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Switzerland Moves Forward to Fit Cryptocurrency Into Traditional Regulations

 The Federal Assembly of Switzerland has voted in favor of putting cryptocurrency on equal footing as traditional assets.


A Hesitant Vote

99 members of the National Council, Switzerland’s lower house of the Federal Assembly, have supported a motion to put forward proposed regulations by liberal public representative Giovanni Merlini. 83 people voted against, while 10 refrained from voting at all.

The proposed regulations will now have to be considered by the Council of States, which is the Federal Assembly’s upper house. Switzerland’s Federal Assembly is the country’s legislative authority.

Per the proposed regulations, the existing legislation of both administrative and judicial authorities should be adapted and applied to cryptocurrencies as well.

While making his proposition, Merlini argued that:

Cryptocurrencies could be issued to anyone with a decentralized, cryptographic-based peer-to-peer data network. A large part of the cryptocurrencies is completely anonymous, which favored extortion and money laundering.

It’s worth noting that this narrative has little support given Europol’s assessment from late 2018. Reads Europol’s Internet Organized Crime Threat Assessment:

The use of cryptocurrencies by terrorist groups has only involved low-level transactions — their main funding still stems from conventional banking and money remittance services.

Surprising Move?

Merlini’s arguments, as well as the proposed regulations, seem somewhat surprising given the country’s pro-cryptocurrency stance. The country classifies virtual currencies as assets and it has fairly relaxed regulatory burdens and low entry barriers.

In December, the country’s finance minister Ueli Maurer said that instead of coming up with new cryptocurrency-specific regulations, the Federal Assembly will be adapting existing ones to fit the needs of the industry.

Following the motion’s approval, however, Maurer, stated that the proposal has gone further than the scope of the planned regulations.

Former UBS Bankers Raise Funds for Innovative Bank in Zug

Arguments have also been made against the motion, as it had failed to clarify how and if there are measures to be taken to mitigate any risks.

Additional doubts have been raised whether cryptocurrency trading platforms “should be equated with the financial intermediaries and subjected to Switzerland’s Financial market Supervisory Authority (FINMA).

Switzerland’s progress in terms of cryptocurrency adoption, on the other hand, can’t be unnoticed. Earlier this week, Bitcoinist reported that the country’s biggest online retailer started accepting bitcoin for payments on their platform.

What do you think of the latest move by Switzerland to approve regulatory changes proposed by Merlini? Don’t hesitate to let us know in the comments below!


Images courtesy of Shutterstock

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Indonesian Bitcoin Traders Protest BTC Futures Capital Requirements

Bitcoin traders in Indonesia are protesting what they call excessive capital requirements imposed by the government on cryptocurrency futures trading. The aggrieved brokers say the restrictive law is preventing anyone from participating in the market.


Stifling the Bitcoin Futures Trading Arena

According to The Jakarta Post, the Futures Exchange Supervisory Board (Bappebti) of the Indonesian Trade Ministry issued regulations to govern cryptocurrency futures trading in the country. Among these laws are minimum capital requirements for cryptocurrency futures traders and brokers.

Article 8, paragraph 1 of the regulations stipulate that crypto futures brokerage firms require a minimum paid-up capital of 1 trillion rupiah ($71.7 million). Also, article 24, paragraph 3 of the same set of regulations require Bitcoin futures traders to hold a minimum of 100 billion rupiah ($7.17 million), out of which the law mandates a minimum deposit of 80 billion ruppiah ($5.73 million).

Stakeholders in the industry say the transferred capital requirements far exceed those stipulated for futures trading in mainstream asset classes.

Speaking to Reuters, Oscar Darmawan, the CEO of Indodax, a cryptocurrency exchange platform compared the capital requirements to that of mainstream futures contracts which stands at 2.5 billion rupiah ($179,000).

Back in mid-2018, Bitcoinist reported that Bappebti was legitimizing virtual currencies by classifying them as commodities. While the need to offer consumer protection is legitimate, a 40,000 percent dichotomy in capital requirement for cryptos and mainstream commodities futures trading is seen by industry commentators as excessive.

According to Darmawan, these regulations are counterproductive to the growth of the virtual currency industry. Reports indicate there haven’t been any transactions in the Indonesian cryptocurrency futures trading market to date.

Weekly Bitcoin Trading Volume Reaches New Heights

Meanwhile, BTC trading volume in Indonesia is currently on the rise.

Indonesia weekly Bitcoin trading volume

Data from Coin Dance shows that Indonesians traded 102 BTC via Localbitcoins for the week ending February 9, 2019. This figure represents the country’s largest weekly trading volume beating the previous record of 43 BTC set in early October 2016.

