NEO appears to be losing ground in the popularity contest, at least lately. In the glory days of 2017, the “Chinese Ethereum” was a top 10 cryptocurrency with unstoppable potential. NEO was touted as being faster, better, and capable of handling way more transactions than other major networks. The hype surrounding the project was palpable.

Since its heyday in January 2018 when its market cap was over $10 billion, NEO has slipped to 18th place with a market cap around half that amount.

neo price
NEO, like other top cryptocurrency assets, had a rough 2018.

What’s happened to see it fall out of favor?

The crypto community may be losing interest in NEO, but its co-founder, Erik Zhang, isn’t losing any sleep.

In fact, ask him what NEO price is on any given day and, chances are, he hasn’t even checked.

“I don’t care about NEO’s price and market capitalization at all,” he told me.

I caught up with Zhang to find out what’s going on with NEO, why being compared to Ethereum irks him, and how his cat writes most of his code. Check it out.

Everyone’s heard of your charismatic co-founder Da Hongfei; he’s the face of NEO. Do you prefer to work behind the scenes? What is your main role at NEO?

erik zhang
Erik Zhang, NEO Co-Founder | Source: NEO.org

“Da Hongfei has done a great job in promoting NEO and made great contributions to the development of blockchain industry,” he says.

“Da had more exposure to the public whereas my contributions were more focused on the GitHub.”

Despite his reduced share of time in the spotlight, Zhang isn’t just the co-founder of NEO; he’s also a core developer. And he’s completely disinterested in the NEO price and the crypto market fluctuations in general.

His job, he reminds me, is to focus on building out NEO and strengthening the community.

“What’s the difference between the top 10 and the 18th?” he questions, “We are developing a blockchain project instead of playing a capital game. I just want to make this project even better.”

Is it accurate that NEO is often called the “Chinese Ethereum?” Do you mind that association or is this something that annoys you and the team?

Like a red rag to a bull, Zhang really begins to come into his own here. Somehow, I had the feeling that the constant comparison to Ethereum might be a sticking point.

The labeling is a hype. We never introduced NEO this way, and I’m personally against this labeling.

He goes onto explain that he has nothing against Ethereum, however; he even calls it a “great project.” But he reaffirms that the two blockchains are very different.

It’s easy to call WeChat the “Chinese WhatsApp” and Baidu the “Chinese Google,” but that’s probably where the similarities end. It’s pretty much watered down marketing for dummies in the West.

NEO may have been conceived in China, but Zhang explains that it’s a global project contributed to by developers throughout the world.

“Although it was initiated by two Chinese people, I believe that the founder’s nationality is not the nationality of the project.” And Zhang isn’t real keen on projects having a figurehead.

In my eyes, the founder is nothing but a mascot.

He then comes out with an extremely valid point on the NEO/Ethereum comparison:

Lastly, I have to say that the one that can defeat the Ethereum can never be another Ethereum.

So, what are the key differences between NEO and Ethereum at the technological level? And at a visionary level?

“NEO and Ethereum both have their own tokens. They can all run turing-complete smart contracts. But they also have a big difference. First, their consensus mechanisms are different. Ethereum uses a PoW algorithm, while NEO uses the dBFT algorithm,” he says.

“Second, their smart contract development languages are very different. Ethereum uses a domain-specific language called Solidity, while NEO uses general-purpose languages with a large number of developers, such as C#, Python, Java, Golang, JavaScript, etc.”

Even the smart contract features the two networks provide are different, Zhang explains:

The interfaces provided by Ethereum for smart contracts are relatively simple, and they are usually provided through the EVM instruction set. NEO provides a large number of powerful APIs for smart contracts, and they are provided in a way similar to virtual devices.

Beyond the technical differences, the greatest chasm lies between the vision of the two projects. Says Zhang:

Ethereum wants to be a world computer that cannot be stopped while NEO wants to serve the smart economy.

Da Hongfei said at Web Summit in Lisbon that NEO is ready for the “formal economy.” What does he mean by this and how is this the case?

