Blockchain is like the Lord of the Rings, can you resist its temptation?
What exactly is Bitcoin, what is a virtual currency, and what is blockchain? What impact will these have on our lives? Why should virtual currencies or ICOs be regulated today? From the perspective of virtual currency, Bitcoin’s invisibility and decentralization and other uncontrollable characteristics make it a very useful way for black market transactions and money laundering.
Compared with the complete system of securities (IPO) fundraising procedures, the governments of various countries currently do not have a complete set of laws and regulations regarding the fundraising of ICOs, that is, they cannot be complied with. Therefore, they have created an “unavailable zone”. On the contrary, the biggest reason for regulating ICO is to protect investors from making ICO a form of fraud to attract money due to the lack of a legal system.
Compared with the IPO procedure, the legal compliance and basic requirements of ICO are extremely low. Therefore, almost all companies are deeply interested in this method of fundraising, hoping to take a share of the pie. For investors, they hope to create another 2017 Bitcoin profit miracle through ICO. Therefore, this article wants to explore what an ICO is, and how it is different from a general stock offering (IPO). What is the attitude of various governments to it today?
Is virtual currency?
Although most people now mention that the intuitive reaction of virtual currency is Bitcoin, in fact, the history of virtual currency is much longer than the history of blockchain. Let us refer to several simple types distinguished by the “Virtual Currency Schemes” proposed by the European Central Bank (ECB) on October 29, 2012.
Closed virtual currency architecture
Basically, virtual currency in a closed world has no mechanism to transfer from the real world to or from the real world. The classic case is the gold coins or treasures that appear from monsters in video games. In principle, they have nothing to do with the physical world, but in some cases ( For example, rare treasures or online games with many players), economic value and traceability will appear in the trading market.
Virtual currency structure with one-way currency flow (usually inflow)
Usually, there will be a company as an official issuer. With the official exchange rate, cash can be converted into virtual currency to purchase goods or services, but usually, only cash is converted into virtual currency, and there is no way to convert back to cash. The case is the online point card of online games or the current live broadcast series (17 live broadcasts, Up live broadcast, etc.).
Virtual currency architecture with two-way currency flow
After the emergence of blockchain technology, a cryptocurrency (Cryptocurrency) that uses cryptographic principles to ensure transaction security and control transaction units were created. Because it is recognized by the transaction market, virtual and physical goods and services can be bought and sold. And linked to the physical currency exchange rate. The classic case is the well-known Bitcoin (Bitcoin).
So what exactly is Bitcoin-currency, investment securities, virtual goods?
As far as the concept of blockchain is concerned, the more people participating and using the blockchain can make the blockchain more secure. The process of confirming a transaction is realized by a proof-of-work mechanism that solves a series of computational problems. Clients participating in the processing of blocks can get a certain amount of newly issued bitcoins and related transaction fees.
To obtain these newly generated bitcoins, the user side involved in processing the blocks needs to pay a lot of time and computing power (for this reason, there are professional mining machines to replace computers and other low-profile network devices). This process is very similar In mining, so Satoshi Nakamoto named the data processor “miner” and the data processing activity as “mining”. These newly generated bitcoins can compensate the data processors in the system, and their calculations provide a guarantee for the normal operation of the bitcoin peer-to-peer network.
So what exactly is Bitcoin?
There are many definitions of currency, but from what we have learned from money and banking, the currency must have at least the following functions: (1) transaction medium (2) unit of value (3) storage value, transaction medium (Medium of Exchange) refers to the ability to use the currency as a medium of exchange to simplify transaction activities.
Unit of Account (Unit of Account) refers to the value of different goods that can be measured by a common standard, which is the “price”. Store of Value (Store of Value) means that part of the value can be saved for future consumption without having to consume all income in the current period.
In the case of Bitcoin, the contention will be the so-called “stored value”, which is different from the currency in the general sense. Bitcoin, a virtual currency, does not have an official or government endorsement on the value part. In other words, the “value of Bitcoin” “It’s completely determined by the market. Likely, it is still $9,000 today, and the next day it will be worthless because of a loophole.
This is also one of the biggest risks of Bitcoin at present. And it is Japan that regards Bitcoin as a currency or a so-called “payment instrument”. In Japan, on April 1, 2017, the new version of Japan’s Payment Services Law (Payment Services Law) came into effect, recognizing the legal payment status of virtual currencies.
Although Bitcoin, as the mother of cryptocurrency, only has the function of payment and exchange, the use of virtual currency is not only that. There is also hope that virtual currency can be used to create a decentralized company structure. The virtual currency represented by it is ether. Fang and its representative Ether (ETH), and when the virtual currency has the so-called security nature, it may be recognized as a securities and applicable laws and regulations (such as securities exchange law, banking law, etc.), The applicable country is the United States.