In terms of the rupiah, the new weekly BTC trading volume stands at 4.5 billion rupiah. The country’s apex bank banned the use of Bitcoin for payments back in December 2017, but trading cryptos isn’t outlawed.

Do you think the minimum capital requirement imposed on Indonesian BTC futures brokerages is exorbitant? Let us know your thoughts in the comments below.


Image courtesy of coin.dance, Shutterstock

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ICO Raised With ‘No Strings Attached’ Led to Massive Abuse – iAngels Exec [Interview]

Bitcoinist spoke with Shelly Hod Moyal, Founding Partner and Co-CEO of iAngels, on why the ICO market popped and where the cryptocurrency industry is headed next. 


A Hunter College and Kellogg MBA graduate, Shelly is a recognized expert in the areas of Fintech and Blockchain, and is a sought-after expert at international conferences about Israeli tech investing. She serves as a board member of multiple iAngels portfolio companies.

Bitcoinist: Why did the ICO market experience such hype in 2017?

Shelly Moyal: This is a loaded question and there are a few things to unpack. First, most emerging technologies experience hype cycles in which excitement gets ahead of the technology but there are a few things that make the ICO boom and bust unique.

The two most important differentiators were, 1) the participation of retail investors, and 2) liquidity of the assets (i.e. the ability trade these assets on exchanges). Most hype cycles go unnoticed as they are experienced primarily by venture capitalists and due to illiquidity, implode gradually over several years vs. several months as VCs more easily hide behind book values when market pricing information I unavailable.

Before I go into the hype which was driven by a lot of BS and speculation I think it’s important to give the idealistic background that drives the interest in the technology.

There is a growing disenchantment of consumers with traditional institutions which are centrally controlled and therefore vulnerable to mismanagement, exploitation, failure and moral hazard.

Bitcoin has shown the world that it is possible for a group of strangers to reach consensus without anyone controlling the system. This unique feature “programmable trust” has sparked the interest of several academics and entrepreneurs who imagined the possibility of creating numerous applications based on this feature.

The most popular project set out to build an infrastructure for such applications is Ethereum. Similar to Bitcoin, the infrastructure is an open source protocol and it is possible to buy into the project by buying its access token Ether. Bitcoin and Ethereum are both early examples where technology meets capital in the sense that you can buy a token both as a user and as an investor, virtually enabling anyone to invest without restrictions.

The way protocols (like Ethereum and Bitcoin) incentivize adoption is through their access token which has speculative value. As the network grows, the token appreciates in value.

During 2017, the generated wealth of the early Bitcoin and Ethereum investors was readily allocated into additional startups (mostly ICOs) set out to build the ecosystem in pursuit of further capital gains. In turn, hundreds of thousands of people worldwide witnessed how early investors in Bitcoin and Ethereum realized incredible 1,000x+ profits and wanted a piece of it as well.

Entrepreneurs started creating protocols and adopted the ICO crowdfunding vehicle to raise millions of dollars of nondilutive capital for their “token” startups. With the lack of regulatory guidance and oversight around these tokens as well as the lack of institutional investors balancing price levels around fundamentals, prices were getting way ahead of themselves resulting in a large boom and subsequent bust.

Why did it subsequently crash in 2018? Regulatory clampdown? Lower Bitcoin price? Or a combination of factors?

The “crash” was the result of 1) the disillusionment of investors, and 2) the regulatory clampdown.

Most of the investment activity was driven by speculation and price movements were influenced by illiquidity and at times, market manipulation. As these projects were all early-stage startups that have not yet created value (a product and network) it was impossible to justify multi-billion dollar valuations.

The fact that many projects also turned out to be fraudulent didn’t help, and the high demand for these assets gradually evaporated over the course of 2018.

Furthermore, there is no coherent business model for these token investments. In other words, it was (and still is) unclear how value will be captured by the early investors of these networks. Most of the projects today do not have a token model which effectively aligns incentives between users and investors. There is an inverse relationship between velocity and network value.

Meaning that the more hands the currency changes, the lower the valuation of the network because if all demand is met by supply there is less scarcity. So a successful product could still result in little value captured by token holders. Many projects today are experimenting with different token models like mint and burn, governance, work tokens, TCRs etc expected to drive appreciation in the token but these are still unproven.

Furthermore, as regulators, specifically the SEC, made it clear that most token sales are considered security offerings (according to the Howey test and Hinman’s guidance) and started investigating projects that conducted an ICO, more and more entrepreneurs decided not to pursue the ICO path as they realized their tokens would be considered uncompliant securities.

What kind of lessons were learned during the past year?


