Some years ago, there was a major push for cryptocurrencies to have debit cards just like banks have master cards and Visa cards. But was it really a viable idea?
When they first hit the market back in 2017, crypto debit cards were the talk of the town and every crypto investor was dying to own one. Probably at that time, it was all for identity purposes especially given the fact that cryptocurrencies had just been invented and anything to do with them was a source of prestige.
Two years down the line, the same cards that were once a hot cake have almost become extinct with the companies that had invested in manufacturing them almost becoming ‘endangered species’.
Shift Card for an instant, that had been issuing cryptocurrency visa cards with Coinbase, have stopped producing the cards due to low demand.
But why did the demand for these tools become obsolete while the bank cards never lose taste? Is there anything that cryptocurrencies could borrow from bank cards?
At the moment No! The fact that cryptocurrencies are decentralized makes everything quite complicated for debit cards. In addition, in case crypto users want to withdraw their crypto coins, they can easily convert them for fiat money and use the normal bank cards to transact.
Also, most of the cryptocurrency transactions are done online and there are very limited cases where cards would apply.
Sourcing for funds is always a hard task for entrepreneurs, especially when starting a new business. Most of the times, as an entrepreneur, you will be forced to spend quite a considerable amount of time meeting with prospective investors instead of using that time to concentrate on your business.
The time squandered by meeting with potential investors could be used in developing the business while still informing the investors about the business. To do so, you could consider using tokenization instead.
Currently, the most commonly used methods used method for funding startups is Initial coin offering (ICOs), Initial Exchange Offering (IEOs) and Security Token Offering (STOs). Despite there being a number of handles, ICOs have proven quite resourceful when it comes to crowdfunding. You are able to access funds from a wide base within a very short time while at the same time saving the time of meeting with the investors in person to concentrate on your business.
There are also other methods like Security Token Offering (STOs) which is better regulated compared to ICOs. Unlike ICOs, STOs are vetted by the SEC.
How does it work?
We all know that blockchain is decentralized and that is stored distributed ledgers. At the same time, blockchains come up with tokens/cryptocurrency coins to be used for transactions within the networks.
As an entrepreneur, you can tap into the benefits of using tokens to fund your next business.
With tokenization, you create digital securities for your business/company. The tokens or digital securities are backed by the assets of the business. You then let investors buy the digital assets once they know what your business is all about.
In the process, you are able to get funds in exchange for the digital assets while at the same time the investors have a claim of the company just as in the traditional shares.
However, even with the lucrative opportunities that tokenization offers for entrepreneurs in this era, there are still handles, most of which have to do with regulations that still hinder the full-scale adoption of this technology. We have seen countries like China and South Korea put a ban on such forms of raising fund.
Benefits of using tokenization in funding your business
- It increases the enterprise value of your business
The tokens reflect the value of the assets of your company and they can also be traded on exchange platforms.
Also, since the tokens have a value of their own, they also add up to the overall value of the enterprise.
- It offers better liquidity to investors
Compared to traditional stock markets, tokenization offers a more liquid form of investment. With tokens, there are lots of exchange platforms where investors can trade their tokens and there are always ready buyers.
- You can raise capital without diluting your ownership of the assets behind the token
Since tokenization involves the creation of tokens that are sold to fund your business, the created tokens/ digital assets add an extra layer of enterprise value in addition to the company’s capital stock and assets.
In addition, it gives you the opportunity to fund the business without compromising on the ownership of the assets.
In addition to price speculation, cryptocurrencies have opened a whole lot of opportunity for entrepreneurs through their open financial system.
From being decentralized, there have been major strides towards making blockchain a better open financial system. From the adoption of identity protocols for now, your customer (KYC) and anti-money laundering (AML), compliance to modular, and open-source tools, blockchain has been able to align with the traditional economic structures.
The sheer innovation opportunities that blockchain has offered for entrepreneurs is exciting. Also, there is the monetary sovereignty that comes with cryptocurrencies that also includes data privacy within the unbanked world.
Adoption of open finance
‘Open finance’ simply refers to the decentralized nature of cryptocurrencies/blockchain networks. It is increasingly becoming a darling for many entrepreneurs due to its interoperable nature of the system. Its core belief includes transparency, accessibility, financial inclusion, and standardization.
