|From: Glenn Petersen||12/25/2017 8:18:33 PM|
|Bitcoin is none of the things it was supposed to be|
The cryptocurrency was supposed to replace the finance industry. Instead, it has replicated it
Dec—08—2017 01:33PM EST
On Thursday, the price of Bitcoin fluctuated by thousands of dollars in a 24-hour period. The Coinbase app — which lets you buy and sell cryptocurrencies, and is the number two free app in the App Store as of this writing — started freezing and throwing errors, which the company said was due to high traffic. At one point, I tested the app by trying to sell some of my (very small) amount of Bitcoin, and the app simply buckled. “Bitcoin sales are temporarily disabled,” it said in an error message.
This is not how Bitcoin was supposed to work.
In fact, most of the current Bitcoin economy, worth around $276 billion at the time of writing, is antithetical to the premise of Bitcoin.
Let’s go back to the beginning of Bitcoin. The first stop for anyone seriously interested in Bitcoin is the Bitcoin white paper: the canonical document written by Bitcoin’s pseudonymous creator, Satoshi Nakamoto, in 2008. “I've been working on a new electronic cash system that's fully peer-to-peer, with no trusted third party,” Nakamoto wrote when he posted the proposal to a cryptocurrency mailing list. This sentence describes everything Bitcoin was intended to be, and the qualities that first got people excited about it, the key terms being “cash,” “peer-to-peer,” and “no trusted third party.”
Bitcoin, at its core, was supposed to be a way to pay for goods and services online — in Nakamoto’s words, Bitcoin would replace existing systems for “commerce on the internet.” In the early days of Bitcoin, evangelists tried to use it for everything, including salaries, pizza, and Bitcoin swag. This was in the spirit of Nakamoto’s proposal, but the network effects were not there. There simply weren’t enough merchants accepting Bitcoin, or enough customers holding the currency.
This led to the rise of startups like BitPay, which facilitated Bitcoin payment for merchants like Microsoft and Overstock. BitPay was part of the early crop of Bitcoin’s finance industry, and while it and similar startups increased the usefulness of Bitcoin, they represented the sort of middleman Bitcoin was supposed to disintermediate.
After nearly nine years in existence, the closest thing to the kind of Bitcoin-powered payments Nakamoto envisioned is on dark-web markets: the websites like Valhalla or the now-defunct Silk Road that can only be accessed through the anonymizing network Tor. Bitcoin is the default currency on the dark web — but the speculators driving the current bubble are making it difficult to use Bitcoin for actual transactions. “Fuck you Bitcoin,” one buyer commented on the dark-web subreddit. “Went to do a direct deal today with a vendor, realized my $250 purchase would end up costing me $315 or so with fees and would still take probably 24 hours to get to him.” “I personally think there needs to be a grand movement on markets and vendors... to move to an alternative crypto, one that is not so god damn volatile and that can actually be viable,” wrote another.
What about Bitcoin as a peer-to-peer network with no trusted third parties? “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without the burdens of going through a financial institution,” the Nakamoto wrote. This system very quickly fell apart.
In theory, you should be able to get your hands on Bitcoin without having to trade it for any real- world currency or interact with any financial institution. The function of the financial institutions is replaced by elegant cryptography and the distributed network of Bitcoin users’ computers. All you need to acquire Bitcoin is a computer connected to the internet. You download the Bitcoin client and either have someone send you Bitcoin in exchange for a good or service, or use your computer’s processing power to maintain the network and get rewarded in Bitcoin. Once you have Bitcoin, you can use the same tools to store and spend it.
But only the earliest, most dedicated Bitcoin users adopted this system; almost immediately, middlemen starting showing up. In October 2009, New Liberty Standard published a Bitcoin exchange rate based on the cost of electricity for a computer to mine Bitcoin, which established that one U.S. dollar was worth 1,309.03 BTC. In February 2010, The Bitcoin Market, the first of many Bitcoin exchanges, popped up. The notorious Mt. Gox exchange was established later that year. Even the dark-web markets, home to the purest use of Bitcoin, were middlemen, delivering messages between buyers and sellers and serving as an escrow service.
Bitcoin was designed so that users had to take care of their private cryptographic keys for every address they used, and Nakamoto advised making a new address for every transaction. This proved too confusing and burdensome, so along came wallet services, which stored users’ Bitcoins like a bank account and substituted a password for the private key. (The first wallet I used was MyBitcoin.com. It was “hacked” and I lost half my Bitcoins.) There are many, many other types of middlemen in the Bitcoin system now, including sellers of Bitcoin-specific hardware and server farms that have monopolized the creation of new Bitcoins.
The price of Bitcoin increased by thousands of dollars in one week. Coinbase
The existence of these middlemen also obviates another one of Bitcoin’s features: privacy. Middlemen like Coinbase are bound by know-your-customer laws and collect extensive information on their users.
The Bitcoin network is still technically peer-to-peer, but with so many middlemen, it might as well not be. This is not entirely the fault of the greedy middlemen; Bitcoin is simply too intimidating for most non-programmers to use without the help of apps like Coinbase.
Back to the current bubble. Remember how Coinbase, the San Francisco-based startup which raised more than $200 million in venture capital, put a freeze on my money? Whether it was out of incompetence or an attempt to save itself from selling at an inflated price (at one point, the price of Bitcoin was $3,000 higher on Coinbase than on other exchanges), this was exactly the kind of thing Bitcoin was supposed to prevent.
Bitcoin was supposed to disintermediate the finance industry — the system of banks and middlemen and transaction fees in which a single entity can hold your money hostage. Instead, it replicated this system and made it worse. Ordinary users all trust third parties to verify transactions and hold their money. The price is so volatile that no one wants to use Bitcoin for payments. And thanks to the current bubble, the electricity required to maintain the Bitcoin network is skyrocketing.
