Mark Roderick appeared on The Exchange with KB podcast with host Kirill Bensonoff, where he discussed Crowdfunding, Blockchain & Cryptocurrencies. In this episode, Kirill and Mark discussed the JOBS Act, Title II Crowdfunding, Accredited Investors, Regulation Crowdfunding, why we need investment regulation, the future of cryptocurrency, Libra and other blockchain tech and cryptocurrency, and legislation regarding blockchain and crypto.
Category Archives: Cryptocurrencies
Facebook just announced a Facebook cryptocurrency called Libra.
To me, the timing seems poor. Over the last year or so, Facebook has suffered one public relations black eye after another regarding its privacy policies, it compliance with an order of the Federal Trade Commission, its role in disseminating conspiracy theories and election interference, and its dominance in the social media industry. A Facebook cryptocurrency will, by definition, give Facebook even more private information and even more financial power. Already, regulators and members of the public are shouting “No!”
A few thoughts about what this means:
- Not long ago, some predicted that cryptocurrencies would lead to a better world, a world that would be more free, more decentralized, where consumers could interact with one another without middlemen. Libra, a cryptocurrency created by one of the most powerful companies in the world, seems to promise exactly the opposite.
- It didn’t take long to get from idealism to disappointment, but the arc itself is typical of technologies, from radio to automobiles to the internet. We expect technologies to save us, then they don’t.
- Are tokens securities? Does Howey apply? Facebook’s announcement shows that those questions are small potatoes in the scheme of how cryptocurrencies may re-shape the financial world.
- Undoubtedly, Facebook is in this for the data. Will consumers care? Probably not.
- Facebook might be first, but how long can it be before Google and Amazon — especially Amazon — issue their own cryptocurrencies?
- Regardless of political persuasion, governments aren’t going to allow Facebook or anybody else to compete with their national currencies. We are already seeing opposition from Democrats and Republicans alike, and we can expect more.
- And the next step: How long can it be before the U.S. dollar itself is given the features of a cryptocurrency, in effect competing with Facebook?
- The price of bitcoin increased on the announcement, but I think that’s exactly wrong. The announcement shows that bitcoin and other cryptocurrencies will be left behind as big companies take over, just as a few big companies now monetize the once-egalitarian internet.
- In the same way, I expect the announcement to stifle innovation in the cryptocurrency industry generally, just as the existence of Facebook already stifles innovation in social media and Microsoft once stifled innovation in software. Nobody wants to compete with the giant.
As all six readers of this blog know, I’m a believer in Crowdfunding from a capitalist, ideological perspective. I believe in making capital available to entrepreneurs everywhere, no matter where you grew up, no matter who your parents are, and in making great investments available to ordinary Americans, helping to narrow the wealth and income gaps that do so much harm to our society.
Frankly, Facebook and Libra feel like a step in the opposite direction, toward a world where knowledge and wealth and power are more concentrated and ordinary Americans are so many data points to be monetized. I’m certainly interested in hearing a different point of view.
Questions? Let me know.
Mark Roderick is one of the leading Crowdfunding lawyers in the United States. He represents platforms, portals, issuers, and others throughout the industry. For more information on Crowdfunding, including news, updates and links to important information pertaining to the JOBS Act and how Crowdfunding may affect your business, follow Mark’s blog, or his twitter handle: @CrowdfundAttny. He can also be reached at 856.661.2265 or email@example.com.
On this episode of the Consensus Network Podcast, host Buck Joffrey discusses how regulations and laws are affecting the crypto landscape for better and for worse with FG’s Mark Roderick. Here are some highlights:
- The “Wild Wild West” of crypto ICOs
- What happens to tokens that violated the SEC rules?
- What needs to happen for exchanges to become more compliant in the eyes of american securities law?
- The possibility of a crypto ETF
- Utility tokens vs. security tokens
Questions? Let me know.
John Barlow died last Wednesday. Mr. Barlow wrote lyrics for the Grateful Dead, dabbled in Republican politics in Wyoming, and, more famously, had big dreams for the internet. He referred to the internet as “the new home of the mind” and demanded of governments, “I declare the global social space we are building to be naturally independent of the tyrannies you seek to impose on us.”
Good things have come from the internet, no question, but for the most part Mr. Barlow’s dreams have not materialized. Twenty five years later, the internet means mainly Facebook and Google for most people, along with a loss of privacy, e.g., Equifax. The internet has made it easier to work from home and collaborate and start social movements like #MeToo and #TeaParty, but also allows Russia to interfere with our elections. We’re connected all the time, yet somehow feel more lonely. And all the information circling the globe leaves us with a citizenry somehow less informed than when television came in three black and white channels.
Mixed results are not unique to the internet. Pick any technology – electricity, automobiles, television, nuclear power – and you’ll find the same story of idealistic dreams transformed or broken on the shoals of the real world. We imperfect human beings keep asking technology to save us from ourselves, and it never can.
Which brings us to blockchain.
Speaking at a crypto-conference in New York the day Mr. Barlow died, I heard a speaker predict that blockchain would replace the banking system, that cryptocurrency would eliminate national currencies, that we are about to witness a fundamental change (for the good) in the human condition. You can read articles in serious business publications about the “ethos” of blockchain, how the technology will replace our broken trust in private and government institutions.