World Bank’s Global Findex report showed that more than 2 billion people around the world still have no access to bank services. Blockchain/cryptocurrencies could be a great opportunity for them.
Cryptocurrencies have made it easier for people to access transactions mechanism and data storage channels without involving intermediaries by creating new financial assets outside the traditional financial system which places banks at the heart of the system.
Bitcoin was the first cryptocurrency to be developed and since then other cryptocurrencies have been developed with emphasis to open financial tools. Cryptocurrencies are now being developed on open protocols and hybrid services offered commercial bodies.
Some of the open financial tools that are quickly gaining traction are blockchain lending services, security tokens, and decentralized trading markets.
It is normally difficult to employ a wholesale adoption of the open finance blockchain system. Rather, developers choose to develop hybrid blockchain ecosystems on the already existing business and financial models.
At the same time for open finance to prosper, the right infrastructure has to be provided. Financial institutions and regulators around the world are toiling very hard to ensure that the right infrastructure is in place as cryptocurrencies adoption gathers momentum.
For example, startups have found a new way to fund their projects through ICOs, IEOs, and STOs. However, without the right infrastructure, there can be a lot of fraud.
Standardization of the open financial ecosystem
The future of open financial system landscape is pegged on open protocols and hybrid financial services. For entrepreneurs, the adoption of open financial across the world which is rapidly replacing the traditional financial systems like banks presents exceptional opportunities. The whole system of the open financial system is completely reshaping the old financial model.
Countries are slowly transiting to cashless societies and cryptocurrencies provide the perfect solution.
The current rush by countries to come up with crypto regulations is a clear sign that governments have realized that cryptocurrencies are unstoppable and that they better do something before they are caught up in the shakeup. Almost every country is currently working on coming up with laws to regulate the use of cryptocurrencies.
With standardization across the board, the open financial ecosystem will be more applicable across countries.
Most startups, as well as seasoned companies, fear that ICOs/IEOs could end up not raising enough money as hoped. However, with the current trend in ICOs/IEOs, companies are finding it easier to raise sufficient funds through ICOs and IEOs, which can be attributed to the fact that investors have found it to be a promising way to invest their money.
In Mid-May, Bitfinex, a prominent crypto exchange platform, announced through its project CTO, Paolo Ardoino, that they had raised over $1 Billion both in soft and had commitments. This goes a long way to prove that no amount of money is too much for an ICO/IEO.
Bitfinex IEO token sale involved its own LEO tokens, which have already been listed in a number of exchanges like ZB.COM, a Chinese based crypto exchange, and Delta-Exchange among many others.
The $1 billion funds will go a long way in financing the company as it faces a legal battle concerning the missing $850 million.
According to Ardoino, the investments mainly came from private companies who contributed over $100 million each and Users who invested over $1 million each.
Originally, Bitfinex had planned to do a discretionary public phase of the IEO in case the funds raised within the 10-day private token purchase window did not raise enough funds. But as it stands, this ended up being a record-breaking IEO which pretty much seems it will not go to the public face after raising such a huge amount of money in the private face.
This shows how effective ICOs and IEOs can be when it comes to collecting funds for Silicon Valley startups and companies.
Blockchain technology is known to be making a very great impact due to its features especially its privacy. However, the very features that make blockchain technology a darling too many, seems to be causing headaches with both authorities and some enterprises.
Although blockchain networks provide users with a very high degree of privacy, the stored public ledgers are irreversible. Experts warn that this ‘privacy poisoning’ is the biggest risks facing organizations, centerpieces, and governments.
Blockchain privacy poisoning: what is it?
The European Union recently came up with the General Data Protection Regulation (GDPR), which states that every individual has “the right to be forgotten”. However, this is practically impossible with blockchain networks since you cannot alter the content of the ledger files stored in a blockchain network.
Blockchain privacy poisoning refers to the poisoning of blockchain networks with personal data that cannot be deleted as per the GDPR.