“Bitcoin was supposed to demonstrate the power of a true free market,” the developer Adam Chalmers tweeted on Wednesday afternoon, when the average price of Bitcoin was around $13,000. “Instead it's full of scams, rent-seekers, theft, useless for real purchases and accelerates climate change. Mission accomplished.”
A screenshot of the Coinbase app as it displayed an error: “Bitcoin sales are temporarily disabled.” Adrjeffries / Twitter
When Nakamoto created the first Bitcoins, he included a bit of text: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.” The line served as a precise way to date the start of the blockchain, but it also seemed to be a reference to the ongoing financial crisis. In his other writings on forums and mailing lists — hundreds of posts before he mysteriously disappeared in April 2011 — Nakamoto expressed anger at the financial system that had precipitated the crisis. “He wanted to create a currency that was impervious to unpredictable monetary policies as well as to the predations of bankers and politicians,” wrote The New Yorker.
Nakamoto was a libertarian who wanted to create a system for payments that would circumvent governments, bankers, and corporations. Instead, Bitcoin is now a get-rich-quick scheme that retains none of the exciting, anarchist features it proposed and has created a secondary economy with financial shenanigans that mirror the ones that led to the global financial crisis. Goldman Sachs says it is “exploring” a Bitcoin trading operation, and on Monday, two finance companies will launch Bitcoin futures contracts so that even more betting on the price can take place. It’s as if we invented the internet and then turned it over to AT&T to operate with switchboards.
In an email to the Metzdowd cryptography mailing list in January 2009, shortly after Bitcoin launched, Nakamoto wrote about his vision for the currency. At first it would start “in a narrow niche like reward points, donation tokens, currency for a game or micropayments for adult sites,” he wrote. “Once it gets bootstrapped, there are so many applications if you could effortlessly pay a few cents to a website as easily as dropping coins in a vending machine.” Instead, it got Wall Streeted.
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|From: Glenn Petersen||12/25/2017 9:04:43 PM|
|An Explanation of Initial Coin Offerings|
By NATHANIEL POPPER
New York Times
OCT. 27, 2017
Credit Illustration by Gluekit
Initial coin offerings have come out of nowhere in 2017 to become the talk of Silicon Valley and Wall Street. Programmers raised over $2 billion in the first nine months of the year by selling their own virtual currencies to investors. That is nearly 1,000 percent more than the amount raised using coin offerings in 2016.
What is an initial coin offering?
Coin offerings are a way for start-ups or online projects to raise money without selling stock or going to venture capitalists — essentially a new form of crowdfunding.
The programmers raise money by creating and selling their own virtual currency, generally with rules similar to well-known virtual currencies like Bitcoin. The new tokens are usually designed so that they can be used only on a computing service the programmers are building.
Filecoin, which raised $257 million in the largest coin offering to date, is being designed to pay for storage on a global cloud storage network that the creators of Filecoin are promising to build. BET, another coin, is being designed to serve as the chips in an online casino its programmers are promising to build.
“Promising to build” is the operative phrase here, because in almost every case the services that will supposedly make these coins valuable have not yet been finished.
What does this have to do with existing virtual currencies?
These coins are generally inspired by older virtual currency systems like Bitcoin or Ethereum, with a cap on the number of coins that will exist — to provide a sense of goldlike scarcity — and a structure that allows them to operate entirely outside the existing financial and regulatory ecosystem.
Investors generally buy the new coins by sending the programmers Bitcoin or Ether (the virtual currency inside the Ethereum network). What’s more, many of the coins are stored, moved around and enabled by other Ethereum technology.
But the coins sold in coin offerings are meant to exist independent of Bitcoin and Ethereum, with their own free-floating value.
(For a more complete explanation of Bitcoin, click here, and for an Ethereum explainer, click here.)
Is there a relation to initial public offerings of shares in a company?
The name for coin offerings was clearly inspired by the initial public offerings that companies do to sell stock to investors. But unlike stock offerings, coin offerings are generally designed so that investors don’t get an ownership stake in the start-ups. If the coin does provide an ownership stake, the Securities and Exchange Commission has said, the companies must comply with all securities law. A few coins have done this, but most have tried to avoid it.
Investors can contribute as much or as little money as they want in these offerings, which are generally more like crowdfunding campaigns that new projects do on Kickstarter or Indiegogo.
Why would anyone pay for these coins?
In principle, people buy these coins because they want to use the services on which the coin will be used. So far, though, almost none of the services have been completed.
In the meantime, people are buying coins because they are hoping the value will go up. When the Stratis token was released in July 2016, it was worth seven-tenths of a penny. In the fall of 2017, each of those tokens was trading for around $2.95, a 42,000 percent increase.
After the initial coin offering, when the programmers sell their tokens for a set price, coins are traded on third-party exchanges through open-market bidding — similar to the way stocks are traded and priced after an I.P.O. The programmers who created the coins generally keep a large stash of coins so that they also benefit if the price goes up.
The people betting on the price of these tokens are generally betting that the services promised by the programmers will be completed, creating demand for the coins in the future.
Why aren’t these start-ups raising money through venture capitalists?
The most obvious reason to do a coin offering is that you can raise more money than you ever could from venture capitalists. The most valuable virtual-currency company that was funded with venture capital, Coinbase, raised $100 million this year, five years after it was founded. The same day that was announced, Filecoin, which doesn’t even have a working product, announced that it had raised over $200 million.
Another plus: Start-ups that raise money through coin offerings don’t have to give away ownership of their technology to outside investors.
Some programmers look to coin offerings because they can raise money for projects that venture capital won’t fund. Specifically, coin offerings can provide funding to build open-source projects that in the end no one will own, the way that no one owns Bitcoin or Ethereum. Filecoin’s cloud storage network, for instance, would be operated by its users rather than any central company.
How do you create your own virtual currency?