NEO Team
The NEO Team | Source: Twitter

“In the past year, we have adhered to the principle of building NEO a compliance-ready blockchain. Although blockchain is treated differently in different countries, there’s no doubt that no country or region would turn away from blockchain technology,” he said.

From the perspective of social revolution, blockchain has to be well monitored for mass application and healthy development. We’ve seen the liquidity being facilitated by unhealthy development; however, it propagated a wrong way of usage.

“NEO’s vision of smart economy is composed of ‘smart contract,’ ‘digital identity,’ and ‘digital assets,’ of which ‘digital identity’ is a prerequisite for compliance and a feature of NEO,” he adds. “Digital identity is also the area NEO wishes to focus on to facilitate the development of the formal economy using blockchain technology.”

You can be forgiven for not digesting all that in one go. With so much focus on digital identity, what does that actually mean to the end user? What does all this translate to?

Regarding the importance of digital identity and privacy in blockchains for the mainstream, what applications are available to take NEO to the mainstream?

“NeoID is an important component which facilitates the development of digital identity.” He reinforces:

Blockchain has to be compliance-ready and associated with the real economy to achieve growth.

NEO has never wanted to disassociate itself with the real economy, according to its vision in the whitepaper. NEO plans to make the existing economy better. Zhang confirms:

What’s in NEO’s plan is to use blockchain to empower the real economy, and we firmly believe that NEO will build the future of smart economy.

Are you a believer in regulation despite the fact that ICOs and cryptocurrency exchanges are banned in China? Do you still think this is the right move?

“Although ICOs and exchanges are banned in China, the government still encourages the development of blockchain technology. I think it works positively. When the monitoring system is immature, it is a good idea to build compliance into blockchain technology.”

The situation is a little murky in China upon first glance. On the one hand, the government seems to be entirely hostile to crypto. It’s not an ICO incubator hub the likes of Switzerland or Malta.

However, it’s also not falling behind in the race to blockchainize its economy in any way. But does banning crypto trading and ICOs not damage Chinese-based crypto?

Just to double check, cryptocurrency is not illegal in China, however, trading is? Has this hurt NEO’s growth? How will NEO be able to get ready for a formal economy if trading cryptocurrency is banned in China?

china bitcoin cryptocurrency
Crypto traders in China and Russia are evading local restrictions on exchanges by trading OTC.

“Trading is not illegal,” Zhang corrects me, “exchanges are illegal. This won’t hurt NEO, or the damage to NEO is the same as any other projects. You cannot trade NEO or other tokens on Chinese exchanges. But you can legally trade NEO or other tokens in other countries.”

This is where he brings out a sucker punch to retail traders, the likes of which only a developer can, reiterating that the price of NEO is about as interesting to him as the latest tweet from a Kardashian.

Traders always think of ways, I don’t need to care about this at all, because I am not a trader myself.

What’s new with NEO at the moment? What’s coming up next?

“NEO’s goal is to have the ability to run large-scale commercial applications. To achieve this goal, we are doing two things. The first is to improve NEO’s infrastructure so that it has higher tps and a more reliable dBFT consensus algorithm.

“After half a year of development, the improved NEO consensus algorithm dBFT is about to be completed. dBFT will become the best consensus mechanism for blockchains.

“The second is to develop a distributed storage network, NeoFS, so that applications can store massive amounts of data. The development of the first release candidate (RC1) of NeoFS is expected to be completed in Q3 2019.

“In February, we will hold the second NEO DevCon in Seattle and will share more details about the progress.”

NEO DevCon
DevCon | Source: devcon.neo.org

What’s the importance of DevCon for NEO and for the industry? Can you tell us a bit about the event?

“The DevCon is strategically held to keep the community informed of our development progress. It also provides a chance to the people interested in blockchain to learn about the latest technological advances, interesting applications and discuss the possibilities of future changes with relevant experts and scholars.

“NEO DevCon will be held during Feb 16-17 in Seattle revolving around Layer2, consensus mechanism and distributed file storage system etc., with more topics to be decided. This time we also invited some speakers from Seattle-based tech giants to share their insights with us.