The fact that blockchain networks provide a solution for storing original data in a manner that it cannot be adulterated, the same advantage creates a major problem for organizations, especially in the European nations. You have personal data on a network, but it is impossible to destroy that data. If the data is deleted, it would mean compromising the entire blockchain. Blockchain is a chain of blocks that contain ledger files.
Initially, blockchain privacy poisoning was not a major issue since the only information that was predominantly stored on blockchain networks was transaction detail. However, with the adoption of blockchain technology across different fields like medicine, industries, and businesses, other information is being stored in blockchain networks.
One of the key areas that blockchain technology is being used is in consent management. Blockchain is being used in the proof of consent and in the coming years this will see a widespread application. However, this is double-edged since the information provided by the user for the proof of consent is irreversible or cannot be deleted without destroying the entire blockchain network.
Does blockchain privacy poisoning apply to private blockchain networks?
There are two types of blockchain networks; the public blockchain networks and the private blockchain networks.
For public blockchain networks, anyone can access the network and participate in the networks but the information entered in the network cannot be altered in any way. This squarely falls under the GDPR.
Private Blockchain networks, on the other hand, can only be accessed by those who have been granted permission. The users and the kind of transactions are restricted. They are mostly used in military, national defense, supply chain management, construction, filling returns among other places. The GDPR laws do not apply when it comes to private blockchain networks.
Normally, if any private data is shared through the private blockchain networks that information would never be available to the public contrary to the public blockchain networks. Therefore, even if a private blockchain network becomes “poisoned” by the personal data, it somehow doesn’t really matter.
What does the future hold?
One thing is for sure: new regulations especially those aimed at regulating individuals’ privacy could pose major complications when it comes to blockchain implementation. The GDPR has already proved that such rules might not apply to blockchain technology although experts could also opt for a way to make blockchain comply with such rules. The question is when?
Marketing an ICO is usually a delicate balance. You do not want to end using too much funds on marketing since you want most of the gathered funds for the development of the project. Therefore, you will have to find the most cost efficient and yet effective way to market your ICO.
Also, it is very easy to spend too much on the ICO but still end up getting lo ROI in the marketing campaign. So how do you keep the balance?
Below are some of the key points to consider during the ICO marketing:
- Create an attractive website
The website will always give the first impression to your prospective investors. Therefore, you should ensure that the first impression is perfect. It should give any visitor the desire to peruse the website more and the feeling of wanting to stay on it.
You should work on the design and structure of the website meticulously. Actually, you should have professionals do that for you.
Some of the most important sections that the website should not lack include: About Us Page, Team, Information about your token, The Investment Return plans, Your ICO timelines and conditions, and Whitepaper.
After doing the website, you should have a professional market it on social media as well as on the search engines. For the search engines, you could Search Engine Optimization, especially for articles and blogs.
- Quality whitepaper
Before doing anything in an ICO, you will need a very detailed whitepaper. The white paper should give people everything they need to know about your project.
You should ensure that someone does not remain with questions after reading your whitepaper. It should cover the problem you intend to solve, how you intend to solve the problem (including a clear roadmap), the market, the people/team involved (showing their qualifications), target amount for the ICO and how you intend to use the collected funds.
- Avoid buying your Community
The best way to get people on board your project is by letting them to freely choose to support you after finding out that your project is viable. Your part should only be providing a convincing and honest whitepaper that gives the investors a detailed outlook of your project.
You better have 10,000 people honest people supporting your project than a million fake members who only joined because they were promised some money since, without the money, you can be certain you will not have their support.
Some people may opt to use bounties but bounty hunters will most likely give you little or no value.
- Talk more about the problem you want to solve
When marketing your ICO, ensure that you tell the people what you intend to solve. Also, let them see how you intend to solve it so that they can judge whether it is a viable project or not. With this, people will gain enough faith in the project and want to be part of it.
At the same time, you should also focus on how you shall get partners and also get listed on exchanges. Also, tell your prospective investors what will trigger the usage of your coins besides the buying and selling on exchange platforms.
- Avoid giving out too many tokens for free
It is true that free tokens bounties and coupons could attract customers, but for ICOs, it may end up causing more harm than good.