It is easier than it seems. The software behind Bitcoin and Ethereum is open source, which means that anyone can take the computer code and tweak it to create a virtual currency with slightly different characteristics. There are companies that will do this for you if you are not technologically adept. Convincing people that your new coin will have value is the harder part, and many coins that are released never grow to be worth anything.
Some companies have gone the more complicated route of creating their own new software for their coins, with qualities that are very different from Bitcoin and Ethereum.
Who can invest in coin offerings?
Anyone who has Bitcoin or Ether and is willing to send their money to the creators of a coin offering.
Is this illegal?
China and South Korea have said it is illegal.
In the United States and many other countries, regulators have said some coins should be categorized as securities, like stocks and bonds. If a coin is categorized as a security, it has to follow all relevant securities law, such as registering with the authorities and ensuring that people buying the coins are properly accredited and vetted. Suffice to say, essentially no coin offerings have followed these rules.
Many people are waiting for regulators to crack down. Some are expecting that the first targets will be the exchanges where the coins are traded.
What happens if the programmers never build what they promise?
Investors don’t have much recourse. The most likely outcome will be that the investors will lose the money they put into the project, though people may try to sue.
What do real investors think of this?
A number of prominent Silicon Valley investors have argued that coin offerings could provide a way to build open-source projects that would not have otherwise received support.
Some big names think this will lead to a new generation of open-source internet protocols and loosen the control of big companies like Google and Facebook.
Chris Dixon, a partner at Andreessen Horowitz, has argued that “by enabling the development of new open networks, tokens could help reverse the centralization of the internet, thereby keeping it accessible, vibrant and fair, and resulting in greater innovation.”
But even sophisticated enthusiasts believe that almost all of the companies currently raising money through coin offerings will fail and lose money for their investors — and probably should not happen in the first place.
“Right now, with all of the enthusiasm for crypto assets out there, I am very concerned that nobody is being careful about anything,” Fred Wilson, a partner at Union Square Ventures, wrote on his blog.
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|To: Glenn Petersen who wrote (89)||12/25/2017 9:07:06 PM|
|From: Glenn Petersen|
|The Hottest ICOs Are the Ones That Have Done the Least Amount of Work|
By Camila Russo and Olga Kharif
December 11, 2017
-- Those without working projects did best in first trading month
-- Almost two-thirds of coin sales with testable projects slumped
The man known as Bitcoin Baba is, as you might have guessed, a true believer in the power of cryptocurrencies to change the world.
Two years ago, the 30-something Kiwi ditched his job in construction and went all in on bitcoin. Now he says he’s living the dream, traveling the world and evangelizing to would-be crypto-enthusiasts wherever he goes. (He got his nickname, a term of endearment that means “wise man” in Hindi, after putting up signs outside coffee shops and banks in India offering free bitcoin advice.)
Bitcoin Baba in the Himalayas.
Source: Bitcoin Baba
But when it comes to the recent frenzy in initial coin offerings, even Bitcoin Baba struggles to see much more than a place to make a quick buck.
“You can listen to all the technologists explain why these projects work or don’t work and then you go onto the trading channels and people are just talking about the price action and sometimes there’s just no correlation,” he said one morning during a recent jaunt to Australia. Like so many in the world of cryptos, he’s deeply fearful of having his virtual assets stolen by hackers and declined to give his real name. “There’s a massive bubble here that’s going to pop in an ugly way. That’s why I’m not an investor in alt-coins and ICOs, and only trade them depending on what the market’s doing.”
The data support this view. Of the 30 biggest digital tokens sold in ICOs this year, the ones without a working product backing their projects did the best in their first month of trading, data compiled by Bloomberg show. And the ICOs with actual products that could be tested? Almost two-thirds of those declined.
The disparity has come to reflect the wildly speculative, topsy-turvy world of ICOs, which in recent weeks has increasingly drawn parallels to the go-go days of the dot-com bubble. This unregulated, crowd-funding model -- where backers finance cryptocurrency startups -- has taken off and pushed the nascent market toward $4 billion in value.
And the boom is showing few signs of slowing even as U.S. regulators start to crack down on fraudulent fundraising schemes. This year alone, hundreds of ICO-backed blockchain projects have been created, as the popularity of just about anything crypto-related pushes bitcoin to one high after another. This week, bitcoin futures debuted on Wall Street, the clearest sign yet cryptos are moving into the mainstream.
Ad for help from the Bitcoin Baba.
Source: Bitcoin Baba
Yet for every promising ICO, a host of others seem to offer little more than a solution looking for a problem. (One promises to revolutionize office sharing on the blockchain, while another ICO exists solely to allow users to buy other tokens. And exactly how many blockchain-based providers of cloud storage does the world really need?)
That’s not counting the duds or the marketing ploys where celebrity endorsements from Paris Hilton and outrageous names like Wu Tang Coin grab headlines. And it’s no small irony that in a market which appeals to people who lack faith in governments and banks, the president of Venezuela -- a country facing an economic collapse and hyperinflation -- just pitched a cryptocurrency backed by its oil, gas, gold and diamond reserves.
Wide-eyed enthusiasts and greedy opportunists alike are jumping in, lured by the promise of groundbreaking technology or just skyrocketing prices, and making it harder than ever to tell whether this is a revolution, a bubble, or both. But what’s clear is that regardless of where you are on the crypto spectrum, the hype has rarely been more divorced from reality.
It can be frustrating because “we are really big believers in, ‘Hey, you should at least have done as much work as you could have done on the project before trying to raise money,”’ said Alex Xu, director of operations at 0x, which builds software that allows users to trade tokens on the Ethereum blockchain.
Dreams Vs. Reality
Only one in 10 digital tokens issued in ICOs is in use following their sales, according to Token Report. The rest, at least for now, are purely speculative instruments, only to be traded. CoinSchedule estimates at least two-thirds of ICO projects lack a working product or a prototype.