There are no shortcuts to building a startup even if it’s decentralized. It takes time and for that reason, venture capital cannot be entirely replaced. The idea of startups trading in a liquid market is very nice theoretically but there is no reason for any startup that doesn’t have anything aside from a team and an idea to trade at something much more than zero.

Even today when startups raise money at a certain valuation, it doesn’t mean that the next day someone would be willing to buy the startup at that price. This pricing is just a mechanism for building partnerships between entrepreneurs and investors, not an indication of real fundamental value.

This brings me to another lesson regarding the importance of governance. The lack of self-governance of these startups requires regulation and corporate governance to protect investors and consumers until these networks can truly and fairly govern themselves.

During the period between 2017 and 2018, the ability of entrepreneurs to raise money with no strings attached led to massive abuse, which damaged the industry in many ways.

Ironically, this created a bad perception of the movement largely set out to build a better world with financial inclusion and more aligned businesses built on the values of fairness, transparency, and decentralization.

Why do you believe that the STO can replace the ICO?

We don’t believe STOs will replace all ICOs. STO is a broader category. Indeed, decentralized/utility token projects can take advantage of this route too but broadly speaking, STOs are simply an evolution of capital markets allowing us to tokenize any kind of asset. STOs will play an important role in the future economy as they provide infrastructure for trade and reduce inefficiencies in the current financial markets through disintermediation.

STOs are exclusively based on their regulatory compliance and vetting. How can this crowdfunding model attract the same amount of people that the relatively permissionless ICO model did?

It can not and should not. STOs, by definition, are subject to national securities laws and are thus treated like issuances of traditional securities such as equities and bonds. As a result, the investor universe is restricted and those that choose to market to the general public will be required to comply with heavy and expensive regulation similar to those required by companies wishing to raise an IPO.

STOs will thus more likely follow the trends and cycles of the financial instruments underlying tokens rather than those experienced in the recent ICO bubble.

How does your company iAngels help these projects to manage their capital?

We help them just like we help our other startups across various areas. Investing in startups is a long term partnership and we strive to give our entrepreneurs any support they need whether it’s in business development, fundraising, marketing, finance and/or strategy.

What projects have you invested in recently?

One interesting project is Spacemesh, which tries to create more fairness through a consensus mechanism: Proof-of-spacetime (PoST). Within PoST, storage space is utilized as proof for the verifier (as opposed to computational power in Proof-of-Work).

While nothing stops someone from buying huge amounts of storage space to increase their influence on the consensus, these actors face diseconomies of scale and such behavior is thus not economical. As a result, unused storage space on home computers can contribute to the consensus and if the technology works, the degree of decentralization can be high with low energy costs.

Like you mentioned, most of these projects experiment with new token models, building apps on unproven blockchains. Wouldn’t it makes sense to harness the biggest network effect, i.e. Bitcoin rather than try to build their base layer digital value networks from scratch?

Yes, definitely. Bitcoin and Ethereum have indeed managed to build strong networks over the years with large developer communities, and there is a lot of room to innovate on the layers above these blockchains. And indeed, over the last year, we have already seen several projects build promising applications on these blockchains, especially Ethereum, for example, Maker Dao and its stablecoin Dai.

However, as there are different types of applications, we believe there is no one size fits all blockchain and so there is room for other innovative and novel blockchains (e.g. faster, more secure, more decentralized) that can also emerge as leaders for certain applications.

What is the biggest barrier to cryptocurrency adoption right now?


We believe that the main barriers are technology and regulation. In terms of technology, the stack is not developed enough to build scalable and user-friendly decentralized applications (dApps). And currently, only tech-savvy people interact with them.

Interaction with a dApp, for example, requires you to download the Metamask browser extension, to create a wallet and to fund it with Ether bought through an exchange or broker. This is a lengthy process before you can even interact with a dApp. In order to achieve adoption, the blockchain must operate in a way that is just as seamless as the applications we use today and this will take some time.

We are still at a point in which entrepreneurs need to create breakthroughs at the first infrastructure levels of the technology.

It will take time until crypto will feel like Visa or Mastercard, which are much higher up in the technology stack. Think of the internet before broadband and mobile, much less useful.

Can CREDO Take Its Place Alongside Visa and Mastercard?

In terms of regulation, it is important for entrepreneurs and users to have clarity about the regulatory treatment of these assets, which they don’t have today. As a result, participants in the technology are exposed to potential legal and regulatory proceedings. This veil of uncertainty deters most risk-averse people and institutions from adopting the technology.

What are the opportunities in the industry?

Today the market has changed and what was possible in 2017 isn’t possible today, so what we are left with is actually what might be the biggest opportunity for the industry today.

