n A new analysis of Bitcoin mining has pointed to the importance of accounting for renewable energy sources, as opposed to earlier blanket assumptionsn
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Think Bitcoin is Wasteful? Have You Ever Thought About the True Cost of Fiat?
One of the most commonly repeated criticisms of Bitcoin is its energy consumption. It seems that every few months, some new report is penned stating that Bitcoin uses the same amount of electricity as an ever larger country.
However, demonising Bitcoin on such grounds is highly reductionist. After all, there is a lot more that goes into our current monetary system than just ten thousand or so supercomputers running day and night.
Bitcoin Can Clean Up Its Act, Can Fiat?
The main gripe environmentalists seem to have with Bitcoin is that it uses a lot of electricity. This, of course, is true. However, it doesn’t tell the whole story.
Electricity around the globe is gradually getting greener. Renewable energy technology is improving every year. The shift from fossil-fuel-intensive Bitcoin mining operations based in China to those harnessing geothermal power or hydroelectricity is clear evidence that those running the equipment to secure the Bitcoin network are keen to increase profits margins by turning to these vast, largely untapped, and ultimately renewable energy sources.
Compare this to how the Federal Reserve and national banks operate. Buildings, manufacturing plants, machinery, and many other things all need constructing and operating to create a system that enough people will trust in for it to be of any use whatsoever.
This is bad enough. However, there is a hidden environmental cost of the current financial system that is rarely considered – the cash itself.
Around 7.4 billion bank notes were produced last year in the United States alone. The following Tweet highlights the financial cost of many of the processes involved with operating a functioning financial system:
In 2018, US taxpayers paid…
0M to manufacture US dollars
M to transport them
M for quality assurance
M for counterfeit deterrence
There is still an estimated B counterfeit bills globally.
Bitcoin costs tax payers nothing. There are zero counterfeit bitcoins. pic.twitter.com/erLOzrDSeo
— James Todaro (@JamesTodaroMD) May 31, 2019
People rarely consider that they actually fund the very fiat system that slowly (or rapidly) depletes the value of their labour over time. The Federal Reserve doesn’t foot the bill, the taxpayer does. By contrast, taxes don’t pay for Bitcoin miners, the Bitcoin network doesn’t need external funding. The users and the system itself pays for the security and trust is ensured mathematically – it doesn’t need to be bought.
Not only this but the notes themselves require immense resources to get into circulation. Of course, there is the cotton paper. However, there is also the special ink required to ensure the bills are difficult to counterfeit, the gelatin used to give them extra durability, and the cost to design a new note every few years to keep counterfeiters on their toes. This latter step often involves increasingly elaborate methods of printing that require more use of colour shifting inks, more intricate designs, raised printing techniques, and many other methods to make sure it’s easy to check that you have a real note and difficult to make a convincing fake.
Notes then need transporting, their quality checking (some are, of course, rejected causing greater waste), and all of this on top of the cost (both economically and environmentally) of running the institutions that we must request permission to transact through.
As if that wasn’t bad enough but the above Tweet reminds us that it’s a downright inefficient system. Despite the 0 million spent on just the manufacture of new money, there is still an estimated billion in counterfeit bank notes circulating around the globe.
It is understandably incredibly difficult to quantify the total cost of the fiat monetary system. However for an environmentalist to lambaste a new technology for being energy intensive ultimately holds back human progress. Technology gets more efficient over time. It always has. There is nothing to suggest that Bitcoin mining will not get more efficient too. In fact, it already is doing thanks to operations tapping into hydro power in Canada and geothermal energy in Iceland.
Related Reading: Malaysian Prime Minister Proposes Gold-Backed Currency, But Why Not Bitcoin?
Featured Image from Shutterstock.
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Report: Bitcoin and Crypto Markets More Regulated Than Widely Thought
There is a common motif within the crypto markets that the advent of “do-no-harm” regulation would allow for an influx of institutional, corporate, and public funds that will help propel Bitcoin and other cryptocurrencies higher.