In some ways, that might be for the best. Take Bancor, which in June raised $153 million over a matter of hours in one of the most ballyhooed ICOs in the short history of digital coins. Since then, the startup has plunged 38 percent as developers scrutinized its product and poked holes in its usefulness.
Its project, which aims to become something that combines a central bank, an exchange and market making for digital currencies all in one application, lost much of its buzz after a student showed that loopholes made it vulnerable to front-running. Cornell University’s Emin Gun Sirer also said the technology doesn’t work as well as simply making markets manually. Bancor co-founder Eyal Hertzog, who says his team is still building the code, is undaunted.
“It’s not a valuation of a company, it’s a valuation of an economy that this ICO is creating,” Hertzog said from Tel Aviv.
Perhaps the most famous example of an ICO made good is Ethereum, second only to bitcoin in market value and name recognition. Launched as little more than a grand idea in a white paper, the project raised $17 million in 2014, issuing ether as its currency. Now, the Ethereum blockchain, with its smart contracts, serves as the backbone for many other crypto-based projects. The value of ether has soared from mere pennies to about $475 today.
“We’re talking about core infrastructure of the entire internet” with some of these ICOs, said Olaf Carlson-Wee, who runs Polychain Capital, one of the first and biggest cryptocurrency-dedicated hedge funds. “It’s massive upside if it reaches true scale and true adoption.”
It’s the kind of game-changing potential that has made a believer out of Ozkan Isik, who says he’s sunk about half his savings into ICOs. The 25-year-old German college student spends his free time poring over white papers, checking GitHub, a site where coders share their work, and talking to founders before investing. He recently invested in Polkadot, a venture led by Ethereum co-founder Gavin Wood that raised over $140 million in its ICO in October.
The project aims to build a network that connects different blockchains and lets users securely move information from one to another. Investors won’t get their tokens for roughly two years, which is how long developers say it will take to build and roll out the network. That doesn’t worry Isik.
“Even though they raised a lot,” he said, Wood “is not someone who’ll want to run away with the money. It could become very huge too.”
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|To: Glenn Petersen who wrote (90)||12/25/2017 9:11:01 PM|
|From: Glenn Petersen|
|The World’s Biggest Video Game Skins Site Raised $41 Million With Crypto Tokens|
OPSkins, a marketplace for rare Counter-Strike guns, has built an exchange that runs on cryptocurrency.
By Olga Kharif
November 13, 2017
Sam Alexander has spent days at a time in front of the three giant monitors hooked up to his PC, comparison-shopping for “skins,” decorations for virtual guns and knives. In games such as the popular shooter Counter-Strike: Global Offensive, the most sought-after skins confer the kind of prestige that a Rolex watch or Hermès bag would on the street—and can sell for more than $100,000 in real-world cash. But because there are dozens of skins marketplaces online, it can be tough to tell if you’re getting the lowest price; people like Alexander have made a brisk business comparison-shopping on behalf of rich clients. Alexander, 21, says he’s earned “more than an average person makes in a year” from commissions he negotiates with each buyer.
“It’s difficult for them to find the exact items that they want—there’s no centralized database,” he says. His customers also struggle often with payment methods at the main online venues. “Many of the collectors with whom I work are located in China. It is difficult for them to transfer money out.”
OPSkins, the largest skins site in the $50 billion market, may be about to put people such as Alexander out of business. The two-year-old company says it’s raised about $41 million by selling what it calls WAX tokens, a virtual currency that will become the default way to buy and sell skins on its intercompany skins index, the Worldwide Asset eXchange. The idea is to simplify purchases for gamers from different countries and give everyone a clearer sense of what a particular item is worth, using the same kind of digital-ledger system as the cryptocurrency bitcoin.
The company bets that making its exchange accessible to rivals, who can then make a broader catalog available to customers, will expand its audience beyond the limitations of an individual website, says Chief Information Officer Malcolm CasSelle, who’s helping lead the WAX effort. In theory, there’s lots of room for new skins buyers, says Chris Grove, managing director at researcher Eilers & Krejcik Gaming LLC. About 200,000 new people buy virtual items through OPSkins each month, but the site sells gear for online games with more than 125 million regular players.
“This could be the perfect on-ramp,” says investor Scott Walker, who helped fund the “initial coin offering,” or ICO. Early investors are getting more WAX tokens for their money, but their value will become another variable once the exchange goes live in December.
OPSkins doesn’t disclose its financials, but its revenue is growing at double digits annually, says CasSelle, previously chief technology officer at Tronc Inc., the former Tribune Co. Partly, he says, the WAX token strategy is a way to stave off competitors. Over the past few months, rivals including DMarket, KyberNetwork, and SkinCoin have held ICOs to launch or expand their services. So far, though, no other trader has the muscle to create the kind of intercompany exchange OPSkins is building. Starting next year, websites that install the WAX widget will get as-yet-undetermined fees for resulting sales.
The volatility of the WAX token price may make it a poor place to hold money not being used for short-term item buying and selling. But OPSkins’ biggest potential roadblock is the maker of the games. Industry leader Valve Corp., which publishes Counter-Strike: Global Offensive and the other big hits OPSkins exploits, has the power to ban sites from trading skins. Last year, Valve sent cease-and-desist letters to 23 online gambling sites to prevent them from using skins as collateral, a move aimed at reducing teenage gambling on professional video game matches. “Valve has certainly left the door open to an action in the future,” says Grove, the Eilers researcher.
CasSelle says that the new exchange can work without Valve’s help, including as a way to acquire other virtual goods, and that OPSkins is looking to raise an additional $7 million in WAX tokens before it finishes its ICO on Nov. 28. (The company initially sought a total of $63 million but lowered that goal because the flurry of interest around bitcoin and its spiking value has diverted attention from ICOs.) Alexander, the personal shopper for virtual goods, says he thinks the exchange will be good for people like him in the short term, swelling the overall market for skins. “It makes the entire process effortless,” he says. “It is a massive pain dealing with the payment methods available at the moment.” But he’s hedging his bets, having returned to college to finish his degree in economics. He says he eventually wants to get a job in finance or start his own business.