Most of the people who get the tokens for free are just after making money by selling the tokens on exchange platforms once the tokens are listed on exchange platforms. Therefore, rarely will those people participate in other activities within the blockchain network that could help in developing the project. Remember that other than buying and selling the tokens on exchanges, the token should have some other usage like paying for services within the network. Therefore, you should have investors who are willing to go an extra mile to use the token in the real project other than just waiting to sell the token on the exchanges.
After all, it may take some time before the token gets listed on exchange platforms.
Remember that cheap is always expensive in the long run!
- Use the most effective platforms to promote your ICO
For many people to see your ICO, you will have to get it across as many platforms as possible. However, you should ensure that the platforms that you choose to use are effective (such that the ICO can be seen by as many people as possible without investing too much money into it).
For instance, some people may opt to use PR articles and end up paying too much money on the article. It is okay. But there are cheaper ways of promoting your ICO. One of those ways is by making use of social media outlets. Some of the most effective places to post about your ICO are Twitter, Quora, Steemit, BitcoinTalk, Telegram, Discord, and Reddit.
The issue of ICO regulation has been a thorn in the flesh in most countries. Initial Coin Offering (ICO) was officially invented in 2017 after cryptocurrencies and blockchain gained momentum and the value of cryptocurrencies skyrocketed giving everybody an appetite to invest in them. But it appears all these developments caught most if not all financial regulatory bodies flat footed and they were not able to craft laws to regulate the market.
In general, ICOs are poorly regulated and countries are doing all they can to put in place some governing rules for the ‘easy fundraising tactic’ that has been adopted by most Silicon Valley startups. Some countries like China and South Korea have already banned ICOs and as things stand there could be more countries like India that may follow suit.
But why all the fuss about ICO regulation?
ICOS offer an easy way of raising funds without having to follow the long process of accessing Bank Loans. With ICOs, anyone can raise whatever amount of money they want as long as they get people to like what they are doing.
Since anyone can offer an ICO, fraudsters have gotten an opportunity of conning people off their money by floating fake ICOS. They collect money from people and later the project collapses. Since everybody knows in ICOs there are high risks the project being fundraised for could fail, the fraudsters get away with the money without anyone questioning them.
ICO regulation by key cryptocurrency players
Let us look into some of the countries that have greatly adopted cryptocurrencies and see what they have done in response to ICOs.
China was the first country to ban ICOs despite the fact that it is the leading country in terms of blockchain adoption.
There have been resistance towards the ban but People’s Bank of China has issued a new warning to people regarding the investment in ICOs.
South Korea has a very huge cryptocurrency user base. However, in 2017 it banned ICO listing terming them as unlicensed financial activities.
However, Korean legislative arm has been pushing for the government to lift the ban though there are recommendations that the ban can only be lifted if there is proper legislation to protect citizens from scammers.
Following the ban of ICOs in South Korea and China, developers flocked Switzerland and Singapore since the two countries seem to have a favoring environment for ICOs.
In November 2017, immediately after the banning of ICO in South Korea and China, the Monetary Authority of Singapore (MAS) issued a guideline on how the digital token offerings will be undertaken. Any offer or issuance of digital token sales is supposed to comply with the securities laws and it is regulated by the MAS.
Switzerland is one of the countries that has done a lot in terms of regulating the cryptocurrency industry. The Swiss Financial Market Supervisory Authority (SFMSA) has actually come up with guidelines to regulate both cryptocurrencies and ICOs. The guidelines have stipulated how tokens are categorized.
The ICO guidelines make Switzerland friendly to blockchain-related businesses and developers are relocating their businesses there.
Malta is also another country that has done a lot in regard to regulating cryptocurrencies. It already has well-laid regulations for any cryptocurrency related activity and it has also created a supervisory body for cryptocurrencies. The supervisory body goes by the name Malta Digital Innovation Authority.
To date, the European Union does not have a specific framework of regulations governing cryptocurrency related activities. However, regulators are reported to be working vigorously to come up with regulations for the industry.
Currently, each European country seems to be adopting its own approach.
There have been a number of ICO and cryptocurrency reported cases in the US and the SEC to seem to be struggling to even handle the issues. Currently, there are no specific rules governing ICOs in the US.
