The world of blockchain and cryptocurrencies is often likened to the wild west. Miners flood for the gold rush as seemingly brilliant ideas are outlined in white papers that list dozens of highly qualified advisors and ICOs provide for astronomical returns. Newspapers publish articles that highlight childhood millionaires, while bloggers list coins that have returned thousands of percent gains in the last several months.
Undoubtedly the industry is still in its infancy. As such, there are opportunities for both success and failure alike. There are genuine use cases for blockchain technology that will revolutionize the way people live. Real estate and financial services are some of the key industries that will be affected by blockchain. Unfortunately, a number of greedy opportunists have looked to take advantage of the allure of the ICO market. Combining huge amounts of available capital with ambiguity around regulatory requirements has resulted in widely varying standards of integrity, quality and sincerity.
Fraudulent “entrepreneurs” have produced “what-might-be” ideas so as to raise as much capital as possible only to either artificially inflate the value of their cryptocurrency and dump it once trading, or even simply list a currency and walk away all together. As such, there has been a growing level of scrutiny around the use of cryptocurrencies as a means to raise capital that is hampering the adoption of the blockchain technology.
What has the SEC, or any other regulator for that matter, done to protect the consumer? At this stage, not a lot. Some countries have been far too conservative. You will struggle to do an ICO in countries like China, India or Korea where local regulators have put an outright ban on cryptocurrencies. Other nations however have taken a far more progressive approach, the United States of America, the United Kingdom, Canada, Russia, Sweden, Singapore, Switzerland, Romania to name but a few. 23 European countries have signed a declaration to establish the European Blockchain Partnership, a vehicle geared towards sharing technical expertise and ensuring that Europe plays a leading role in the development of blockchain technology.
Major blue-chip companies and financial institutions have widely recognized the legitimacy of blockchain, and the benefits it can bring to its consumers. By its own immutable nature, Blockchain is the most secure technology ever developed. Every and all participants in a blockchain must verify a change to the chain, for example a transaction, before it can happen. Being an entirely decentralized platform, blockchain means political or personal agendas are irrelevant. Rules and reasons are hardcoded at inception of a blockchain, there is no leeway to account for a person in power to manipulate a system. Equally, blockchain removes a multitude of bureaucratic layers, making transactions far more efficient and without the middleman raking in costly fees. Blockchain is technology’s answer to empowering the people.
So why has there been so much concern around blockchain and cryptocurrencies, and why have certain countries gone so far as to ban the issuance of these currencies? I am of the opinion that this largely comes down to a lack of regulation. It may seem a bit of a chicken-and-egg scenario; without regulation mass adoption will take more time, but without mass adoption, regulators remain hesitant to make decisions.
Major governments have sponsored blockchain projects whose aim is to make key operational functions more robust, secure and efficient. The “big four” accounting firms have published detailed documents on the use cases of blockchain technology. Major software-as-a-service firms, such as IBM and Accenture, have launched blockchain departments wherein they are investing heavily in research and development. Massachusetts Institute of Technology, or as it is commonly known MIT, has even launched an educational programme geared towards blockchain technology.
The SEC in the USA has made several public statements around its opinion of blockchain technology, as has the CSA in Canada and the FCA in the UK, however have yet to publish definitive guidelines or rulebooks. As such, the industry is left somewhat in limbo. Those with well thought out ideas, have made headway into developing blockchain applications, who have a deeply experienced management team, whose company could bring about significant benefit to its customers are thwarted by those that have unduly taken advantage of the hype around blockchain.
This brings us back to the question at hand; what of the regulation that should govern blockchain technology and cryptocurrencies? Regulation is put in place for many reasons, chiefly however to protect the consumer. How can participants in blockchain technology go about doing so? Without something coming from above, the industry needs to define its own standards. These standards need to be widely adopted and adhered to.
This process has already started. I am not referring to the white papers that outline the fact that they want to be an industry standard. There are blockchain think tanks, such as Canada’s CD Howe Institute or America’s Coin Center that are actively looking to define what is and what is not acceptable. Equally, the G20 has made progress towards a global regulatory standard for cryptocurrencies, with a further release of standards in October 2018, pending input from the Financial Action Task Force (FATF).