BOTTOM LINE - OPSkins has raised about $41 million to simplify the item-buying process for superfans of “Counter-Strike: Global Offensive” and other games.
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|From: Glenn Petersen||12/25/2017 9:13:09 PM|
|How Floyd Mayweather Helped Two Young Guys From Miami Get Rich|
Celebrity endorsements are helping start-ups raise big money in so-called initial coin offerings. But it is not always clear what they are selling.
By NATHANIEL POPPER
New York Times
OCT. 27, 2017
Credit Photo Illustration by Gluekit
SAN FRANCISCO — Floyd Mayweather, perhaps the greatest boxer of his generation, is not shy about using social media to display the wealth that his years of prize fighting have won him. On Facebook, you can find videos of Mr. Mayweather draped in diamond chains. Want to see him with blocks of $100 bills taped to his torso? There’s that, too.
Recently, Mr. Mayweather has shown his appreciation for a new kind of money. In September, he told his 13.5 million followers on Facebook not once but twice that they should buy a new virtual currency known as the Centra token.
“Get yours before they sell out,” he wrote above a picture of himself admiring the many boxing title belts he had been awarded over the years. “I got mine and as usual I’m going to win big with this one!”
Mr. Mayweather is among the many celebrities who have recently endorsed an initial coin offering, the name for a hot but loosely regulated new method of fund-raising in which entrepreneurs sell their own virtual currencies to investors around the world.
The boxer’s endorsement of Centra, along with a similar endorsement from the popular rapper DJ Khaled, lent a patina of credibility to a project that has ended up with more than a few problems, including a chief executive who does not appear to have been a real person and a shaky, fast-shifting business plan.
Thanks in part to the endorsements, in just a few weeks Centra’s founders raised over $30 million from investors around the world. They finished their fund-raising this month, just before a grand jury indicted two of the three co-founders on perjury charges stemming from a drunken-driving case.
Centra was one of the 270 or so I.C.O.s that have raised more than $3.2 billion this year, a 3,000 percent jump from last year’s total, according to data from Tokendata.io, which tracks coin offerings. Investors have been willing to pay real money for these virtual tokens because they hope their value will go up as fast as the price of Bitcoin, the best-known digital currency, has in recent months.
Celebrities have helped stoke the I.C.O. boom. The actor Jamie Foxx, the socialite Paris Hilton and the soccer player Luis Suarez, for example, have all promoted new virtual currencies to their sizable followings on social media in recent months, offering legitimacy and attention to coin offerings that might have otherwise gone unnoticed.
When Celebrities Endorse I.C.O.s Professional athletes, actors and other celebrities have been promoting new virtual currencies to their sizable followings on social media in recent months, offering legitimacy and attention to coin offerings that might have otherwise gone unnoticed.
Mr. Mayweather, who has promoted three different tokens — Centra, Stox and Hubiits — has even taken to calling himself Crypto Mayweather in social media posts, a play on his better-known nickname, Money Mayweather.
But the story of Centra illustrates that beneath the signs of mainstream acceptance, coin offerings still exist in a legal gray zone with few checks on the ambitions of young entrepreneurs.
“It’s undeniable that a celebrity endorsement brings a new audience into the world of crypto currencies,” said Peter Van Valkenburgh, the director of research at Coin Center, a nonprofit that advocates for Bitcoin and related technology. “But I’m not certain that celebrity endorsements are doing a good job of bringing attention to the legitimate projects.”
Coins of the Digital Wild West
The original virtual currency, Bitcoin, is a digital token — with no physical backing — that can be sent electronically from one user to another, anywhere in the world. The network on which Bitcoin is stored and transferred was designed to operate without any company or government in charge, governed by a far-flung collaboration of volunteer programmers and computers that maintain all the records.
Initial coin offerings have taken advantage of the decentralized structure of Bitcoin and another popular virtual currency network, Ethereum. People can pay for tokens like Centra using Bitcoin and Ether (the currency inside Ethereum), and no financial authority needs to approve the payments or even know they happened.
Coin offerings have also copied the decentralized structure of Bitcoin and Ethereum, and are riding on the coattails of tech industry enthusiasm for those currency systems. The Centra founders said their token would fuel a new virtual currency debit card and online market. Some venture capitalists have said these new tokens could provide a way to fund and support new global networks — like the next generation of the internet.
But while Bitcoin and Ethereum have gone through years of public vetting (and still have plenty of critics), the new tokens being sold in recent months are unproven, and marketed on the promises of their creators.
The creators of Centra are 26-year-old friends from southern Florida, Sam Sharma and Raymond Trapani. The company’s chief marketing officer, Robert Farkas, was recently given the title of co-founder as well. Before Centra, neither Mr. Sharma nor Mr. Trapani had any professional experience with the technologies associated with virtual currencies, or with the debit cards they were hoping to build.
The primary business experience of Mr. Sharma and Mr. Farkas was at Miami Exotics, a luxury car rental business that the two built. Mr. Trapani’s old Instagram account shows that he was also a credit repair specialist with a penchant for pictures of luxury cars and stacks of $20 bills.
“You can sit and watch my life, or you can join my team and live a life like mine!” he wrote in one post.
The lack of experience in the virtual currency industry did nothing to limit the ambitions of Centra’s founders. In July, they put out a website and an announcement that described Centra as an answer to the proliferation of virtual currencies.
“Centra Tech has a brilliant solution, the world’s first Debit Card that is designed for use with compatibility on 8+ major cryptocurrencies blockchain assets,” the announcement said.
From left, the Centra founders Sam Sharma, Robert Farkas and Raymond Trapani. Credit Scott McIntyre for The New York Times
Making up for the inexperience of the young men was an older chief executive named Michael Edwards, at least according to the Centra website at the time.
