Top Crypto News – 26/03/2018

UK Government Minister Calls for ‘Proportionate’ Crypto Rules


The U.K.’s City Minister, John Glen, told reporters at the Treasury’s International Fintech conference on Thursday that “proportionate” regulations could give the local cryptocurrency industry a significant boost.

In his comments, Glen said the government is still “engaged in trying to find the right narrative and the right level of regulation if that’s appropriate,” according to Business Insider.

The minister continued, saying:

“Regulation could be an enabler of a stable, flourishing cryptocurrency exchange in the City of London.”

Notably, the minister acknowledged that the current level of cryptocurrency trading and related activities is “not posing any significant risk to the UK economy.”

That same day, Chancellor Philip Hammond announced the establishment of a new “cryptocurrency task force” including regulators, representatives from the Bank of England and the Treasury. A new legal infrastructure for the U.K. blockchain industry could be on the horizon.

Earlier this month the U.K. cryptocurrency exchange CoinfloorEX announced it will start offering bitcoin futures contracts in April. Although London is teeming with blockchain projects and startups, so far the most popular exchanges operate out of the United States or Asia.

Glen stressed the importance of taking measured steps before trying to encourage local innovation with more legal clarity, saying:

“I think it’s right that we take appropriate — not really cautious, but proportionate — steps to evaluate it before we act as a government.”

London image via Shutterstock
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Belarus Adopts Crypto Accounting Standard


Goods, Investments, Settlements

The Ministry of Finance in Minsk has developed a new standard that specifies the procedures for keeping accounting records of crypto transactions. The document does not explicitly mention cryptocurrencies, which are not regarded as legal tender in Belarus. Nevertheless, it effectively regulates the reporting of cryptocurrency flows.

Belarus Adopts Crypto Accounting StandardThe obligations of organizations conducting token sales and the exact approaches to assessing the cost of “digital tokens” are also defined in the Ministry’s decree. The rules apply to private entities and not the state-owned banks or government institutions, the department clarified in an announcement quoted by Belta news agency.

The new standard classifies cryptos according to their acquisition and their intended use. Tokens acquired through initial coin offerings (ICOs) are referred to as investments. They should be debited as either “Long-term financial investments”, if their circulation period exceeds 12 months, or as “Short-term financial investments”. Their amounts must be credited in the accounting balance under “Settlements with different debtors and creditors” and “Other income and expenses”.

If the tokens are purchased for subsequent sale, by a trader or an exchange, they have to be reported in the “Goods” debit account and under the following credit accounts: “Settlements with suppliers and contractors” and “Income and expenses for current activities”. Digital tokens acquired as a result of mining operations or as remuneration for verification of crypto transactions are to be recorded under the “Finished goods” debit account and also as “Main activities” in the credit section of the balance.

Other Regulations Changed

Amendments have been made to several other standards of the National Chart of Accounts. These concern the individual accounting statements and the consolidated financial statements. The Finance Ministry has determined the data companies working with tokens are required to disclose in their accounting records. The information should include the amount and type of tokens in possession, as well as their initial value as calculated at the end of the previous year.

Belarus Adopts Crypto Accounting Standard

Decree №8 “On the development of the digital economy” was signed by President Alexander Lukashenko in December. It legalizes crypto activities, creating conditions for exchange services, initial coin offerings, and cryptocurrency mining operations. The document introduces tax breaks and other incentives for crypto businesses until 2023. It will come into force on March 28, 2018.

With its implementation, Belarus is set to become arguably the first jurisdiction with a comprehensive legal framework regulating the blockchain industry. The decree does not imply restrictions or any special requirements for issuing, placement, storage, and exchange of digital tokens.

Individual entrepreneurs and corporate entities will be free to do crypto business in the country provided they register as residents of the Belarus High Technology Park (HTP). At the same time, the use of cryptocurrencies is expected to remain somewhat limited, as they will not be accepted as legal means of payment.

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The Right Way to Think About Crypto Tokens


Consumers might be the biggest winners when crypto tokens are designed correctly.

At least that’s the case made by a new paper by MIT’s Christian Catalini and the University of Toronto’s Joshua Gans, which describes a simplified model that illustrates what might be a valuable price discovery role that utility tokens, or those that operate as true commodities in the spirit of bitcoin and ether, might enable.

Not only that but the paper, called “Initial Coin Offerings and the Value of Crypto Tokens,” goes so far as to predict a world where tokens empower consumers to choose an optimal price for a service collectively.

From the introduction:

“This paper provides the first economic analysis of the ICO funding mechanism and how it relates to traditional equity financing.”

It goes on to tease out intriguing benefits that might accrue to society through the sale of and trade in utility tokens, one of the most controversial topics in crypto today, suggesting that risks could be balanced by returns if entrepreneurs are permitted to try the token fundraising model so the public can see how it plays out.

Most people looking at the initial coin offering (ICO) trend see extraordinary sums of money coming in — $8.84 billion as of February, according to the CoinDesk ICO tracker, and no doubt that’s why U.S. regulators, such as the Securities and Exchange Commission (SEC) have raised so many questions about this new industry.

“The problem the regulators have is they don’t know what the goals are,” Gans told CoinDesk in a phone call. “Instead the regulators are coming in saying ‘I don’t really know how the market should be working, but it smells terrible.'”