Even in the United States, where the law is sound, different government departments have formulated different policies for Bitcoin. And its American Securities and Futures Exchange (SEC) stated on March 7, 2018, stating: “If a platform provides digital asset trading belonging to securities, and its operation meets the “exchange” defined by the Federal Securities Act, then the platform Must be registered with the SEC as a national stock exchange, or apply for an exemption from registration.”
If you are looking for a current world setting for Bitcoin, “virtual goods” may be the greatest common divisor.
The US Financial Crimes Enforcement Agency (FinCEN) believes that Bitcoin and other convertible virtual currencies have the same value as “currency” or can be used as a “substitute for currency”; thus, the US money-laundering prevention laws Can be applied to Bitcoin supervision. The U.S. Internal Revenue Service (IRS) also considers Bitcoin and other cryptocurrencies to be “property” rather than currency, and on this basis, it taxes Bitcoin-related activities.
On September 4, 2017, China convened all relevant departments to publish the “Announcement on Preventing Token Issuance Financing Risks” by relevant banking and securities regulations, stating that “token financing trading platforms are prohibited from engaging in legal currency and tokens, The exchange business between “virtual currencies” shall not be allowed to buy or sell tokens or “virtual currencies” as a central counterparty, and shall not provide pricing or information intermediary services for tokens or “virtual currencies”. Therefore, for China, virtual currency is completely prohibited from trading and use.
Although the above is still controversial about the characterization of Bitcoin, if it is purely in China, Bitcoin is currently regarded as a virtual commodity in China and not legal tender. Except that banks cannot accept Bitcoin collection and payment, they cannot be Except Bitcoin as a payment tool, the central bank will not intervene for the time being.
Although the government currently plans to put Bitcoin and other cryptocurrencies under control, from the point of view of its focus on preventing related virtual currencies from being used as money laundering tools, the policy should be for supervision rather than total prohibition.
So what is an Initial Coin Offering?
What is the difference between ICO and general stock offering (IPO)? ICO refers to “virtual currency initial public offerings”. The concept refers to IPOs in the stock market (Initial Public Offerings). It refers to companies or non-corporate organizations issuing tokens with the support of blockchain technology to raise virtual currencies from investors ( Generally, it is the financing activities of Bitcoin and Ethereum.
The difference between IPO and ICO is that IPO raises funds from the public, while ICO raises virtual currency from the public, and exchanges the securities of the IPO for the tokens of the ICO.
There are multiple types of ICO, and the usage and purpose of the issued tokens are almost different. According to the ICO guidelines issued by the Swiss Financial Market Supervision Agency (FINMA) in 2018, it can be divided into three types:
Payment tokens: Refers to its tokens without other functions or development projects. In essence, it is only used as a simple payment tool, which can be used for transfer or payment purposes. The typical case is Bitcoin.
Utility tokens: Refers to the consideration given by the issuer based on the development of specific blockchain technology products that can be used in practice, and the “pre-sale of products and services”, which is paid in advance by investors in encrypted currency, and then The issuer delivers products or service tokens that investors can use in the future as consideration. Simple in nature, it is currently a relatively common mode in ICO.
Asset tokens: Refers to the right to dividend or interest to the holder, similar in nature to the securities in the company (such as shares, bonds, etc.)-including the “participation in business” that is most in line with the spirit of the blockchain (Such as the implementation project made by Ethereum), and the “share crowdfunding type”, that is, the issuance of tokens (equity certificates in the substantial sense), but this is also the easiest to directly violate the rules of raising and issuing in various countries.
Regarding the emerging fundraising model of ICO, the current regulatory attitudes of governments in various countries seem to be vacillating. If it is completely banned, this wave of technological innovation will likely be missed; but if allowed, it will be extremely inadequate for investor protection and may result in Many investment disputes have caused social unrest.
Judging from the history of financial management in the past, this tendency can also be found. Regarding the fundraising platforms and equity crowdfunding platforms that were very intensive a few years ago, the government regulates almost all fundraising with equity in nature (such as Yuanfu Securities, First Gold Securities, and Chuangmeng Market). Non-equity fundraising activities are not as strong as the previous controls (such as flying, group screen bagels, and Chuangmeng Market).
But Tianwei is unpredictable. We will never understand what the executive organs and legislators are thinking in their minds. So although the above inferences feel very reasonable, the big heads of legislators have also expressed their opinions, but will they be affected overnight? It’s another story…
Finally, let me talk about why: Blockchain is like the Lord of the Rings? It is hoped that everyone can treat the profit of investing in virtual goods as being cautious and fearful of holding the “Magic Ring”, and only after fully understanding his risks and content before investing can it be called an investment, otherwise it is no different from gambling…
Finally, I still want to miss it. The so-called “coin circle” such as virtual currency or ICO is actually just one of the applications of blockchain. From the point of view of the fat cat, the emergence of virtual currencies such as Bitcoin is only to make the promotion of blockchain more smooth, but as a result, there are some anti-customer-oriented phenomena-the world of blockchain is very big, but if It would be a pity to only focus on the currency circle.