“By holding the DevCon, we hope to build more connections between blockchain and traditional large enterprises to facilitate a wider application of blockchain technology.”

Do you see this year’s event drawing as many people as your last event, given the fact that many companies like ConsenSys are laying people off?

“The NGD marketing team has been dedicated to the preparation of DevCon, and we are confident of the result. Our objective is not restricted to the blockchain industry alone; instead, we expect to incorporate blockchain technology into higher-dimensional scenarios and industries to serve large-scale business purposes,” he continues, adding:

It is worth mentioning that in the past six months, we had more than a dozen new talent join the team and witnessed a growth in technology communities. Our vision is clear and we always focused on technology development, so market volatility doesn’t have a big impact on the team’s development.

So, that being the case, would you still encourage developers to get into blockchain despite the slump?

“Of course! This is one of the things I officially do. Just as the Internet has brought people into the digital economy era, I believe that the blockchain will lead people into the era of the smart economy. The changes in the economic system will bring people a better life.

“I think this is something that deserves to be done. We need more talented developers to join in the innovation. It has nothing to do with the market situation.”

Let’s get back to NEO and your plans. Can you tell us anything about the hard fork? Can you give us some details or a timeline for that?

“NEO will have a major update next year, which is NEO 3.0. To upgrade to NEO 3.0, we need at least one hard fork.” he continues:

We might even propose to start a new blockchain network, then migrate all the old data to the new chain.

However, “These are still under discussion. As for the type of upgrade that will ultimately be chosen, it depends on the final technical implementation. But in either case, it will not be implemented until next year.”

So, no hard fork in the road ahead for NEO until 2020, but there’s still plenty to look forward to as the NEO community continues along its roadmap.

Moving back to the cryptocurrency industry in general, what’s going on? Did you anticipate the Bitcoin Cash hard fork having such an effect on the industry?

ethereum bitcoin
Erik Zhang believes Ethereum will overtake Bitcoin, sooner rather than later.

“Personally, I didn’t pay much attention to the market fluctuations nor did I notice the BCH hard fork. So it is difficult for me to answer this question,” he said. However, he added:

From what I’ve observed, an industry has to weed out underperforming projects to achieve growth.

He then goes on to drop an unexpected prediction:

In my opinion, Ethereum will sooner or later exceed Bitcoin and get the first position. But Ethereum will also face very fierce competition from other projects such as NEO.

Where do you see the future of cryptocurrency? Are traditional financial institutions right to fear it?

“As far as I know, many financial institutions are exploring the application of blockchain technology in financial scenarios,” however:

I don’t think traditional financial institutions can make any real achievements in the blockchain field. Because in my opinion, the nature of the blockchain is to reduce the cost of trust transfer through decentralization, and the nature of traditional financial institutions is to create trust through a centralized authority. These two ideas are contrary to each other and difficult to unify.

Any hard-line predictions for us?

“No, I’m not a wizard.” (He also doesn’t mince his words.)

Okay then, lastly, can you tell us something about yourself that no one knows?

“Remember, NEO’s code is written by Erik’s cat.”

This post credited to CCN. Featured Image from Shutterstock

The Dallas-based crypto startup AriseBank has been ordered to repay investors to the tune of $2.7 million to fix allegations that the firm was defrauding their investors.

Authorities have finally put an end to the ongoing AriseBank saga that has been hanging over the heads of the startup’s founders Stanley Ford and Jared Rice for almost a year.

Crypto Startup Fined by the SEC

According to the Dallas News, The U.S. Securities and Exchange Commission (SEC) ordered the AriseBank founders on Wednesday to pay back investors who believed that their money was to be used to create a cryptocurrency bank, which never actually came to fruition.

The crypto startup from Dallas, Texas, was planning their AriseCoin ICO to raise $1 billion, but was closed down in January by the SEC for rogue practices and allegedly lying to their investors.