The blockchain revolution has led to all sorts of changes across many different industries. As with any such drastic change, a period of adjustment is occurring. Of particular importance for the industry as it takes shape is the regulation that is to come and its impact on the Initial Coin Offerings (ICOs) market for both the access to capital and the protection of investors.
Firms have raised substantial amounts of capital through crowdfunding events by issuing cryptocurrencies or tokens. In 2017 there was a total of $5.6 billion raised through ICOs. In the first half of 2018, PWC reported that $13.7 billion was raised through 2018, with the largest raises being Telegram and EOS at $1.7 billion and $4.3 billion respectively. The accessibility of capital through ICOs is far less expensive, subject to almost no regulatory obligations and offers results in substantially shorter time frames than traditional debt or equity issuances. Investors have flooded to the ICO market because of the unprecedented levels of returns. While this creates a valuable option for both the issue and the investor, the lack of structure and protection in the market has opened the door to for greed and fraudulent practices.
Outlined below, in no particular order, are what I believe to be critical information for a blockchain investor to have available. While it is not a comprehensive list, this information will go a long way towards making an informed decision prior to clicking on the subscribe button. Of utmost importance to both investors and blockchain adopters is the degree of transparency a company gives to the market before opening the ICO capital raising flood gates. Every and all information that is required for a potential investor to make a fully informed decision should be made readily available.
- Business Plan and Industry Landscapes.
- Use cases for capital raised from an ICO or token event.
- Clear outline of capital allocation following ICO event.
- Status of current technology solutions and roadmap for delivery.
- Purpose of tokens or currencies, legal status of token holder.
- Terms of sales for ICO or token event.
- Distribution outline following ICO or token event.
- Organisational Structure, Ownership, Corporate Governance.
- Intellectual property or patents.
- Security measures taken around capital raised during ICO or token event.
- Transparency and clear disclosure
The ultimate objective of the regulation should be to provide investors with the protection needed to confidently invest in the world of blockchain technology and cryptocurrencies. By doing so it will allow legitimate blockchain firms to access the capital required to develop the technology and bring about the changes they are capable of. There are a number of parallels to draw from equity issuance around transparency and the requirement for free-flowing information. None of the above should be overly onerous for the management of a company to provide. It constitutes the majority of what is contained in an offering memorandum, and therefore should be sufficient for an investor to make an informed decision. If unsure, the default should be disclosure. In the meantime, adhere to the requirements around publicly traded securities.
Granted cryptocurrencies do not currently give holders the right to vote at a company’s annual general meeting, or the rights to a company’s incoming or assets, they do provide investors with a significant opportunity in the alternative space. To move the blockchain industry forward, away from its current scrutinous overhang, capital raising through issuing of cryptocurrencies or tokens need to ensure sufficient disclose such that investors can make an informed decision.
While Kazooky Media Inc (KMI), a Canadian based technology firm, may not be the first to do so, it has produced an offering memorandum as part of its ICO effort. Of utmost importance to the management team at KMI is to both provide investors with all the highest level of transparency possible and in doing so help set a higher standard for the blockchain industry. Our disclosure is not limited to the offering memorandum; a detailed commercial whitepaper and revenue forecasts have also been published. As the Zooky vision continues to take form, we plan to continue to provide regular market updates and maintain a transparent communication strategy with a focus on investor relations.
Zooky’s crowdfunded fractional property investment will deliver an effective and empowering prospect of complete, positive social mobility within the rental market. Zooky has utilised the security and flexibility of blockchain to enabled a crowdfunding approach to fractional property investment. This approach will pay annual yields and allow the token holder total liquidity should they wish to move in or out of the market. It is a highly engaging and compelling investment that comes with the upside of socially responsible investment.
If you wish to learn more about our fractional investment model or contribute further to the discussion we welcome your contact, thoughts and opinions. The Zooky Social Mobility approach, utilising fractional investment, is new, totally unique in its approach. Targeting young working families with the basic need of creating a stable roof over their heads, in a area local to where they work and a place their children are schooled.
To receive more information about Zooky’s fractional property investment offer visit our Pre-ICO offer page: http://www.zky.io