Coinbase, a US-based cryptocurrency exchange, is set to join the league of cryptocurrency exchanges with IEO Launchpads soon. Kayvon Pirestani, the head of Coinbase institutional sales in Asia, revealed that the exchange was currently exploring a number of capital-formation tools including an IEO Launchpad.

According to the head of sales, an Initial Exchange Offering (IEO) Platform is a great opportunity and Coinbase is carefully exploring it. Though also hinted at developing a Security Token Offering (STO) platform, the IEO platform seems to have stolen the show and it could be the first to be launched.

However, Pirestani careful to say that he could make a formal announcement on the development yet. Nevertheless, the revelation is already an indicator that the IEO platform could be coming within the next few months.

If successful, Coinbase shall join its peers, the likes of Binance, KuCoin Bitfinex, Probit and OKEx. This would greatly enhance Coibase’s revenue and reputation, which is already high at the moment following years of great cryptocurrency exchange services.

A strategic choice for the US Market

Coinbase’s move to launch an IEO Launchpad could be viewed as a strategic move considering the trouble that US investors are going through trying to invest in ICOs. In the US, ICOs are either classified as stocks or securities depending on whether the tokens meet the Howey Test or not. And being a US-based exchange, it stands to benefit the most from US clients who wish to use IEOs instead of ICOs to solicit funds for their blockchain projects.

Compared to ICOs, IEOs offer a better investment opportunity for investors since they are not very much sought after by the regulatory authorities, especially the SEC. The only hectic part is getting an exchange to allow to host the IEO. Once the token sale is allowed to be offered on the exchange platform, authorities do not come looking for the IEO. The exchange is the one responsible for scrutinizing the IEO token sale.

Exchanges scrutinize the IEO token sale issuers to ensure that they are not scams. They also evaluate the project to see whether it will be of any economic value to the exchange.

Source of revenue

In addition to creating an opportunity for investors, IEOs also come in handy in attracting users to register with crypto exchanges. For investors to cash in on any IEO, they have to first register with the exchange running the IEO.

Therefore, if a promising project chooses a certain crypto exchange to run its IEO, the exchange can be sure that new users will sign up with it for them to be able to invest in the IEO.

The new users who sign up with the exchange start trading the IEO tokens once they become tradable and in the process pay commissions as they trade, which adds up to the exchange’s source of revenue.

On the other hand, IEO issuers also pay a certain amount of fee to the exchange running their IEO so as to be allowed to issue their tokens through the exchange’s IEO Launchpad.

Security Token Offering (STO) is considered one of the safest crowdfunding methods for blockchain and fintech companies. However, for it to be secure, there are quite a number of regulations that go along with it and anyone who chooses to use it have to adhere to all the regulations provided.

The entire scenario is complicated by the fact that there is no internationally recognized legal framework governing cryptocurrencies around the world. Therefore, individual countries are left to fetch for themselves as they race to feel the gap by establishing their own rules and regulations for cryptocurrencies together with anything else like STOs, ICOs and IEOs that goes along with them.

Generally, things have gradually changed with most governments accepting cryptocurrencies contrary to the past. For instance, when the first cryptocurrency, Bitcoin, was launched, it took some time for governments to accept it. At the time, governments were wary of digital currencies since criminals became too much fond of them since they could enable them to transact anonymously.

The adoption of cryptocurrencies around the globe can be attributed to the various legal frameworks put in place by the various governments together with regional regulatory authorities.

Today, blockchain projects can almost flourish within any part of the globe. Most countries have accepted cryptocurrencies, with some even laying foundation for the development of their own state-owned cryptocurrencies. However, since blockchain technology is evolving fast, governments are now caught up with yet another handle, the regulation of the crowdfunding of blockchain projects.

To begin with, Initial Coin Offering (ICO) and Security Token Offering (STO) were among the first crowdfunding methods that was invented by blockchain developers. However, due to the fact that it was not easily regulated, scammers could easily get their hands on it to swindle funds off investors. That led some countries like China and South Korea to ban the use of ICOs in funding blockchain projects.

The embattled ICOs led to the invention of Initial Exchange Offering (IEO), which is simply an ICO run through a crypto exchange, so as to ensure that it was easy to apply some regulations to the crowdfunding.