The SEC had halted the ICO based on promises made by AriseBank as it claimed to have purchased a FIDC bank, which was found to be untrue. Other claims by AriseBank also turned out to be untrue. The director of the Fort Worth SEC office, Shamoil T. Shipchandler, came out in January to make a statement in regards to the alleged fraudulent activities of AriseBank by saying:

“Rice and Ford lied to AriseBank’s investors by pitching the company as a first-of-its-kind decentralized bank offering its own cryptocurrency for customer products and services.”

Repaying Investors to Avoid Jail

The SEC have ordered both Ford and Rice to pay back investors and have issued a lifetime crypto and ICO ban on the pair of rogue COOs. Although the pair has not admitted or denied the fraud allegations from the SEC, they have agreed to pay almost $2.6 million back to investors alongside a further $68,423 in interest.

Both Ford and Rice will be fined a further $184,767 apiece and have ensured the SEC that they won’t be taking part in any crypto-asset based fraud in the future.

AriseBank is one of the first crypto-based projects that have been targeted and sued by US regulators, which is setting a much-needed precedent.

2018 has been a monumental year for authorities finally catching up with crypto startup firms conducting fraudulent ICO activities. Although the true scale of the problem is finally coming to light, when potential investors hear that that $1 billion worth of crypto has been stolen this year alone, it has a dramatic negative knock-on effect to the rest of the industry which is thankfully being tackled.

This post credited to ccn Featured image from ETH News

Blockchain, Cryptocurrency–While investors are left holding the tab from the plummeting crypto market, with this week seeing a relative low for Bitcoin since peaking at $20,000 in December 2017, crypto-based startups have also had to contend with the fallout.

On December 6, Bloomberg reported on a round-up of cryptocurrency startups that are closing doors amidst the most recent price rout for Bitcoin and the broader altcoin market, starting with ETCDEV–the group behind the launch of Ethereum Classic.

ETC, seventeenth in market capitalization with a value of over $400 million, announced last week that it would be closing shop following a shortage of funds and inability to raise more capital to keep the project afloat. Igor Artamonov, founder of ETCDEV and the forked coin of Ethereum (ETH), spoke in an interview on the state of his company in the context of the broader falling market,

ADVERTISEMENT

“There are a few things that happened at the same time. I am sure if that happened a year ago, that wouldn’t be a problem at all, a year ago there was a lot of free money in the market. But in a bear market there’s a change.”

ETCDEV is not the only crypto based company to take a hit in the present market, with the Bloomberg report including actions by ConsenSys, a software company based out of New York, to cut its workforce by 13 percent as a direct result of falling coin prices. In November, content publishing platform Steemit Inc., which also created the currency Steem (STEEM) to facilitate in-house transactions, had to layoff 70 percent of its employees.

Bloomberg lays the majority of the blame in projects over-extending themselves on digital assets, setting up significant losses as a result of 2018’s ongoing bear cycle,

“Many of the companies are suffering because they kept a portion of their funds in digital assets, whether in tokens they sold through initial coin offerings or in Bitcoin and Ether, which served as the preferred means of exchange in the crypto world. As prices collapsed this year by more than 90 percent in some cases, and their so-called digital wallets thinned out, many developers found they couldn’t raise additional funding.”

With the decline in crypto prices and the demand for ICOs, many projects that made their fortune collecting coins in exchange for issued tokens have had to contend with the ill effects of a collapsing market. In addition, the landscape for fundraising has vastly shifted, with projects no longer being able to raise millions on a whitepaper alone or by including “blockchain” in a company title.

ewn telegram

In some ways, the declining market may have the effect of pushing better projects to the top of the heap, with efficiency being valued over greed. Given the sudden boom cryptocurrency experienced in 2017, with coin prices rising several thousand percent for many currencies by year’s end, the gold rush for blockchain and ICOs created a scramble that is still having negative effects on the industry. The focus became on launching projects rather than promoting durability, quality and real world use–a hallmark of an inflated and destined to crash industry.

With prices and the market resetting to a valuation to that of over a year ago, cryptocurrency will find itself of having to do more with less, which includes focusing on development routes that will lead to the greatest adoption by Main Street customers while drawing the interest of Wall Street investors.

