closed-source Bitcoin Gold code.
If you have 200 Bitcoins in your Bitcoin blockchain address and you have the private key of this address, you will have 100 Bitcoin Cash and Bitcoin Gold each on the Bitcoin Cash and Bitcoin Gold blockchain networks, which were separated from the Bitcoin blockchain network by hard fork.
If you do not have the private key of the cryptocurrencies you own, that is, if you keep your cryptocurrencies on an exchange, wallet application or any third-party application, you cannot benefit from hard forking unless the third party application you use supports forking. The summary of the case is as follows.
Now, I look forward to sharing this article as well. In the next post, I will continue with the SEC reports and lawsuits. In addition, I will touch on Crypto Regulations. I wrote and deleted a few times out of excitement 👻 When you have something to ask me, you know where and how to reach me.
In the meantime, you can sign up for my Meetup page, join my Telegram group, and follow me on Twitter to be informed about the events I organize in the Blockchain ecosystem!
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