Talented entrepreneurs and groups are sitting on piles of cash with a lot of time to work and focus on shipping rather than the next VC round. This is a significant advantage given that in VC, entrepreneurs typically raise money for 18 months and if they don’t hit their milestones they’re often out of business.

By removing this “timing risk,” theoretically, a team of talented people has a higher chance of succeeding. If even a few blockchain projects emerge as value adding from this wave, it will be a great win for the industry.

What do you think about Shelly’s view on digital token regulations? Share your thoughts below!


Images courtesy of Shutterstock, iAngles.com

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What We Know About Google Ads Allegedly Blacklisting ‘Ethereum’ as a Keyword

Crypto startup claims that Google Ads has blacklisted keywords mentioning Ethereum.

 

On Jan. 10, Serbia-based smart contract auditing startup Decenter reported that Google has blacklisted keywords mentioning Ethereum (ETH) on its advertising platform, Google Ads.

Google Ads: We can’t confirm that Ethereum is eligible to trigger ads, see our policy

Specifically, the startup tweeted that they saw “a hard stop” on Google Ads containing the keyword “Ethereum” starting from Jan. 9. Decenter also tagged the advertising platform’s official account in the tweet, asking whether they had introduced any new policy changes.

The Google Ads account then replied, stating that cryptocurrency exchanges targeting the United States and Japan can be advertised on the platform, while targeting other countries could be the reason for the ad rejection. While Decenter is based in Belgrade, Serbia, it does not provide services as a crypto exchange.

Further, when the startup explained that they are a group of developers doing smart contract security audits, and that they were seeing an error message when trying to use “ethereum development services” and “ethereum security audits” as keywords, the official Google Ads account answered that they were not able to preemptively confirm that the “Ethereum” keyword was eligible to trigger ads.

“We’d recommend that you refer to the ‘Cryptocurrencies’ section of our policy on Financial products and services.”

In the referred section of their policy, Google Ads states that “due to the complex and evolving nature of regulations related to cryptocurrencies and related products and services,” the company only allows advertising mining-related services and cryptocurrencies exchanges. The latter is approved for promotion only in Japan and the U.S., however.

The Google Ads guide then explicitly mentions that ads for initial coin offerings (ICOs) and similar services, along with “ad destinations that aggregate or compare issuers of cryptocurrencies or related products” — such as crypto trading signals — are prohibited.

Blanket ban followed by relaxation: Brief introduction to the relationship between Google and crypto

In 2018, after a lengthy period without regulation, Google’s politics regarding cryptocurrencies became significantly stricter. Specifically, on March 14, the search engine giant updated its financial services policy, announcing that it was going to ban all cryptocurrency-related advertising of all types come June.

To justify its crypto ad ban, Google said that it was protecting its customers from fraudulent offerings, including, but not limited to, “initial coin offerings, cryptocurrency exchanges, cryptocurrency wallets, and cryptocurrency trading advice.” The company’s executive, Scott Spender, told CNBC at the time:

“We don’t have a crystal ball to know where the future is going to go with cryptocurrencies, but we’ve seen enough consumer harm or potential for consumer harm that it’s an area that we want to approach with extreme caution.”

The move was later described as “unfair” and “troubling” by industry insiders. Interestingly, the news of a crypto ad ban came just days after crypto advertisers using Google Adwords reportedly noticed a drastic drop in the number of views of their advertisements. However, as per Finance Magnates, Google Ads had, at that time, denied any change in their financial services regulations that would block cryptocurrency- or ICO-related advertisements.

Further, on Sep. 25, the U.S. tech giant partly backpedalled on its blanket ban of ads. Google announced it was set to update its ad policy in October, reallowing some crypto businesses to advertise on its platform.

According to the official statement, starting in October, Google would allow registered crypto exchanges to advertise on its Google Adwords platform, targeting the U.S. and Japanese audiences:

“Advertisers will need to be certified with Google for the specific country in which their ads will serve. Advertisers will be able to apply for certification once the policy launches in October.”

The cryptocurrency section of the Google Ads’ policy has since been updated, but the precise amount and nature of crypto businesses that have since been allowed to advertise there remains unknown.

Decenter: “Ethereum” keywords isn’t working for other companies too, Google Ads is to provide a definite explanation within 48 hours

After communicating with Google Ads over Twitter, Decenter took to Reddit to ask the r/Ethereum subreddit users about the alleged policy changes. In the post, the team specified that they have tested keywords for “ethereum smart contract audits” and “eos smart contract audits” and found that only the EOS-referenced keyword showed ads.