This post credited to Ethereumworld News Image source: Ethereumworld News

The deputy secretary of the Thai Securities and Exchanges Commission (Thai SEC) has declared that Thai-related Security Token Offerings (STOs) launched in an international market break the law, English-language daily Bangkok Post reportsNov. 29.

The aforementioned article states that deputy secretary Tipsuda Thavaramara “said the regulator will have to consider how to deal with STOs for issues such as share ownership, voting rights and dividend.”

There still confusion about how to regulate these kind of offerings, Thavaramara reportedly declared:

“At the moment, we have not decided whether STOs fall under the SEC Act or the Digital Asset Act, but it depends on the STO’s conditions and the details in its white paper.”

Bangkok Post reports that Thavaramara noted that a “STO affiliated with Thai investors launching in an international market at this point would be guilty of wrongdoing under the Digital Asset Act” as it would avoid “regulated fund-raising channels.”

Prinn Panichpakdi, managing director of CLSA Securities Thailand, a Thai securities brokerage provider, stated that “the SEC will have to consider how to deal with this” or STOs will “will launch in other markets.”

As Cointelegraph recently reported, Thailand has revealed plans to legalize Initial Coin Offerings (ICO), authorize cryptocurrency exchanges, and regulate cryptocurrency in a way that legitimizes it. The governor of the Bank of Thailand (BoT) also said in late November that it will take between three and five years for cryptocurrencies to replace cash.

This post credited to cointelegraph Image source: Cointelegraph

The California-based parent of Silvergate Bank has detailed its relationships with the cryptocurrency industry as part of its IPO filing with the Securities and Exchange Commission (SEC).

Touting itself as “The Banking Platform for Innovators” in its S-1 prospectus, filed with the SEC on Nov. 16, Silvergate Capital disclosed that the bank now serves 483 crypto clients, with a combined $1.7 billion in non-interest-bearing deposits as of Q3 2018. The number of clients is up from 114 on Sept. 30, 2017, marking an increase of 323 percent.

Its primary customers are crypto exchanges, with $793 million in deposits; institutional investors such as hedge funds and VC funds taking a focus on crypto assets, with $573 million in deposits; and other firms including new protocol developers and miners, with $227 million in deposits.

“The majority of our funding comes from noninterest bearing deposits associated with clients in the digital currency industry,” Silvergate states, adding that that “unique source of funding” offers an advantage over traditional financial institutions. Those deposits are invested into interest-earning deposits at other banks and investment securities, as well as into lending opportunities “that provide attractive risk-adjusted returns,” it says.

Capitalizing on its crypto relationships, the firm has developed its own crypto infrastructure, called the Silvergate Exchange Network (SEN) – a network of digital currency exchanges and investors that, it says, allows “the efficient movement of U.S. dollars between participating digital currency exchanges and investors” around the clock.

SEN was developed and tested in 2017 with some customers and opened up to all crypto-related customers in early 2018.

Bullishly, the corporation believes that the market for crypto-related financial services infrastructure solutions and services is “significant” and will grow as the crypto market grows. The addressable market for fiat currency deposits related to cryptocurrencies is possibly worth $30–$40 billion, it added, citing various research.

For its IPO, the bank is seeking to raise $50 million and aims to list on the New York Stock Exchange under the ticker symbol SI.

“We intend to continue focusing on our digital currency initiative as the core of our future strategy and direction,” said Silvergate.

This post credited to coindesk Featured image courtesy of Silvergate

The depths of this year’s cryptocurrency bear market evidently show significant signs of further trouble. According to notable crypto figure and Morgan Creek Digital founder Anthony Pompliano, significant price drawdowns this year could lead to crypto hedge funds closing up shop soon.

Hedge Funds

CCN reported today of Bitcoin dropping below $5,000 in price, the lowest price this year. Altcoins have also suffered significantly this year, seeing huge percentage losses.

Pompliano, or Pomp for short, explained in his blog post today how these dramatic price drops cumulatively affect cryptocurrency businesses.

Pomp specifically mentions crypto hedge funds and “high water mark issues”. Put simply, fund managers receive a commission based on their performance, in relation to associated crypto asset prices for each investment period.