STOs, on the other hand, were well regulated from the word go. Just as the name suggests, STOs deal with securities and governments already had certain laws governing securities within their borders. Therefore, it was easy to draft regulations for the STOs. Interestingly, these laws and regulations have made it quite difficult for developers to use it. Some fear the long process while others fear the strict rules that they have to adhere to in order to be allowed to conduct an STO.

What is an STO?

Before indulging into cracking the nut on the regulations and rules governing STOs, it is quite important to clearly understand what these STOs are.

An STO is a funding method that involves the selling security cryptocurrency tokens to potential investors.

The next question then becomes, what are these security tokens?

Security Tokens

A cryptocurrency token can only be classified as a security token if it passes the Howey Test and is consequently subject to the federal regulations. Different countries have different regulations for STOs.

Holders of security tokens become part of the company behind the security tokens and are therefore entitles to some dividends out of the overall profit that the company makes.

There are four types of security tokens that a company could choose to use. These include:

  1. Equity tokens

These tokens are basically used to state the ownership of an asset like stock or debt for a certain company.

  1. Debt tokens

These are just like short-term loans to a company where there is an interest rate on the loaned amount.

  1. Utility tokens

These are the most common security tokens and they give users the ability to access the products or services of the project once the project becomes operational.

  1. Asset-backed tokens

These are tokens whose value is tied to a tangible or nontangible asset. For instance a company could have a security token whose value is tied to the value of real estate assets.

Reasons why security tokens stand out

  1. It provides an improved way of accessing real-world assets that have been digitized. Companies can digitize almost anything from debt, real estate assets to the parking fee.
  2. It provides investors with some degree of ownership and they are entitled to dividends out of the total amount of profit made by the company.
  3. Security tokens also provide increased liquidity.
  4. In comparison to traditional tokens, security tokens ensure that the founders or board members do not have to surrender board seats in Venture Capital deals.
  5. The regulations set in place ensure that there are no loopholes for scammers.

Steps of developing an STO

  1. Come up with a viable idea that entails solving a certain problem within the society/community.
  2. Carry out research on the probable solutions to the problem(s) that you intend to solve.
  3. Carry out research on other companies or projects offering solutions to the identified problem and identify key areas of improvement.
  4. Recruit a competent team for the development of the project and the STO. At this stage, you should also look for a competent legal advisor or a consultancy firm like Gravitas International to guide you through the regulatory handles. The regulatory mainly depends on your geographical location and you should ensure that you clearly understand what STO regulations are in place for your location.
  5. Identify the exact security within your project that you wish to tokenize. This tokenized security is what you shall offer in the STO.
  6. Choose the security platform where you shall launch your STO. Examples of such platforms are Polymath and Harbor.
  7. Create a compelling website that clearly outlines your project goals and asset tokenization.
  8. Develop the security token with the help of your development team, and legal advisors.
  9. Market your STO in accordance with the set rules within your location.
  10. Launch your STO and offer the security tokens for sale to accredited investors in accordance with the set regulation within your location.
  11. Look for a good partner Security Token Exchanges where you shall list your security token.

Security token development

This is normally one of the hardest phases of STOs that make developers crack their heads. However, it is not as hard as people may think. All that is needed is the right team and legal advisor.

With STOs, you have to be careful to ensure that you stick to all the set regulations within your location from the word go. Normally, you should go for a consultancy firm that will help in auditing both the financial and legal matters concerning your project. The legal team should run jurisdiction checks on the security titles like credit ratings among others that you may specify for use.

STO becomes an exception when it comes to the type of tokens. Contrary to other crowdfunding methods that easily depend on Ethereum ERC-20 tokens, STOs do not use ERC-20 tokens due to the gas prices, protocol changes and network congestion that is associated with the ERC-20 tokens.

You could be wondering if Ethereum is not used, then what other platform is there for token creation.

Well, experts had to come up with platforms that could solve the issues with the ERC-20. Organizers and companies came up with new standards that enabled whitelisting and locking, which could enable tokens to comply with the required security regulations.  These standards include ST-20, R-Token, ERC-1404, and ERC-1400. The standards still use Ethereum smart contracts, but they are improved versions compared to the ERC-20 standards.

To make the process of creating security tokens, there are platforms dedicated to the creation of security tokens. Examples of these platforms are the Polymath, and Harbor platforms. These platforms provide an easy way of creating your security tokens.

The selected security token issuance platform should ensure that the value of the token is well scrutinized and in line with all the required regulations. It also takes you through all the remaining steps from setting the STO start or end date/time and payment acceptance.