The community largely reacted by criticizing Google’s position as a neutral third party. The top comment reads:

“Google has various political and economic agendas, and they are quite willing to use their various services to promote their preferences. AdSense and YouTube are notorious for this, but there have been some incidents regarding the Play Store as well.”

Other users mostly cited the previous blanket ban and the abundance of scam projects as potential reasons for Google Ads to prohibit such advertisements. Some users reported having problems with other crypto-related keywords besides “Ethereum.” “I have been unable to use the ‘bitcoin’ (or even ‘blockchain’) on my google ads as well,” one of the comments read.

When reached by Cointelegraph, Decenter CEO Andrej Cvoro said that there are other startups which started having difficulties with the “Ethereum” ad keyword this month:

“We are aware of at least five different competitors that used to have Google Ads shown for search phrases such as ‘Ethereum smart contract audit,’ all of which stopped showing at the same time.”

When asked to clarify the names of the companies allegedly dealing with the same problem, Cvoro replied that he was not able to answer that “with certainty”:

“All we know is that there are other companies that used to have their ads displayed for search phrases such as ‘Ethereum smart contract audits,’ which is no longer the case. Due to the intricacies of Google Ads keyword setting mechanism, this does not necessarily mean that these companies had explicitly entered ‘Ethereum’ as one of their keywords, although there is a good chance that this is the case.”

Thus, according to Cvoro, the ads are still showing for other crypto-related tags, but “Ethereum” does not seem to be working — neither for those companies, nor for Decenter itself. That, the startup’s CEO adds, suggests that Ethereum has indeed been blacklisted:

“For example, ‘X smart contract audit’ phrase will show several different ads for any X, except when X = ‘Ethereum.’ Furthermore, we are currently not able to find a single search phrase involving the term ‘Ethereum’ that shows any ads on Google, which strongly implies that ‘Ethereum’ as a keyword has been blacklisted (intentionally or otherwise).”

Indeed, a Google search for “EOS smart contract audit” seems to bring up a few ads — including Decenter and similar startups — while the search engine does not show any ads when “Ethereum smart contract audit” is googled.

However, Cvoro does not link the blacklisting to the previous Google restrictions regarding crypto-related ads, as his company allegedly did not face such problems with the keyword “Ethereum” even during the time the ban was fully active:

“We don’t think this is directly related to Google’s blanket ban on cryptocurrencies from the last year. That is something that we have been aware from the very beginning of our Google Ads campaign, but none of our ads were directly (and oftentimes not even indirectly) related to cryptocurrencies, so they were going through the manual reviews even when they were initially put on hold by the algorithm. So what is happening now is different in a sense that keywords containing ‘Ethereum’ aren’t passing manual review anymore, which doesn’t seem to be the case for other blockchain-related terms or phrases.”

On Jan. 15, Decenter received an email from the Google Ads team, the company told Cointelegraph. The answer was originally written in Croatian, but the startup has shared their English translation of the brief statement:

“Thank you for sending an inquiry about the status of your Google Ads with key phrases that contain the term ‘Ethereum’ as one of the keywords.

“Due to how sensitive it is to advertise products and/or services related in any way to cryptocurrencies, I have directly contacted the responsible department with a request for a detailed explanation of why your ads are not showing for the mentioned keywords.
Please be patient and I will get back to you with a final solution within 48 hours.”

Cointelegraph will continue to report on the developments of this story further when more information becomes available. Cointelegraph has also reached out to Google for further comment, but the company has not replied as of press time.

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Crypto Platform Tron Hires Former SEC Attorney as First Chief of Compliance

The ex-SEC attorney David Labhart will also act as co-general counsel for the platform.

Blockchain platform TRON has hired a former United States Securities and Exchange Commission (SEC) supervisory attorney as its first chief compliance officer. The company has revealed this to Cointelegraph in a press release on Jan. 9.

David Labhart, who previously worked as an attorney for the U.S. regulator, will also take on the role of co-general counsel at the company.

TRON, along with its associated TRX token, has built a major presence over the past year, in part due to the continued, and at times controversial, publicity efforts centred around CEO Justin Sun.

Designed to offer an alternative platform for decentralized applications (DApps) to Ethereum, TRON celebrated its one millionth user account last month.

TRX has risen 6.4 percent in the past 24 hours according to CoinMarketCap data, making it the best daily performer in the top twenty cryptocurrencies by market cap.

Evolving regulatory compliance obligations remain an issue for cryptocurrency entities serving both the U.S. and most other major markets. As Cointelegraph reported, some businesses such as crypto exchange Bittrex have opted to split their operations in order to segregate U.S. users, who are bound by different rules.