Last investment period ended in December 2017, concluding a very lucrative year for crypto assets as a whole.

However, this year is a much different story. “We have seen 50-80% decreases in net asset values in some funds since then. This means these fund managers will not receive a performance fee in 2018, which drastically reduces the income of the individual manager”, Pomp explained.

With reference to the numbers, earning these manager’s next commission’s will also be difficult. They will need to more than double their fund’s net asset value from present-day prices.

Pomp explains many fund managers may simply close shop and return investor finances. They might then wait months or possibly a year to open a fresh fund with different parameters.

Pomp posed a question on why these funds have not yet closed, concluding that – “[t]he most plausible answer is that many of the managers are young/inexperienced and they won’t realize the issue until they don’t receive their performance fee for 2018. If true, we could be less than 60 days away from many of the fund managers experiencing the pain of being ineligible for the bulk of their compensation”.

ICOs

Pomp also mentions ICOs, referencing their exuberant funding successes over the past year or so.

ICOs are now facing significantly more scrutiny from regulators. Previous ICOs could face fines, as well as requirements to refund investor funds at original ICO price, in original USD value.

The hitch here is the fact that most ICOs raised funds via cryptocurrencies. With prices down as much as they are currently, these ICOs could owe investors more money in USD than they currently own.

In short, ICOs may not have the money to pay back investors, due to holding assets that have plummeted in price.

These ICOs may need to file bankruptcy, leading to fund managers potentially seeing further losses.

This post credited to ccn Featured image from Shutterstock.

Over the past 24 hours, another $25 billion has been wiped out of the crypto market as major digital assets fell sharply in value.

Bitcoin (BTC), Ethereum (ETH), Bitcoin Cash (BCH), and Stellar (XLM) recorded a loss of 14 percent, 14.5 percent, 45 percent, and 10 percent respectively, demonstrating a large decline in both volume and momentum.

Bitcoin Cash Dropping More Than Any Asset

As expected, Bitcoin Cash SV, a hard forked cryptocurrency created by the Craig Wright, Coingeek, and Calvin Ayre camp, fell from $170 to $60 within a three-day span. As SV fell, the combined value of SV and Bitcoin Cash (ABC) fell from around $450 to $270, by nearly half.

Due to the contentious hard fork and the hash power battle between SV and BCH on November 15, the price of BCH dropped from $450 to $270, with BCHABC suffering significantly from the conflict. As Roger Ver, a renowned cryptocurrency investor and Bitcoin.com CEO said, “no one wins a war. Some just lose less than others.”

Based on current market conditions and the intensity of the drop over the last 24 to 48 hours, Bitcoin Cash and other major cryptocurrencies are expected to drop further in price, with BCHABC eyeing a test of $180 for the first time in its 15-month history.

Other large market cap digital assets like Monero (XMR), Tron (TRX), Dash (DASH), IOTA (IOTA), and Binance Coin (BNB) have recorded an average daily drop of around 16 percent.

The steep decline in the price of BNB is especially surprising in consideration of the fact that BNB remains the best performing cryptocurrency in all of 2018 ahead of Bitcoin.

From its all-time high, Binance Coin is down about 74 percent. In contrast, Bitcoin is down 76.5 percent and Ethereum is down 87 percent.

Both BNB and Bitcoin have shown a relatively high level of stability throughout the past several months, especially from July to November.

However, Ethereum, possibly due to the large amount of ETH still held by initial coin offering (ICO) startups as former Diar chief editor Larry Cermak reported, could continue to fall below major support levels in the weeks to come.

“On average, all of these projects have moved or liquidated 62% of the amount that they initially raised. In other words, they are still holding 38% of the initially raised amounts. Obviously, a lot of the ICO companies will continue selling ETH to cover operating expenses and to fund their businesses. It’s important to realize that the majority of these projects isn’t generating any revenue. And most likely never will.”

Ethereum is in the Worst Position Out of All Major Cryptocurrencies

ETH is approaching $130 with yet another 15 percent drop in value, suggesting that millions of dollars worth of ETH are being dumped on public cryptocurrency exchanges either by ICO project operators to fund operations or by individual ETH investors.