The current legal framework interprets ICOs as investment contracts and these make cryptocurrencies securities.
Since the introduction of the internet, the privacy of users has been on the decline. We have had very many cases of social media account being hacked, bank accounts being hacked and even cases of extortion have been reported. And to make the matter worse, even the ‘Big People’ are not exempt; we have even had social media accounts of presidents and large companies like Sony being hacked into.
Actually, an internet user will have to agree to very many cookies agreements while browsing the internet. And most, unfortunately, the cookies store very crucial information about users and if it falls on the wrong hands the user could be open to hacking. Normally, organizations use the information gathered through cookies for advertisement purposes but it does so without getting the consent of the user. Most are the times an internet user will just click “Agree” to cookies without even knowing the impact it has on their privacy.
The introduction of blockchain has brought a whole new aspect into the way network users share their information. Normally, a blockchain network user does not require identification. They only have to keep their passphrases to be allowed into the network. Actually, with blockchain technology, there is no central point of storing information; the whole network is normally decentralized and the user controls what goes on.
The decentralized nature of blockchain makes it more secure than the traditional modes like the internet where there is a central server, for storing users’ information, which can easily be breached.
Though blockchain comprises of a public shared database it can only record transactions between two parties. Therefore, only two parties are allowed to exchange information at any given time. There is no chance for the interference of a third party. This increases the privacy of the parties involved.
How does a blockchain network work?
Blockchain is basically a decentralized ledger of transactions. It uses cryptography technology to confirm who owns what at a certain time.
Therefore, if a user transfers any information (including digital currencies) to a fellow user, the transaction is stored into the ledger as a block containing the time of the transaction previous transactions and details of the transaction (what was transacted). However, the transaction will have to be verified by other participants (nodes) on the network. The verification is also done cryptographically and no information about the parties involved is revealed.
The blocks of data are then arranged in chronological order and third parties cannot alter them. This makes data shared through blockchain networks secure from manipulation by third parties.
What is cryptography?
Cryptography is the process of encrypting or converting ordinary plain data into a complex form that is not comprehensible without first decrypting the message. By using cryptography, only those to whom the data is intended can read and understand the message. Even if the information is tapped into by a third party, it will not be of help to them until they are able to decrypt it. The message is normally encrypted in a manner that only the entitled recipient can decrypt it.
This technology has been previously applied in securing back transactions through banking transaction cards, in computer passwords and also in e-commerce transactions.
Tools that enhance privacy in blockchain
To enhance the privacy of users, blockchain technology employs three tactics in addition to the cryptography technology. These tactics include:
- Peer-to-peer network
- Use of private and public keys
- Zero knowledge proof consensus protocol
Peer-to-peer means that the networks are normally designed in a way that the users communicate and transact directly without the need of a third party between them. Blockchain networks are normally decentralized; users control everything.
Use of private and public keys
For the sake of the asymmetric cryptography used in blockchain networks to secure transactions, every user is required to have a public and private key. These two are sets of cryptographically related strings and numbers that help identify users.
The private key is ‘private’ and should never be shared with anyone. These are only used to access funds and personal information on wallets.
On the other hand, the public key can be shared and it is what users normally share during transactions.
Every transaction must have the public keys/addresses of the sender and receiver to denote the origin and the recipient of the information being shared. Information designated for a specific public key cannot find itself on the hands of another user.
The public addresses/keys do not reveal any private information of the involved parties. The keys act as pseudonymous and help conceal the identity of users on the blockchain network. By so doing the privacy of users is greatly enhanced.
The zero-knowledge proof consensus protocol
This is a way of proving a transaction is valid without revealing the information involved in the transaction. This is achieved using complex cryptographic formulas.
This is a new technology that was introduced to the blockchain that aims at increasing the privacy of blockchain users. Some times past, any blockchain user could access certain information about transactions like the public address of the sender and the receiver. The zero-knowledge proof consensus protocol aims at keeping the addresses completely anonymous. Any other person verifying the transaction can only know if the transaction is valid or not without knowing the addresses of the participants. Actually, the addresses of the participants were putting the users at risk since hackers could trace them later using the addresses.
