INCREASED FOCUS BY AUTHORITIES
While governments in the US, China and Russia have all taken strict or uncertain regulatory positions toward digital currencies, Switzerland has continued the philosophy that has long made its banks valuable, and Crypto Valley has therefore become the center of this movement.
However, FINMA, The Swiss Financial Market Supervisory Authority, recently closed down QUID PRO QUO Association – a provider of a fake crypto currency, and FINMA is now investigating other possible fraud cases involving virtual money. The company had provided so-called E-Coins for more than a year and had amassed funds of at least USD 4.2 million from several hundred users. According to FINMA, QUID PRO QUO was fraudulent as it did not store the “crypto currencies” on distributed networks using blockchain technology, but instead it was kept locally on QUID PRO QUO’s own servers.
The increased focus by FINMA on crypto currencies in general is a positive thing for the serious providers of crypto currencies, as the illegal providers will be shut down and only the reliable providers will be left.
A blockchain is a public ledger of all crypto currency transactions that have ever been executed. It is constantly growing as ‘completed’ blocks are added to it with a new set of recordings. The blocks are added to the blockchain in a linear, chronological order. Each node (computer connected to for example the Bitcoin network using a client that performs the task of validating and relaying transactions) gets a copy of the blockchain, which gets downloaded automatically upon joining the crypto currency network. The blockchain has complete information about the addresses and their balances right from the genesis block to the most recently completed block.
ICO – A NEW WAY OF RAISING CAPITAL
Naturally, during the last two years, Zug has also become the epicentre of the Initial Coin Offering (ICO) revolution. Enabled by the blockchain technology, this new phenomenon has generated a lot of excitement as well as criticism. Lately, the People’s Bank of China has declared ICOs to be illegal. Generally, it seems like regulators and authorities all over the world are uncertain how to go about regulating on a truly virtual matter.
An ICO is an means of crowdfunding by which funds are raised for a new crypto currency venture. An ICO is used by crypto currency businesses to bypass the regulated capital-raising process required by venture capitalists, banks or stock exchanges. In an ICO campaign, a percentage of the newly issued crypto currency is sold to early backers of the project in exchange for legal tender or other crypto currencies, such as Bitcoin.
INITIAL COIN OFFERING
ICOs are similar to IPOs and crowdfunding. Like IPOs, a stake of the start-up or company is sold to raise money for the entity’s operations during an ICO operation. However, while IPOs deal with investors, ICOs deal with supporters that are keen to invest in a new project much like a crowdfunding event. But ICOs differ from crowdfunding in that the backers of the former are motivated by a prospective return in their investments, while the funds raised in the latter campaign are basically donations. For these reasons, ICOs are referred to as crowdsales.
THE SUCCESS OF ICOs
The first ICO (or token sale) was held by Mastercoin in July 2013, and now, ICOs and token sales are extremely popular. As of May 2017, there were around 20 offerings a month, and a new web browser, Brave ICO, generated about USD 35 million in under 30 seconds, and there are at least 18 websites that track ICOs. By the end of August 2017, 89 ICO coin sales worth USD 1.1 billion had been conducted during the year – ten times as much as in all of 2016.
This year, ICOs have fuelled a rapid ascent in the value of all crypto currencies; from about USD 17 billion at the start of the year to a record high close to USD 180 billion at the beginning of September.
THE FIRST REGULATED TRADING SYSTEM
In the US, a new alternative trading system providing a platform for the exchange of tokens categorised as securities has just been launched. This system will be regulated by both the SEC and FINRA in the US and is the first of its kind.
Simply put, the trading system is a new capital market offering a legally approved, regulated alternative to a major securities exchange, such as the New York Stock Exchange and Nasdaq.
Argon Group (an investment bank specializing in ICO capital raising) projects that the total ICO issuance volume could soon top USD 4 billion by the end of 2017.
The benefits of the regulated platform is said to be decreased costs and faster settlement times providing a fairer market, with greater liquidity and more efficient price discovery.
OUR EYES ON ICOs
At the moment, ICOs seem to be the easiest way to raise capital, and as we are living and working in the Canton of Zug, which stands for approx. 90% of the ICOs being issued, we are very excited to follow the development closely. It is definitely an interesting area, which we will look more into in the near-coming future.