As sell pressure on ETH intensifies in the days to come, ETH could suffer a test of the $100 mark for the first time since mid-2017.

This post credited to ccn Featured Image from Shutterstock. Charts from TradingView.

Two cryptocurrency startups have agreed to register their initial coin offering (ICO) tokens as securities after settling charges with the U.S. Securities and Exchange Commission.

The SEC’s Friday announcement centered on two firms: CarrierEQ Inc., also known as Airfox, and Paragon Coin Inc., both of which conducted token sales last year. Airfox raised $15 million through its sale, while Paragon raised $12 million, according to statements.

The U.S. securities regulator contended that neither startup registered their ICOs as securities offerings, and neither qualified for registration exemptions. In addition to registering their tokens as securities, both companies will refund investors, file periodic reports to the SEC and pay $250,000 apiece in penalties.

The SEC’s statement noted that these two cases are the SEC’s “first cases imposing civil penalties solely for ICO securities offering registration violations.”

SEC Enforcement Division co-director Stephanie Avakian said that the agency has “made it clear that companies that issue securities through ICOs are required to comply with existing statutes and rules governing the registration of securities.”

She added:

“These cases tell those who are considering taking similar actions that we continue to be on the lookout for violations of the federal securities laws with respect to digital assets.”

The release further referenced the Munchee ICO, which the regulator halted last December. Like Airfox and Paragon, Munchee agreed to refund investors in its $15 million token sale, though the SEC did not impose additional fines at the time.

Friday’s announcement comes on the heels of the SEC revealing settled charges against Zachary Coburn, founder of the decentralized exchange EtherDelta, with running an unregistered securities exchange.

At the time, an individual familiar with the SEC’s thinking noted that the regulator is likely to focus increasingly on token trading platforms.

This post credited to coindesk Image via Shutterstock

Dutiful CCN readers may recall this journalist’s questioning of the Paragon ICO over a year ago. Paragon responded to that article with legal threats, as noted in the author’s subsequent analysis of the initial coin offering in question. Now that some time has gone by, and the whole market capitalization of Paragon is about a third of what the company raised during the ICO, the government has stepped in, knocked heads, and forced some changes within Paragon.

According to a press release today from the Securities and Exchange Commission, both Paragon and another company doing business as Airfox (officially registered as CarrierEQ) have reached settlements with the agency for failure to register their tokens as securities or their token sales as securities offerings. It is a crime in the United States since 1934 to sell virtually anything that can resemble an investment contract without first registering with the SEC or applying for an exemption. The Securities Act of 1934 was one of many pieces of legislation designed to prevent future crashes on the order of the crash of 1929, which led to what is historically referred to as the “Great Depression.”

Each firm has agreed to a settlement of $250,000 and several important items of responsibility. First and most notable, all affected investors in either company have an opportunity to request a refund.

Source: Coinmarketcap.com

Given that Paragon, for example, sold $12 million in tokens but PRG has a sum market capitalization of not quite $3,000,000, it would seem there will be people interested in pursuing as much. Whether this leads to bankruptcy for Paragon, time will tell, but surely they’d prefer that to the various other penalties a government inquiry can bring on (such as jail time.)

The SEC press release on the subject reads:

“The orders impose $250,000 penalties against each company and include undertakings to compensate harmed investors who purchased tokens in the illegal offerings. The companies also will register their tokens as securities pursuant to the Securities Exchange Act of 1934 and file periodic reports with the Commission for at least one year. Airfox and Paragon consented to the orders without admitting or denying the findings.”

The SEC settlement documents illustrate a somewhat-disconcerting accuracy on the part of the agency, which has only previously prosecuted one non-fraud ICO case (a company called Munchee which simply backed out upon contact, giving all the funds back). Point 17 in the Paragon document illustrates a familiarity with token technicalities:

“PRG tokens were distributed to purchasers on October 22, 2017, on the Ethereum blockchain using the ERC-20 protocol.”

It seems that Ethereum tokens are not just for eccentric investors anymore.