Despite this, a recent report conducted by Bitwise Asset Management explains that the nascent markets are actually significantly more regulated and surveilled than widely known, while also importantly noting that the actual trading volume on many major exchanges is significantly lower than reported.
Are the Crypto Markets Actually Regulated Presently?
The report, which was published and conducted by Bitwise – a crypto asset management firm – came about after the firm submitted a Bitcoin-based ETF application to the Securities and Exchange Commission (SEC) and offers an in-depth look at many of the major topics currently surrounding the new and quickly evolving crypto industry.
In a section of the report titled “The Bitcoin Market Is More Regulated and Surveilled Than Is Commonly Understood,” Bitwise explains that the crypto markets are in fact regulated – in a certain regard.
“We are not implying that bitcoin spot exchanges are ‘regulated markets’ or that they are on an equal legal status with national securities exchanges or futures exchanges, but rather that the…exchanges highlighted earlier interface with other forms of regulation,” the report stated.
One such form of regulation that Bitwise notes exchanges are currently interfacing with is the FinCEN requirement that crypto exchanges register as Money Services Business (MSB), a requirement that has been in place since 2013. As a MSB, exchanges are subjected to a plethora of strict regulatory requirements.
Furthermore, the exchange also notes that exchanges who offer their services to users in the state of New York are required to acquire a BitLicense, which mandates that exchanges comply with a significant number of regulatory requirements that ensure safety for customers.
Report Claims that 95% of Bitcoin Trading Volume is Artificially Created
Another key portion of the report offers an interesting set of data regarding the veracity of the trading volume on major crypto exchanges.
“We will demonstrate…that approximately 95% of this…volume is fake and/or non-economic in nature, and that the real market for bitcoin is significantly smaller, more orderly, and more regulated than commonly understood,” the report explains.
Bitwise then elucidated the results of a test they applied to the top 81 exchanges by trading volume – which entailed using trade size histograms, volume spike analysis, and spread patterns – to determine the veracity of the exchange’s trading volume.
Shockingly, the conclusion is that of the top 81 exchanges, only ten of them – including Binance, Coinbase, Kraken, Bittrex, Poloniex, Bitfinex, Bitstamp, bitFlyer, Gemini, and itBit – had predominantly genuine trading volume.
When considering this data and Bitwise’s conclusion that 95% of the total Bitcoin trading volume is artificially created, it shines a light on just how much room Bitcoin, and the crypto markets as a whole, have to grow.
Featured image from Shutterstock.
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Abu Dhabi Securities Exchange Issues Thought Paper on Crypto and Blockchain
n The Abu Dhabi Securities Exchange in the United Arab Emirates has issued a thought paper on cryptocurrencies and blockchain infrastructure for issuing digital assetsn
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Ernst & Young Report One Year on, ICOs’ Fate Is ‘Worse Than We Thought’
n An EY report into The Class of 2017 ICOs found that 86 of tokens are trading below their listing price, 71 have no working productn
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New Research Claims Satoshi Mined Far Fewer Bitcoins Than Previously Thought
n nn nn Based on five-year-old research, Bitcoin enthusiasts and critics alike have often held that Satoshi Nakamoto originally mined some 1,000,000 bitcoin in the early days of the network. New numbers from BitMEX Research, however, demonstrates this number could be off by 300,000-400,000 total bitcoin.Breaking Down Lerners ResearchThe oft-cited 1,000,000 coins estimation comes from research conducted by Bitcoin developer and RSK founder Sergio Demian Lerner and
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You Thought Retail Was Dying? Think Again…
Over the past decade, e-commerce sales have soared. Many people are claiming that e-commerce will be the end of retail stores.
However, recent figures have shown that the reality is actually very different from what we were expecting.
Will E-commerce Really Replace Retail?
There is no doubt that e-commerce has transformed the way we shop – especially with the recent rise of buy online, pick up in-store trend that was recently introduced by Amazon.
![retail](https://s3.amazonaws.com/main-newsbtc-images/2018/01/09194130/image12-1024x680.jpg)
Of course, everyone has heard of the e-commerce giants like Amazon and eBay. But how many other e-commerce-only stores can you name off the top of your head? The likely answer is: not that many. Actually, all but one of the top 10 US retailers are physical stores.