The first cracks in the project appeared in early August when a programmer, Harry Denly, wrote on his blog that Mr. Edwards appeared to be made up. The photo on Centra’s website was a photo of a Canadian physiology professor who had no relation to Centra — and none of the details on Mr. Edwards’s LinkedIn profile, like his work experience at Bank of America and Wells Fargo, checked out.
Centra initially threatened to sue Mr. Denly but then said the bad profiles were the result of freelancers who had hastily put together the company’s marketing material. The LinkedIn profile was deleted.
The company has since removed any mention of Michael Edwards from the Centra site and elevated Mr. Sharma to be president. The company also deleted several other employees whose identity and existence were challenged on social media forums.
“When I got involved, the website got cleaned up from A to Z,” Mr. Sharma said in an interview.
Centra charged past these hiccups and began its token sale, got its endorsement from Mr. Mayweather (more on that later) and moved ahead with its plans for a virtual currency debit card. The debit card was described as a new product that would make it possible to spend virtual currencies anywhere Visa cards were taken. The company’s site showed Centra cards emblazoned with the Visa logo.
There was one problem with this plan. The company had not been approved, or had even applied, to run a Centra card on the Visa network, a spokeswoman for Visa said.
After The New York Times reached out to Visa this month, Centra took all the mentions of Visa off its website. Mr. Sharma then said in an interview that the company had shifted its strategy and was now planning to run its cards on the Mastercard network in partnership with a Canadian financial institution. He said this would not require approval from Mastercard because the Canadian institution would issue the cards.
But a Mastercard spokesman, Brian Gendron, disagreed.
“Centra would need approval from Mastercard for something like that, and we are not aware of any approval that has been sought or achieved,” Mr. Gendron said.
Because Centra began raising money without going through any standard background checks, no one verified the company’s credentials with the credit card networks or other relevant authorities. A basic background check would have turned up the numerous run-ins with the law that Mr. Sharma, the company president, has had.
Centra’s offices in Miami Beach. Mr. Sharma said the company plannned to start issuing virtual currency debit cards, even without approval from Visa or Mastercard. Credit Scott McIntyre for The New York Times
Mr. Sharma has been sued in Florida and New York several times on allegations of unpaid bills and business deals gone sour. Twice, people have accused him in court of trying to fraudulently sell or lend them cars that he didn’t own, and twice he has been evicted for claims that he failed to pay rent.
The landlord in Boca Raton, Fla., who evicted him, Steven Fern, said that after Mr. Sharma stopped paying the rent on his condominium, Mr. Sharma promised repeatedly that he would make it up the next month.
“He stayed the entire time, literally until the day the police came,” Mr. Fern said. “It was a strange scenario, and we lost a lot of money.”
Mr. Sharma said that these problems, a few years ago, had happened when he was “a kid.”
He said the landlord’s statements were “not accurate.”
Sprite, Pinot Grigio and a White Maserati
Mr. Sharma, Mr. Trapani and Mr. Farkas at the office space they rent. A spokeswoman for the boxer Floyd Mayweather disputed Mr. Sharma and Mr. Trapani’s description of Centra’s relationship with him. Credit Scott McIntyre for The New York Times
For now, the bigger problem facing Mr. Sharma and Mr. Trapani is the perjury indictment by a Manhattan grand jury on Oct. 5, just a few days after Centra finished fund-raising.
The charges stem from an incident last year in Manhattan, when Mr. Sharma was arrested early on a Friday in a white Maserati. According to a local news report, Mr. Sharma ran a stop sign and had “a flushed face, a strong odor of alcohol on his breath and watery and bloodshot eyes, and was unsteady on his feet.”
Mr. Sharma and Mr. Trapani both said during Mr. Sharma’s trial that on the night in question, Mr. Sharma had only had Sprite and one glass of pinot grigio, according to the indictment.
“As defendant Sharma and defendant Trapani knew, the testimony that defendant Trapani gave was false, and the truth was that on March 24, 2016, there were alcoholic beverages other than pinot grigio on the table and the defendant did not order Sprite,” the indictment said.
Mr. Sharma said that he couldn’t speak to the case because it was still going on, but that it should not have any effect on Centra.
“I’m obviously not comfortable with that situation,” he said. “But it’s not that I did something so intensely crazy that investors need to worry.”
He and Mr. Trapani both said they were moving ahead with their big plans for Centra, including more projects with Mr. Mayweather.
Mr. Trapani said the company was connected with Mr. Mayweather and DJ Khaled through social contacts in Miami. Mr. Trapani said Mr. Mayweather was so intrigued by Centra’s technology that he wanted to be paid in Centra tokens, and wanted to be a partner for future business ventures.
“He’ll do anything we ask,” Mr. Trapani said. “He’ll go shopping around Beverly Hills if we ask him to do it with this card.”
The boxing champ understood their deal differently. A spokeswoman for Mr. Mayweather, Kelly Swanson, said he had been paid in cash for the posts and was not involved in any continuing relationship with Centra. She did not say how much he had been paid.
After being contacted by The Times, Mr. Mayweather deleted his Instagram and Facebook posts endorsing Centra, though he left up a Twitter post.
Mr. Sharma disputed the account of Mr. Mayweather’s spokeswoman and said the boxer had received Centra tokens. “We dealt with Floyd directly through my guy,” Mr. Sharma said. “It was a very direct, individual deal.”
Representatives for DJ Khaled did not respond to requests for comment.
Other celebrities have already learned the risks of associating with initial coin offerings.
The socialite Paris Hilton is among the celebrities who have promoted new virtual currencies to their sizable followings on social media in recent months Credit Amy Lombard for The New York Times
In September, Ms. Hilton endorsed a token known as Lydian Coin on Twitter, where she wrote: “Looking forward to participating in the new @LydianCoinLtd Token!” Ms. Hilton deleted the post after Forbes reporters uncovered the checkered legal past of the founder of Lydian Coin, who had aimed to raise $100 million.