Legality issues concerning blockchain privacy
- General Data Protection Regulation
The European Union recently adopted the General Data Protection Regulation (GDPR) and there are concerns that blockchains do not comply with the regulations.
The GDPR was enacted to help protect European citizens against data breaches. It applies to those processing data in Europe and those processing data outside of Europe but for Europeans.
There is an issue of whether the public and private keys/addresses can be categorized as personal data according to the GDPR.
Also, GDPR gives citizens the right to have their personal data erased in case they feel the data is no longer needed. But with the nature of blockchains where the data stored is immutable, it could be impossible to have the personal data of EU citizens have their personal data erased.
- International Revenue Service (IRS)
There are also concerns from the IRS since most blockchain users do not include revenue made through the blockchain networks for taxation in their income reports.
IRS as actually given a notice that the general tax rules should be applied to cryptocurrencies and failure to disclose revenue obtained from blockchain networks could earn them civil penalties and fines. However, due to the decentralized nature of blockchains, it is difficult to keep track of singular transactions across the networks. Also, the use of Public and private keys makes it very difficult to connect an individual to any transaction since their personal information is concealed and there is no way of knowing who did what.
- The blockchain alliance
The ability of blockchains to protect the identity of users has made them an ideal hub for criminals to carry about their business without being noticed. As a result, the Blockchain Alliance was created by the FBI and Justice Department, so as to enforce legal restrictions on blockchains to minimize their use for criminal activities.
Blockchain privacy use cases
The blockchain privacy can be of vital importance if adopted in a number of areas despite the fact that there are concerns about its legality in other fields.
Below are the key areas where blockchain privacy could prove to be of importance:
- Financial sector
Traditionally, any financial transaction requires a third party to verify it and the third party gets access to all the information about the transaction including the personal data of the participants and that information can easily fall into the hands of the wrong people.
However, the adoption of blockchain technology in handling financial transactions can greatly increase the privacy of the participants and also ensure that tier finances are secure.
- Health sector
There are also issues about how health records are being stored. Currently, most hospitals tend to have copies of the health records of their clients; a physical record and an electronic record. But in most cases, the information ends up being misplaced or even manipulated as it gets shared.
The adoption of blockchain in storing health records could ensure that the privacy of the clients is maintained and the records would also become free from manipulation.
- Legal affairs
Notarization of legal documents requires that the individuals are accorded the right privacy. But in some cases, personal information about individuals in cases has ended up leaking thus jeopardizing entire judicial processes in some cases.
The adoption of blockchain could greatly reduce the notarization fees, increase the speed of sharing information and also ensure maximum privacy for the individuals.
There is information that there is a draft bill named “Banning of Cryptocurrencies and Regulation of Official Digital Currencies Bill 2019″ circulating through the various departments of the Indian government. The bill, if adopted could see an end to the adoption of cryptocurrencies in India, which would be a great blow to blockchain developers throughout the world, considering the large population in India that is seen as a great opportunity for cryptocurrency communities.
The government is currently said to be consulting the different ministries on the issues so as to come up with a conclusion on the way forward.
Familiar sources indicate that a committee of comprising of the Department of Economic Affairs (DEA), the Central Board of Indirect Taxes and Customs (CBIC), the Investor Education and Protection Fund Authority (IEPFA) and the Central Board of Direct Taxes (CBDT) is supporting the idea to ban any cryptocurrency activities in India including the issuance, sale and purchase of the digital currencies.
The Committee could use the Prevention of Money Laundering Act (PMLA) to ban the cryptocurrencies since it argues out that the digital currencies are a haven for money laundering and other fraudulent schemes. The ministry of Cooperate affairs has previously said that the cryptocurrencies are being used to swindle innocent investors of their money.
This development comes after the Supreme Court of India gave the Indian Authorities 4 weeks to structure regulatory policies for cryptocurrencies so that the court could stop handing cryptocurrency cases including the demand for the reverse of the Reserve Bank of India circular on cryptocurrencies.
There were also concerns from India Economic Affairs Secretary that the digital currencies would greatly impact the Indian currency if they were to be fully adopted as modes of payments.