In fact, despite the many stories of retail stores being forced to shut down and liquidate, there have actually been a number of cases when it’s gone the other way around. This can be seen as recently as this year when Walmart bought up several of its online competitors.
Why is Retail Still So Popular?
But shopping online is so much easier. It’s fast, it’s convenient, and we don’t even have to get off the sofa…right?
The truth is, despite what we tell ourselves, the world loves to shop. It satisfies some of our most primitive hunter-gatherer instincts and has cemented itself as one of our everyday habits.
Despite the rapid rise in technology over the past decade, there is still something inherently satisfying about walking into a store and picking up a physical product.
Often, we don’t just shop because we want to buy things. For many, it is a fun social experience, a way to relax and unwind, or simply an enjoyable way to pass time.
Combining E-commerce and Retail Shopping
Retail shopping is here to stay for the foreseeable future. However, mobile technology has undoubtedly changed our shopping habits irreversibly.
There has been a recent influx of retail apps over the past few years. The 7-Eleven app, for example, sends coupons to your phone that you can redeem in store.
It also has a member barcode that allows users to earn free drinks, a store locator, a feedback system, and a ‘7Rewards’ feature that gives users points for every dollar they spend in store to encourage users to download it.
![retail](https://s3.amazonaws.com/main-newsbtc-images/2018/01/09194311/image21.png)
The Starbucks app has also been a huge success. It allows users to pay and collect loyalty points without the hassle of an additional physical card.
The app was released back in Spring 2009. By October 2013, more than 11% of Starbucks’ sales volume came through its mobile wallet.
But what if there was a way to combine the convenience of e-commerce with the thrill of shopping in a retail store?
Shping is one new blockchain startup working on bringing ecommerce together with retail. It is designed to make retail shopping smarter – and it even directly rewards its users for their engagement in the process.
The way the platform works is simple. Users simply scan any product barcode using the app. From this, they can learn what is in it, where it is from, and whether or not it is certified. They will even have access to reviews from other users, which they can use to make a decision about whether or not to purchase the product.
Essentially, it provides the fun of retail shopping, while still allowing users to make a fully informed decision in the same way as they would when shopping online.
In return for scanning barcodes, uploading product photos, and writing their own reviews for products they have purchased, users can also earn Shping coins.
Large media giants like Facebook are currently making billions every year as a result of advertising to their 2 billion-strong user-base.
However, decentralized blockchain platforms will enable brands to channel their budgets to reward customers for their engagement, instead of funneling billions into faceless, third-party media companies.
Changing Advertising As We Know It
The process of combining e-commerce with retail could completely transform the advertising landscape as we have come to understand it.
Instead of companies having no other option than to shove advertisements in our face while we’re watching cat videos on YouTube or trying to chat to our friends on Facebook, they will be given the unique opportunity to connect to us right at the moment it is most appropriate – when we’re inside the store, ready to buy their product.
These unique features provided to us by the decentralization of advertising will undoubtedly allow brands to connect with their customers like never before.
Rewarding customers for loyalty will only strengthen the connection between brands and users.
Instead of feeling like a commodity being marketed to and spammed with advertisements for products they don’t want, users will become a valuable part of the process.
The whole landscape of shopping and advertising could be about to shift in front of our eyes.
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Op Ed We Never Thought of That When Venture-Backed Companies Undertake Reverse ICOs
With well over billion raised this year alone, in very little time initial coin offerings ICOs have emerged as a major source of venture finance. Even companies that have already raised conventional venture funding will be tempted to raise additional funds through ICOs. Although not fully intuitive, some have labeled token issuances by entities that previously obtained equity financing as Reverse ICOs.One prominent example of a Reverse ICO has already occurred. Recently, Kik Interactive su
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Op Ed: “We Never Thought of That” – When Venture-Backed Companies Undertake Reverse ICOs
With well over billion raised this year alone, in very little time initial coin offerings (ICOs) have emerged as a major source of venture finance. Even companies that have already raised conventional venture funding will be tempted to raise additional funds through ICOs. Although not fully intuitive, some have labeled token issuances by entities that previously obtained equity financing as “Reverse ICOs.”