In my opinion that thinking isn’t just wrong but dangerous. Blockchain is not going to replace the banking system, and shouldn’t. Cryptocurrencies will replace fiat currencies only in countries without a functioning currency of their own. If you see a country where Bitcoin is the currency of choice, it’s like seeing a guy on the subway with an IV in his arm: you’re not sure what’s wrong, but you know he’s sick.
If you think blockchain has an ethos, you’ll sell tokens without bothering about securities laws. You’ll encourage wage-earners to invest their savings in a cryptocurrency whose price chart makes Pets.com look stable, having decided that it’s not so much a “currency” as a “store of value.” Most dangerous, you’ll convince yourself that technology is a substitute for morality.
Like every technology, starting with fire, blockchain can improve the human condition only if we tether it to our needs.
Fortunately, based on what I saw at the conference on Wednesday, there’s a lot of tethering along with the hype. Among other things, we heard from entrepreneurs using blockchain technology to:
- Improve healthcare outcomes
- Give consumers control over their financial records
- Facilitate business and consumer payments
- Reduce fraud in the financial markets
- Make sense of our antiquated system of property ownership
With the grandiose predictions and the mystification and, frankly, some wishful thinking by lawyers, the blockchain industry has earned a black eye in the minds of many, including government regulators. Even so, light shines through. As an industry, let’s dedicate ourselves to using the technology wisely, making it work for ordinary people, being more transparent than the law requires, thinking long-term, and above all, remembering that how blockchain is viewed 25 years from now depends not on technology, but on imperfect human beings like us.
Questions? Let me know.
Blockchain technology is revolutionary, promising to disrupt many of today’s industries. In contrast, the cryptocurrencies that live on the blockchain – to avoid confusion, I’m going to refer to cryptocurrencies as “tokens” – are really just high-tech manifestations of traditional ideas.
Broadly speaking, there are three kinds of tokens today:
- Tokens like Bitcoin that are intended to function as currencies
- Tokens that represent economic interests in businesses, e., securities
- Tokens that give the holder some kind of contract right in the business conducted by the issuer, g., a distributed storage network
Tokens that are intended to function as currencies are like, well, they’re like currencies. They’re secure, they’re anonymous (maybe), they’re decentralized, but fundamentally they’re like paper money. The idea of paper money was revolutionary, rendering the barter economy obsolete. A digital representation of paper money is incrementally better, but not revolutionary.
Tokens that are securities – digital stock certificates – are helpful and better than paper or Excel spreadsheets but obviously not revolutionary.
The most interesting kind of tokens are the third: tokens that give the holder the right to participate in a business.
Imagine you’re Henry Ford designing an automobile. You need a lot of capital. Your investment banker suggests you sell stock on Wall Street, but someone else suggests a different approach. You publish design specifications for your new automobile in something you happen to call a “Whitepaper,” and you sell to the public a limited number of licenses giving the holder the right to manufacture tires (or oil filters, or whatever) based on those specifications.
You just sold tokens, even though the blockchain doesn’t exist and you keep track of the sales in a red leather book.
Financially, you’ve pre-sold licensing rights. Some pros and cons versus selling stock:
- On the plus side, you still own 100% of your company.
- On the minus side, you have reduced or eliminated a future revenue stream for the company, e., licensing revenue.
- On the plus side, because the tokens weren’t a security, you didn’t incur all that time and cost.
- On the minus side, you really, really care about the quality of your cars – the whole future of your business depends on it – but the tokens might not end up in the hands of the highest-quality suppliers. That’s especially true in a market frenzy that reminds you of Tulip Mania in 1637, where many buyers are low-information speculators.
- On the plus side, if raising money by pre-selling licensing rights happens to be a super-cool thing, the token sale might raise a lot more money than the licensing rights are actually worth.
- On the minus side, you didn’t get to deal with securities lawyers.
What about the pros and cons to token buyers?
- On the minus side, you have far less legal protection, as a buyer and owner of the token, than you would as the buyer and owner of securities in a public company.
- On the plus side, your specialized expertise as a parts designer or manufacturer might give you a unique ability to increase the value of Ford, and therefore the value of your token.
- On the minus side, while you know a lot about your own abilities, and might know a lot about Henry Ford and his team, you know nothing at all about the other token buyers. If they turn out to be lousy parts designers and manufacturers, you lose.
- On the plus side, if you think Ford Motor Company is going to be hugely successful and tokens are the only thing they’re selling, you have no choice.
- On the minus side, the token probably gives you the right to benefit from only one aspect of the company’s business, g., parts for the the Model T. If the company pivots or expands, you might find yourself left behind.
- On the plus side, if you’re in a Tulip Mania market, maybe you’ll buy the token today and next week you can double your money selling it to someone else.
- On the minus side, if we look hard at Ford’s Whitepaper we realize it’s very ambiguous. Do I or Ford really know what I’m getting? Or is this going to end up in litigation?
Who knows where the pros and cons come out. Someday economists will explain whether and in what circumstances a token is more economically efficient than a traditional security.
I feel quite sure that tokens that are currencies and tokens that are digital stock certificates are here to stay, because while not revolutionary, each represents an undeniable, if incremental, improvement over today’s technology. I’m not so sure about tokens that represent prepaid products or services. Until we hear from the economists, the jury is still out.
Questions? Let me know.