What tokens do

In this way, the paper was meant to begin a conversation about the right way to think about tokens so that societies could rationally consider the correct approach to managing them.

“You have to create the economic theory to understand what’s going on here to even know what category of regulation to choose,” Gans said.

“The ICO mechanism allows entrepreneurs to generate buyer competition for the token, which, in turn, reveals consumer value without the entrepreneurs having to know, ex ante [based on forecasts], consumer willingness to pay,” the paper argues.

Gans said:

“We were trying, with our paper, to ask why would these tokens be of any value.”

The paper plays out a simple model of a company offering a token as the sole means of paying for some new technology platform (like a video site or malware detector), with a founder who has no intention of cheating or bending on commitments. The idea is that the issuer can have some idea of how much it would cost to build whatever it wants to build, but the firm can’t reliably know how the public will price it.

The hard thing about technology projects is that they often have very high upfront costs to write the code, test it and get it working (fixed costs). On the other hand, once it’s built, each new user usually doesn’t cost the company much (the marginal cost).

Gans believes that entrepreneurs are thinking about costs a lot more than demand when they run token sales.

“The real value of the tokens has really nothing to do with the amount of money you want to spend, but with how much money people want to spend with you,” Gans said.

That said, Gans argued that it didn’t matter if a token project gets specific early on about pricing new services in terms of its token. For example, if Netflix launched today with an ICO, it might say in its white paper that one NFLX token would be good for one month of streaming video.

That level of specificity isn’t necessary before a project gets started, Gans said, but it might help if the company spelled out some of its thinking about how many users it might get over time and what factors might influence it growing or declining.

Such projections would give the market more insight to price the products accurately before they launch, including future gains.

“Maybe people who are doing these white papers could provide a more clear path to whatever they are doing,” Gans said.

On the other hand, he added:

“I don’t think for a moment that anyone who’s buying these tokens has worked all that out.”

Founders mustn’t

One caveat: it only works if founders don’t cheat, and there are two key cheats that consumers and speculators both need to worry about.

Acknowledging the fact that no one has had a chance to see an ICO roll from a token sale to launch and product-market fit, theoretically, this basic model works fine, assuming a good faith founder. Of course, the biggest danger is a founder who presents a compelling vision, runs a token scale and absconds with the earnings.

And here Gans welcomes the present scrutiny by regulators. He said, “Their instinct to stop people making false promises is of course correct.”

But what if the issuer breaks the commitment to only accept the token as payment on the platform. If they did that, the price of tokens has the potential to completely collapse.

For another, the issuer could also just issue more tokens. Then all the tokens in the world would drop proportionally in value.

Most issuers hold tokens, supposedly to align their interests with their users, but this is really no protection because the issuer will still come out ahead issuing new tokens, even if their reserve loses value. As Gans said, this is why some countries get into out of control inflation situations, because every time a treasury prints more money, the state comes out ahead (until it all completely unravels).

That said, this danger is only contingent on projects that announce a fixed supply of tokens that will never change again after the token generation event (as most ICO projects do today).

“What if during that growth cycle you realize you don’t have enough money and you need more?” Gans asked. “You’re going to be a bit stuck.”

He added:

“I wonder if they are tying their hands way too much?”

While Gans and Catalini identify these sorts of dangers, their paper doesn’t suggest solutions. The idea here is to begin laying out this basic model to facilitate further research and discussion.

“This is a very simplified model,” Gans said of their paper. “I don’t know how everything’s going to work out.”

Pennies via Shutterstock.
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US Treasury Offers Advice to Government Agencies Interested in Blockchain


The US Department of the Treasury published a blog post offering advice to other government agencies that are interested in adopting blockchain or distributed ledger technology (DLT) in their internal systems.

The post, which was drafted by the Treasury’s Bureau of the Fiscal Service (BFS), includes several lessons that officials gleaned while experimenting with a proof of concept blockchain system.

Reflecting on the trial, the BFS advised agencies to cut through the hype surrounding blockchain technology and honestly consider whether a distributed ledger will add value to their operations. Such systems, the bureau wrote, are most useful for departments in which central gatekeeping is expensive (such as when staff must manually verify transactions) and there is less than total trust between different parties in the ecosystem.

The bureau also recommended that departments staff their projects with DLT skeptics and non-technical people to put the proposed system “through a gauntlet” to determine whether it is truly useful.

“Include both blockchain skeptics and non-technical people. A team comprised of only pro-blockchain people can be blinded by the hype and force a square peg into a round hole. Putting blockchain technology through a gauntlet to see if it reaches the other side is the best thing we can do to understand its usefulness.”

Similarly, the post advised developers to devote extensive time to interviewing stakeholders rather than leaping straight into producing the system. The BFS said that its team spent nearly half of the project analyzing its processes to discover friction points that make its current systems costly, time-consuming, and inefficient.

As CCN reported, the Treasury’s blockchain pilot program began in October and sought to utilize DLT-based systems to track physical assets such as computers and smartphones, and agency officials praised the technology’s ability to reduce fraud and increase efficiency.

Though not directly related, the Treasury’s financial crimes division has been tasked with enforcing President Trump’s recent executive order barring US citizens and residents from engaging with the “Petro,” a state-backed cryptocurrency issued by Venezuela. This appears to be the first time that a president has formally ordered a government agency to take action concerning a blockchain-related technology.

Featured image from Shutterstock.
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