One prominent example of a Reverse ICO has already occurred. Recently, Kik Interactive successfully completed an ICO of nearly 0 million. With over billion raised in ICOs this year alone, ICOs are not unsubstantial. What made the Kik offering far more unusual is that Kik has already raised over 0 million from venture investors.
The standard documents used for angel and venture investing predate the current ICO craze and, not surprisingly, do not expressly address ICOs. Understandably, these documents are all “share-centric.” The question that needs to be addressed, therefore, is: What rights, if any, do existing investors have when their company elects to undertake an ICO?
What makes the analysis particularly difficult is that, broadly speaking, there are three types of ICOs:
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Equity Tokens – these tokens are essentially digital shares with the issuer specifying equity participation, voting rights and other token/shareholder rights.
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Non-Equity Security Tokens – these tokens do not grant equity rights but under the Howey test are nonetheless classified as securities.
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Utility Tokens – these tokens allow the purchaser to buy products or services from the issuer.
Although not the subject of this article, the U.S. Securities and Exchange Commission (SEC) has issued initial guidance with respect to the securities law status of tokens issued in ICOs. The SEC’s Chief Accountant has also put out guidance detailing some of the accounting issues raised by ICOs.
This article will identify several issues raised by ICOs under commonly used SAFE, Convertible Note, Series Seed and Series A documents.
Why Existing Investors Might Object to Reverse ICOs
On the surface, Reverse ICOs would seem to be a net positive for existing investors. Except for equity tokens, ICOs provide non-dilutive financing to companies. Even when tokens are classified as securities, they generally are not issued as equity -purchasers do not have a share in the issuer, do not receive dividends and do not get voting rights. However, there are several reasons why existing investors might be concerned:
Multiple “Plays” on the Same Company
After a Reverse ICO, a venture-backed company will have both tokens and equity in the hands of investors. Prior to the ICO, the only way an investor could invest in the company was by buying its stock. After the ICO, the investor would have a choice of buying the stock or buying tokens.
At least in the current environment, there is reason to believe that demand for tokens will be greater and drive up relative prices for tokens. Equity holders may find reduced demand for their equity. Further, if the tokens remain outstanding at the time of an exit, it is difficult to predict the impact of outstanding token pools on exit valuations in either an acquisition or IPO scenario.
Impact on Follow-On Venture Funding
Many venture funds make relatively small initial investments, anticipating that they will deploy significantly more capital in subsequent rounds. ICOs may reduce companies’ needs for future equity raises. As a result, venture funds may have reduced opportunities for follow-on funding.
Delay or Elimination of Conversion Events
For holders of Convertible Notes and SAFEs, under most currently used form documents, ICOs typically will not be considered an event that triggers a conversion. In some cases, ICOs may also delay or even eliminate subsequent equity financings. Further, in successful companies, ICOs often will raise the pre-money valuation at which conversion occurs, thereby diluting SAFE/Note holders (although conversion caps in many of these instruments may mitigate the impact).
Avoiding Pre-Emptive Rights
Under the current agreement forms, tokens sold in an ICO would not trigger the pre-emptive rights of existing shareholders – thereby denying them an automatic right of participation in the ICO.
Absence of Transfer Restrictions
Under the current agreement forms, tokens sold in an ICO would not be subject to the rights of first refusal, co-sale rights and the transfer restrictions typically applicable to shareholders in venture-backed companies.
ICOs Do Not Trigger Other Typical Preferred Shareholder Provisions
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Anti-Dilution Protection. If a company underprices its tokens, its impact on valuation could be similar to a “down round.” However, unless tokens are issued as equity, they would not trigger the anti-dilution protection clauses in the standard forms.