Regulators have been relatively slow to crack down on problematic coin offerings. But the Securities and Exchange Commission did recently bring its first case against what it claimed was a fraudulent project — a relatively small one that collected a few hundred thousand dollars.
For now, Mr. Sharma and Mr. Trapani are sitting on the $30 million that investors gave them.
Mr. Sharma shared and proved his ownership of the Ethereum wallet where they are currently keeping the money.
Assuming regulators don’t step in, Mr. Trapani and Mr. Sharma can keep the money, even if they don’t build anything. But they say that won’t happen.
Mr. Sharma said Centra was planning to issue its first batch of debit cards this year, regardless of the denials of Visa and Mastercard, and would unveil its broader technology in November. They have already rented lavish offices in Miami Beach and hired several people.
“I see us taking over as being the No. 1 company that people will use to use their crypto assets,” Mr. Sharma said, using an industry term for virtual currencies. “Once our proof of concept goes from beta to live, I think that we are going to take market dominance in the full aspect.”
31Comments Some potential investors did not share Mr. Sharma’s enthusiasm and discussed their concerns on Reddit and other social media platforms. But those criticisms ended up having less of an impact than the social media nods from Mr. Mayweather and DJ Khaled.
“What’s important is Centra is being endorsed and they have a product,” a Reddit user named islandsurf wrote back to the critics, explaining his own investment. “That’s what matters to investors!”
Follow Nathaniel Popper on Twitter @nathanielpopper
Doris Burke contributed research.
A version of this article appears in print on October 29, 2017, on Page BU1 of the New York edition with the headline: Stars Add Sparkle To Currency. Order Reprints| Today's Paper| Subscribe
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|From: Glenn Petersen||12/25/2017 9:16:01 PM|
|Investors Commit $100 Million to Overstock's tZERO Token Sale|
Dec 19, 2017 at 17:55 UTC
The initial phase of a token sale for Overstock.com subsidiary tZERO has seen significant investor activity, according to CEO Patrick Byrne
As reported by CoinDesk, the first leg of the sale – in which the firm is selling Simple Agreements for Future Equity (SAFEs) that will later be redeemed for tokens by accredited investors – began yesterday, albeit a bit later than planned. Hiccups aside, Byrne told CoinDesk the sale ultimately attracted a big crowd – some 2,000 accredited investors.
As such, he indicated the company may move to shorten the initial two-month timeframe for the token sale.
"We had, yesterday, 2,000 accredited investors come and apply and get the process going," Byrne said, adding that he had taken several phone calls from investors himself.
Some of the offers, he said, were as high as $5 million or more for single token allocations.
TZERO is an alternative trading system (ATS) or dark pool that's registered with the Securities and Exchange Commission (SEC). The trading system grew out of the Medici blockchain effort within online retail giant Overstock, an initiative that dates back to 2014 and is aimed at creating a wholly new kind of trading environment based on a blockchain.
The company announced yesterday that the pre-sale and the subsequent sale would be limited to accredited investors – allocating a month for each sale – while reserving the right to shorten either if necessary. The pre-sale to strategic purchasers will be limited to $100 million, with the remaining $150 million open to all accredited investors, CoinDesk has learned.
"We woke up this morning, and people have reached for over $100 million," Byrne said. "Which may mean we get to compress this."
Due to the legal constraints under SEC regulations for open offerings, Byrne declined to discuss specific bonuses to investors in the sale. He said the largest "bonus coupons" will accrue to the first $10 million sold, with an attractive bonus to the next $90 million. All investors in the offering will get bonuses of some kind, at three different tiers.
Investors should also expect a detailed onboarding through the offering's issuance portal, SAFTLaunch.com, according to Byrne.
"Our ability to maintain the Reg D protection is keeping this a very formal process," he told CoinDesk.
Stock exchange image via Shutterstock.
The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at firstname.lastname@example.org.
Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Please conduct your own thorough research before investing in any cryptocurrency.
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|To: Glenn Petersen who wrote (93)||12/25/2017 9:27:54 PM|
|From: Glenn Petersen|
|Indiegogo Goes Where Few Companies Dare: Into Initial Coin Offerings|
By NATHANIEL POPPER
New York Times
DEC. 12, 2017
Slava Rubin, one of Indiegogo’s founders, said the crowdfunding site wanted to “bring a brand of trust to the entire industry” of initial coin offerings. Credit Roger Kisby for The New York Times
SAN FRANCISCO — Indiegogo helped take crowdfunding mainstream. Now the company is hoping it can do the same for initial coin offerings, the popular but unregulated practice of selling custom virtual currencies to raise money for software projects.
Indiegogo started a new service on Tuesday to vet coin offerings, also known as I.C.O.s, and then help sell them to small and large investors.
The first project to use the service, a start-up known as the Fan-Controlled Football League, will begin raising $5 million on Indiegogo this week. The start-up aims to use the money to create a league of football teams that will be guided by people who buy the league’s coins (a crazy-sounding idea that has already been tested).
“We want to bring a brand of trust to the entire industry, which we think will bring I.C.O.s to the mainstream,” said Slava Rubin, one of the founders of Indiegogo.
Smaller crowdfunding platforms like Republic and AngelList have started their own efforts to legitimize coin offerings. But until now, established companies essentially avoided coin offerings because of the numerous legal risks and uncertainties. It was, however, becoming increasingly hard for Indiegogo to ignore the market.
Programmers, entrepreneurs and scammers have raised over $3.5 billion through coin offerings this year, according to Coindesk, after rising out of almost nowhere. That is more than the best-known company in crowdfunding, Kickstarter, has helped companies raise in its entire eight-year history.
Initial coin offerings have been so hot — and some say so unhinged — that some companies have found success with them even after failed crowdfunding campaigns. An online art gallery known as Maecenas, which failed to raise 400,000 pounds (currently about $533,000) through crowdfunding this year, raised $15 million a few months later through an I.C.O., the Financial Times has reported.
