Another giant is coming up in the cryptocurrency arena; by the name of Initial Exchange Offering (IEO). Following the unprecedented rise of fame of ICOs in 2017 and the subsequent turmoil surrounding their regulations and scamming incidences, developers seem to have found another better way of raising funds for their blockchain and cryptocurrency projects through Initial Exchange Offering (IEO).
What is IEO?
Initial Exchange Offering is an ICO that is run through a Cryptocurrency Exchange Launchpad. Therefore, the Launchpad act as the intermediary that conducts the token sale.
Compared to ICOs, IEOs have succeeded in raising staggering amounts of funds in very short time spans. For instance, BitTorrent was able to raise $7.2 million in just 18 minutes through an IEO conducted via Binance Launchpad. Fetch.AI also raised $6 million in just 22 seconds via Binance Launchpad.
From statistics like in the examples highlighted above, investors seem to be more confident buying tokens via exchange platforms like Binance because they are certain that the exchanges are regulated and any activity that the exchanges are involved in must be legal and well analyzed by experts.
But how does the Launchpads work?
Launchpads are basically platforms that cryptocurrency exchanges have fostered to enable blockchain projects to offer their tokens for sale directly to the exchanges’’ customers. In the process, the buyers (Investors) of the tokens end up buying tokens from projects they are sure they are not scams.
To be allowed to use the exchanges’ launchpads, the blockchain developers have to enter an agreement with the exchanges so that their tokens can be initially placed on the exchanges.
Then, before any token sale is done on an exchange, the exchange performs a thorough audit on the project to find out its viability and potential of the token. The exchanges also directly manage the token sale.
The main participants of IEOs are the project developers, Exchanges and investors.
Through the IEOs, the exchange platforms get revenue from a listing fee for the token placement and also attract more customers since people will join the exchanges to participate in the IEOs and eventually stick in the exchange for other trading activities.
For investors, they get a reliable investment opportunity. It is hard to get a scam token sale being conducted via an exchange platform. Therefore, the investors can rest assured that they are investing in a genuine project that is well vetted.
Benefits of investing in an IEO
For the project developers, they are assured of a more legitimized token sale since they get the backing of the crypto exchanges who investors are sure to have done their due diligence on the integrity of the project. On the same hand, projects have their tokens exposed to a larger customer base since exchanges already have a wide customer base. The large customer base makes it possible for the projects to raise very large sums of money within a short timeframe.
Investors, on the other hand, get an opportunity of investing in a token that has immediate liquidity. They can also pay for the token through a variety of methods that are already established in the exchange platform.
Despite the fact that IEOs are not scams, it is good to remember that the investors are the ones left with the short end of the stick. They are the once that face the most risk in IEO. They can only trust the exchanges to be good at what they do.
The IEO policies also differ from one exchange to the other and the problems faced in one exchange may not be similar to those faced on another exchange platform.
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.
Brave Browser (a web browser just like the likes of Chrome and others) had promised that its registered users shall be paid for viewing online ads. The promise was made during the Initial Coin Offering (ICO) and users are can now enjoy the benefits since the promise has now be actualized. According to an announcement made by Brave on 24th April 2019, the users shall start getting a share of the revenue coming from the ads.
So let’s look at what is in for the users:
- First of all, the program of sharing the revenue will only be available through the new MacOS, Windows and Linux Operating Systems upgrades.
- The ads will be opt-in ads and they will not replace the normal ads.
- Once a user clicks on a Brave Browser sponsored ad, they will be directed to a page containing more info about the particular ad related offer.
- Brave Browser is offering a 70 percent revenue sharing program and it is paid using the Basic Attention Token (BAT) directly to the user’s BAT wallet.
- Some of the suppliers who users should look out for BAT ads from include: MyCrypto, Home Chef, BuySellAds, ConsenSys, Vice, eToro, TAP Network, Ternio BlockCard, The Giving Block, Fluidity, Uphold and AirSwap.