The most important thing with STOs is that the required regulations have to be embedded within the smart contracts used for the STO.

What happens if your STO doesn’t meet all the requirements

  1. You will have problems getting your security token listed on security token exchanges. Normally, security token exchanges do not list STOs with legal issues. Worst, delisting from an exchange could greatly hamper your project brand.
  2. Failure to comply with the Anti-Money Laundering (AML) and Know-Your-Customer (KYC) requirements makes future relationships with banks a problem. In case you already had funds deposited in the banks, the banks could seize the funds.
  • If you do not comply with all the regulations and laws set in place by the regulatory authorities within your location, the authorities could penalize you or even shut down the STO.

Security Token Offering (STO) is for sure one of the safest methods to conduct crowdfunding for your blockchain project. Nevertheless, if you decide to go for an STO, you have to be ready for the strict regulations that go along with it.

Security tokens are normally backed by real assets, therefore they have to comply with the US Securities and Exchange Commission regulations. Therefore, before marketing your STO, you have to ensure that you have fully complied with all the required rules to avoid being on the wrong side of the law.

Once you start marketing your STO, your project becomes known by many including the authorities. If the authorities get wind of your project and you have not complied with the set rules, you can be sure you will not like the repercussions.

Therefore, before marketing your STO, you have to adhere to a number of prerequisites generally referred to as general solicitation which allows any security issuers to solicit and advertise their offering widely. The conditions that must be met include:

  1. All the purchasers of the security tokens in the STO should be accredited.
  2. The token issuer must take all the required steps to confirm that the investors are accredited.
  3. For US issuers, all the conditions provided in Regulation D must be satisfied.

To understand what Regulation D entails and how it influences STO marketing, let us have a look at it.

Regulation D

Rule 506 (b) of Regulation D states that a company can be assured of exemption from Section 4 (a) (2) by complying with the following:

  • The company should refrain from general advertisement or solicitation in order to endorse the securities.
  • The company offering the securities can sell its securities to a limitless number of accredited and verified investors and up to 35 extra buyers.
  • The company should ensure that it gives the accredited and verified investors the correct information to avoid misleading information.

Therefore, for a company to solicit and market its security token offering, all the investors must be accredited and it must take all the necessary measures to confirm that the investors are accredited.

STO marketing depending on the STO development stages

  1. Initial Stage

These are normally the things that one should do to ensure that the general public is aware of the project and STO. The activities under this stage include:

  • Writing a whitepaper
  • Coming up with a one-pager
  • Creating a responsive website
  • Simplifying your project idea to interested investors
  • Blog writing about your project and Search Engine Optimization
  • Guest posting

When writing the whitepaper, you should ensure that you clearly explain your project and also lay out all the regal compliances for the STO. Furthermore, it should give a detailed technological, financial and commercial overview of a security token. Therefore, you ought to look for a professional writer who clearly understands about STO whitepapers.

The one-pager, on the other hand, is a one-paged document which is actually a summary of your project, giving clear reasons as to why investors should invest in the project.

For STOs, the websites created for the projects should be HTTPS sites to ensure that they are secure.

  1. Pre-STO stage

This is the stage just prior to the launch of the STO and the marketing team should ensure that word about the STO has reached as many people as possible. Some of the most commonly used marketing strategies used at this stage include:

  • Press Releases and Media outreach
  • Getting High Domain Authority backlinks
  • Getting the STO listed on STO listing websites
  • Creating profiles on professional websites like LinkedIn and CrunchBase
  • Social media marketing (using platforms such as Facebook, Twitter, Reddit, Telegram and Steemit)
  • Running video campaigns depicting use cases

For the Press Release, you can pay for articles to be written and published on websites, especially those that you are sure that they receive a high amount of traffic. You can have some of those articles posted on High DA websites with backlinks to your website.

Listing your STO on popular STO listing websites like ListICO, InitialCoinList, and CoinIntelligence also go a long way in ensuring that investors looking for prospective STOs to invest in easily find you. When listing your STO on such a website, you should not forget to include the following:

  • A summary of the entire project and why investors should cash in
  • Link to the website of the projectLink to the project’s whitepaper
  • All the regulations that have been applied to the Security Token.
  • Know-Your-Customer and \Anti-Money Laundering Regulations
  • The specific STO Launch date
  • The Roadmap of the entire project
  1. STO running Stage

At this stage, the STO has already been launched and it is running meaning investors are flocking in to invest. Though not much awareness can be done in this phase, the marketing team should ensure that they are able to catch the attention of every investor that comes across the STO.