Established companies have been left out of the I.C.O. craze, in large part because of the legal uncertainty.
The Manhattan offices of Indiegogo, which found it increasingly hard to ignore the initial coin offering market. Credit Roger Kisby for The New York Times
The head of the Securities and Exchange Commission, Jay Clayton, has said several times — most recently on Monday — that many coins should be categorized as securities and be registered with the authorities, which almost no projects have done. The agency has recently cracked down on a number of projects that aren’t legally compliant.
Indiegogo will help coin offerings follow the law by registering them as securities in most cases. This approach puts many restrictions on investors and on projects.
Small investors will be allowed to invest about $10,000 in most projects, and companies will be able to raise no more than $1 million from these investors, because of restrictions put in place by the 2012 JOBS Act. That is a tiny amount compared with the tens of millions of dollars that many coin offerings have raised this year.
Projects going through Indiegogo will be able to raise more money from sophisticated investors. But these investors will also face limitations, such as lockup periods, before they begin selling their tokens to others.
These restrictions could make the new service unattractive. Most coin offerings have been able to garner unlimited amounts of money from any investor; the biggest have raised over $200 million. And at least so far, regulators have cracked down on few of them.
Several law firms have already been working on creating legally compliant methods of initial coin offerings. Indiegogo is working with one of those firms, Cooley.
Sohrob Farudi, the chief executive of the Fan-Controlled Football League, said he was willing to accept the restrictions involved in working with Indiegogo to stay on the right side of the law.
“We want to be sure that nobody on our side is going to jail and that when we bring this product to market that it will be done the right way,” Mr. Farudi said.
His group previously raised $63,000 in an Indiegogo campaign to create a minor-league football team guided by fans. Now it is hoping to create a full league with the same principles.
The head of the Securities and Exchange Commission, Jay Clayton, has said many coins should be categorized as securities and be registered with the authorities. Credit Pablo Monsivais/Associated Press
The league will begin this week with what is known as a token presale. Early next year, it expects to do a full initial coin offering, and will likely look to raise around $30 million, Mr. Farudi said. At that point, the people who invested in the presale will receive coins, also referred to as tokens, at a discounted rate.
When the league opens next summer, people who hold the tokens will be able to vote on everything, from what color the jerseys should be to what plays the coaches should call during a game, with votes taken in real time.
The tokens will initially be stored and recorded on the ledger, or blockchain, associated with the Ethereum virtual currency network, though recent congestion on the Ethereum system has the league looking at other blockchain alternatives for the long term.
Mr. Farudi said having the tokens on a virtual currency blockchain would allow every vote to be recorded for all the participants to see.
“The voting mechanism has to be transparent,” he said. “The blockchain is the best example we could find for how to implement that.”
When the league does its I.C.O., Indiegogo plans to categorize it as a so-called utility token, rather than a security, because its main purpose will be to allow for voting on league decisions. Utility tokens come with fewer restrictions than securities.
Mr. Rubin of Indiegogo said most companies doing coin offerings would probably have to register as securities. For now, he thinks that coin offerings won’t make sense for most companies, given the additional complications.
In the long run, though, he has joined the chorus of believers who think that all investments are likely to be done on some sort of blockchain because of the way it allows decisions and changes of ownership to be recorded transparently.
“Over time, I don’t think it’s going to be a discussion — I think all of it will be on a blockchain infrastructure,” Mr. Rubin said. “The New York Stock Exchange, or the Nasdaq, 20 years from now will be on blockchain. That’s what we’re talking about.”
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|To: Kirk © who wrote (86)||12/26/2017 10:15:10 AM|
|From: Glenn Petersen|
|This board is nearly dead|
Point taken. While I am still interested in following the fortunes of LC, you will note from the new header that I have decided to broaden the scope of the board.
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|From: Glenn Petersen||1/3/2018 4:16:08 PM|
Tiny company which owns some Hooter's restaurants says it will use blockchain for rewards program, boosting stock by 50%
Tae Kim | @firstadopter
- Chanticleer Holdings (BURG), an owner of burger restaurants, said Tuesday it will use blockchain-related technology for its customer rewards program.
- The company's shares rose nearly 50 percent in Tuesday trading.
- Small companies used this trick to artificially boost their shares to end 2017.
Published 10:38 AM ET Tue, 2 Jan 2018 Updated 1:18 PM ET Tue, 2 Jan 2018
Source: BGR Burgers Grilled Right
The speculative mania on anything related to cryptocurrencies is happening again in the new year.
Chanticleer Holdings (BURG), an owner of burger restaurants, said Tuesday it will use blockchain-related technology for its customer rewards program. The company also owns 9 Hooter's restaurants and is a minority investor in Hooter's of America.
"We wanted to expand our existing loyalty program with something that really changes the way our customers can leverage their rewards; Mobivity Merit is real cryptocurrency, leveraging the same infrastructure and principles of Bitcoin, Ethereum, Ripple, Litecoin, and more, and will enable our customers to make use of their rewards in entirely new ways," Michael Pruitt, chairman, president and CEO of Chanticleer Holdings, said in a release.
Chanticleer Holdings rose nearly 50 percent in Tuesday trading to almost $4 a share. The Nasdaq-traded stock had a market value of only $8 million through Friday so it's clearly buyer beware.
Several small stocks captured the speculative imagination of traders last month with this trick.
Longfin surged 1,342 percent in two days in mid-December to a market value of more than $3 billion after buying a cryptocurrency company with no revenue. The rally spurred the company's CEO to say "this market cap is not justified."
Perhaps most eye-popping of all, Long Island Iced Tea shares rose 183 percent on Dec. 21 after it announced it is changing its name to "Long Blockchain Corp." The company said it will focus on investing in the technology behind bitcoin.
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