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Liquidation Preferences. If token holders are given equity participation in an issuer, the issuing documentation will need to specify where they stand in the liquidation stack. For utility tokens, if the claim against the company is viewed as contractual (i.e., the holders of a pre-payment for products/services), token holders may be unsecured creditors instead of shareholders – in which case they would rank ahead of all equity classes.
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Mandatory Conversion of Preferred Shares. Venture documents typically provide for mandatory conversion of preferred shares in an IPO of a specified minimum amount raised and minimum share price or approval by what is typically a supermajority of preferred shareholders. Several ICOs have raised in excess of 0 million. If these companies go public, it is possible that some may not need additional funding and may do so without a public offering of additional shares (i.e., a direct offering). However, if not all shareholders agree with the decision to go public, the mandatory conversion provision could not be utilized unless approved by a supermajority of the preferred shareholders, which in some circumstances could impede the ability of an IPO to proceed.
Impact on Future Cash Flow
Many ICO issuers are positioning their tokens as “utility tokens” that can be used in the future to buy the issuer’s product or service. As a result, these tokens constitute pre-pays for the future delivery of goods and services. In the future, when the products/services need to be delivered, the venture may experience cash flow issues because no new funds will be coming in to pay for the product or service.
Impact of Regulatory, Tax and Accounting Uncertainty
Currently, the regulatory status of ICOs is unclear. Issuance of tokens in a manner that does not comply with the eventual regulations that emerge could create liabilities for the company and/or limit its ability to issue equity in the future. In addition, the accounting and tax rules for ICOs have not been established, and as a result, there may be ambiguity with respect to several representations and warranties the company typically will need to make in future financings and liquidity events.
Fiduciary Uncertainty
Officers and directors of companies have fiduciary obligations to maximize shareholder value. When companies are insolvent, these duties shift to protection of the interests of creditors. What, if any, fiduciary duties a board has with respect to token holders has not been explored. If a company is facing a decision that would benefit shareholders at a cost to token holders, do board members have any fiduciary obligation to the token holders? Investor representatives on boards of companies that have conducted Reverse ICOs will not only have to deal with uncertainty but also potential conflicts of interest if they have not participated in the Reverse ICO.
Can Investors Prevent a Company from Undertaking an ICO?
While it is difficult to believe that a company would undertake an ICO without board approval, in many early-stage companies, investors do not have control of the board. However, commonly used investment documents may leave shareholders with limited recourse where boards back an ICO. In general, in SAFEs and Convertible Notes, holders do not have protective rights and, as a result, they do not have the ability to prevent an ICO.
The protective provisions in the Certificate of Incorporation for Series Seed financings would not provide Series Seed holders with the ability to prevent an ICO. In the NVCA Series A documents, ICOs do not easily fit into any of the matters for which the investor director’s approval is required. The same applies to the protective provisions for the benefit of preferred shareholders detailed in the Certificate of Incorporation.
What Now?
For blockchain startups, ICOs have become the dominant form of fundraising – far exceeding venture capital financing. Given the strength of the ICO market, “Reverse ICOs” are likely to become even more pervasive. For investors this could be very challenging. Existing form agreements in the venture space are likely to be revised to address the possibility of Reverse ICOs. However, the regulatory, tax and accounting uncertainties around ICOs may not be quickly resolved, leaving uncertainty around some of the concerns raised in this article.
Revising the form agreements will not address the thousands of venture-backed companies that were financed using pre-ICO forms. For existing investors the path forward is more difficult. Where investors control the board or have blocking rights, they will have the ability to prevent ICOs or influence their terms. For other investors, particularly in early-stage ventures with founder-dominated boards, ICOs have the potential to overturn several assumptions under which early investors funded. These investors may have to wait for situations in which their approval is needed for unrelated corporate actions or their funding is necessary and leverage that position to insist upon amendments to existing investment documents to address some of the investor challenges resulting from Reverse ICOs.
This is a guest post by Dror Futter. Views expressed are his own and do not necessarily reflect those of BTC Media or Bitcoin Magazine.
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Thought You Couldnt Buy a Picasso Think Again!
n Tokenization allows investors to buy fractional portions of the greatest art in the world, allowing for amazing diversification.n
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