Some of the most effective methods used include:

  • Carrying out Airdrops of the security tokens
  • Building on the project’s credibility via networking
  • Deal marketing
  • Contributing to related forums

Nevertheless, these activities should be done in moderation to ensure that the main goal of raising funds for the project during the STO is maintained. For instance, when carrying out airdrops, you should refrain from giving away too many free tokens since it would compromise the amount of funds you shall receive during the STO.

It is always important to factor in the cost before undertaking any project. Otherwise, you may get stuck along the way due to a lack of funds. A clear picture of the cost will enable you to financially plan in advance to ensure that you have enough funds to run all the necessary activities for the success of any project.

For a STO, the cost depends on a number of things throughout the various phases of the STO, which include:

  1. The concept phase: this includes the development and drafting of the project concept and it entails the selection of the token standard and the whitepaper.
  • Choosing the token standards

For the token standard selection, you will need to choose the best standard to build your token on. The most commonly used standards are the ECR20 though there is a large list of standards ranging from the ERC20 to ERC1450.

The selection of the right token standard can be easy with the right standard consultant. Ideally, it is better to engage a consultancy that provides the full suite of STO services including legal instead of looking for a consultant for every task.

  • Whitepaper

As the founder or owner of the STO, you could have the best description of the project, but you require a professional to draft the whitepaper nicely and professionally.

  1. The development phase: This is the bulk of the entire project. It includes the creation of the smart contract, deploying the smart contract, and creation of an investor panel.

You will need to hire a development team depending on qualifications. Most importantly, you will need UI and UX experts, blockchain engineer (s) and product experts. All these professionals come at different costs depending on their level of expertise.

At this phase, it is wise to go for the highest experienced individuals to ensure that you get the best. You can always negotiate your way out with the professionals to charge you fairly instead of going for novices who may compromise your entire project.

  1. Security and legal audit: You will have to test your blockchain project for bugs before launching the STO. The testing requires an internal auditor and a third-party auditor who can also be a community auditor.

Above the security, you should also ensure that the tokens are checked for compatibility with the available crypto exchange platforms.

Most people ignore this phase due to the added cost, but it is an important phase which would prevent future problems with your STO.

  1. Legal and marketing: Contrary to ICOs, STOs have rules that they must adhere to. Therefore, you will require a good legal team to follow up on the issue of KYC, AML in addition to the other rules and regulations touching on STOs.

You also need to market the STO so as to attract as many investors as possible. However, you will need to involve the legal team to ensure that marketing is GDPR compliant. Most importantly, you will require website developers to create an attractive landing page.

You will also have to explore all the marketing avenues, especially through digital platforms. However, you have to strike a balance to avoid overspending on marketing.

 

Localcoin, a crypto exchange, has been receiving a backlash from the online community as well as investors for possible whitepaper plagiarism.

It is so embarrassing for a company or startup to be caught up in a plagiarism scandal! It throws the entire ICO project into jeopardy. It becomes extremely difficult to convince investors that it was just a mistake since a whitepaper should be a very original document explaining a project that should be original. Otherwise, any similarity in whitepapers shows that the project could also be a “Copy Paste” or a scam. It becomes extremely hard for investors to believe that the project is real.

This is what is happening to Localcoin exchange. People, especially on Bitcointalk, have concluded that the whole project is a scam.

Localcoin blames the whitepaper author, whom they say they had outsourced, for the misfortunes but it will be hard to persuade investors into buying into this narrative. The back still stopped with them even if they outsourced the author. An author can only write depending on the information he/she gets from the project developers. And further still, the development team out to have gone through the whitepaper before publishing it.

But what could have made the author make such grave mistakes? Was it deliberate?

From a closer look at things, the author could have made deliberate plagiarism possibly from a misunderstanding with the development team. There are allegations that Localcoin owes marketers over $15,000 and this could be the reason behind the plagiarism.

However, all in all, it shows that the team behind the whole project isn’t serious.

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

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

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.

Singapore

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

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

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.

European Union

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.

United States

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:

  1. Peer-to-peer network
  2. Use of private and public keys
  3. Zero knowledge proof consensus protocol

Peer-to-peer network

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

  1. 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.

  1. 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.

  1. 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.