SEC Enforcement Co-Director Steven Peikin believes that its enforcement actions against Airfox and Paragon will help stimulate the registration of other US-based ICOs in advance of any further non-fraud prosecution, saying:

“By providing investors who purchased securities in these ICOs with the opportunity to be reimbursed and having the issuers register their tokens with the SEC, these orders provide a model for companies that have issued tokens in ICOs and seek to comply with the federal securities laws.”

Twitter was abuzz with the news at the time of writing, with many ICO skeptics taking a victory lap.

nic carter@nic__carter

Landmark case today. This is going to happen hundreds and hundreds of times in the next 2-3 years until all the ICOs are gone.

View image on Twitter

This post credited to ccn Image from Shutterstock

Pure Bit, a cryptocurrency exchange in South Korea, has allegedly pulled an exit scam, disappearing with more than $30 million worth of user funds.

On Nov. 9, as BlockchainROK, a trusted news source in South Korea reported, the management team of Pure Bit started to delete social media handles of the exchange and kicking users out of KakaoTalk chat groups.

The official KakaoTalk account of Pure Bit was renamed to a formal phrase in Korean, which translates to “I’m sorry.”

Screenshot of Pure Bit’s KakaoTalk group shared by HanKyung

Initially, around 13,000 Ethereum (ETH) was moved from the address of Pure Bit. Over the last 24 hours, nearly $10 million worth of ETH was moved from Pure Bit’s address.

$30 Million Stolen

According to HanKyung, a mainstream business-focused mainstream media outlet in South Korea, Pure Bit executed an exit scam with more than $30 million in user funds.

Earlier this year, Pure Bit raised $30 million in an initial coin offering (ICO) to create a cryptocurrency exchange. Within months since its token sale, the team behind the token sale disappeared with all of the funds raised during the ICO.

Pure Bit tried to send a portion of the stolen user funds to Upbit, the second largest cryptocurrency exchange in the local market. But, after discovering that the funds from the scam were sent to the exchange, Upbit disabled the account operated by Pure Bit and froze the funds.

Speaking to HanKyung, an expert in the local cryptocurrency sector said that with proper ICO regulations and policies in place, the exit scam could have been prevented.

“The case could have been prevented if the government had implemented proper guidelines and regulatory frameworks related to ICOs. If the government does not establish proper regulations in the short-term, more scams in the local ICO sector could occur.”

In an exclusive interview with CryptoSlate, BlockchainROK founder Heslin Kim stated that the government has not decided whether to completely ban out ICOs or regulate the market.

Kim suggested that, as local publications in South Korea have reported, the government will likely release a statement regarding the legalization or the regulatory state of the ICO market by the end of November.

“These kinds of exit scam scenarios unfold in an unregulated market. Korean legislation has been in a stalemate as to whether or not to fully ban ICOs for over a year now, and we are likely to hear the verdict by the end of November. This will not be a beneficial case study for the pro-blockchain party. However, there is still light in the darkness. STO policy discussions have begun recently and this falls in line heavily with what regulators have been saying is necessary. Is it the decentralized, trustless landscape we all thought would result from the fiat to crypto flippening? No, clearly not, but is it a step in the right direction for the long game? We’ll see.”

Second Exit Scam in a Month

Last week, CryptoSlate reported that MapleChange, a small cryptocurrency exchange in Canada, also pulled an exit scam.

Minor Crypto Exchange Pulls Off Exit Scam, Steals All User Funds
Related: Minor Crypto Exchange Pulls Off Exit Scam, Steals All User Funds

The fraudulent operation of Pure Bit is more of an ICO fraud than a cryptocurrency exchange exit scam, but given that the funds were provided to the company to launch an exchange, Pure Bit has been categorized as a cryptocurrency exchange scam by local investigators.

It remains uncertain whether government regulation will improve the ICO ecosystem or prevent fraudulent operations. Investors will need to conduct proper due diligence before investing in projects, especially ICOs that have complete control over the funds that are sent by investors.

This post credited to cryptoslate  Image source: Unsplash