Bitcoin Plaza

Monday, June 8, 2015

Web-Wallet Providers Divided over Andresen’s 20 MB Block Size Increase Proposal

Of all Bitcoin web-wallet providers as listed on bitcoin.org, Blockchain.info, Coinbase and Xapo are in favor of raising Bitcoin's block size limit from 1 to 20 megabytes as advised by Bitcoin Core de

Max Keiser’s Investment fund Bitcoin Capital Raises Over $1 Million Through Crowdfunding

Bitcoin investment fund Bitcoin Capital has raised more than $1 million on the equity crowdfunding platform Bnk To The Future, SiliconANGLE reports. At the time of writing, almost 600 investors have bought in, with three days to go until the end of the fundraiser. Fifty percent equity will be split between the investors.

Bitcoin Capital, a high-risk, high-return fund, is run by renowned financial journalist Max Keiser and Simon Dixon, co-founder of Bnk To The Future, an online investment website for crowdfunding small businesses mainly focused on financial innovation. The fund, open to qualified investors who want to speculate on the growth of the cryptocurrency sector, offers a spread of investments covering startups, bitcoin mining and cryptocurrency trading. Each of the three investment lines will have one-third of the fund invested into it.

“Max Keiser has a consistent record of presciently and profitably identifying big trends. He was one of the few media personalities to devote significant coverage to us early Bitcoin evangelists. Watching his new fund’s performance will be very interesting,” said early bitcoin investor and Host of the Bitcoin Knowledge Podcast Trace Mayer.

“Bitcoin Capital is a Cayman Islands tax efficient investment fund for professional investors who want exposure to the growth of Crypto Currencies like Bitcoin and Blockchain technology,” states the Bitcoin Capital website. “One-third of the fund invests in companies in the Crypto Currency and Blockchain sector. For earlier stage startups we have created a completely new model for finding deals to invest in. The startup must first raise finance through CrowdFunding on StartJOIN.com, qualify for Equity CrowdFunding on BnkToTheFuture.com and reach at least 50% of their funding goal from investors before they qualify for Bitcoin Capital to explore investing. They have to prove their traction with the crowd before we explore the Investment proposition.”

Besides seed funding to blockchain startups, Bitcoin Capital invests one-third of all funds in mining, which is used exclusively to pay daily dividends to investors (in bitcoin) for as long as the mining process is profitable. The remaining third of the fund is invested in cryptocurrencies and digital tokens.

“We invest in longer term growth coins where we believe in the story rather than short term coin speculation,” notes the website.

“At the same time as investors benefiting from any growth of the sector, we are able to offer investors daily dividend determined by the mining process,” said Dixon. “We are able to do all the geeky things like running mining rigs in Iceland and buying coins on exchanges that investors who are new to the sector are unable to do. Thanks to our experience and involvement in the sector from very early on we are able to combine these new models of finance together.”

Keiser hosts Keiser Report, a financial program broadcast on Russian state media channel RT, a weekly show about finance and markets on London’s Resonance FM, and writes for The Huffington Post. An outspoken Bitcoin activist, Keiser stated in an interview that he would base the entire economy on the digital currency.

“I have been critical of the traditional financial system for many years on my show,” said Keiser. “I was the first global news outlet to cover bitcoin when it was trading at $3, recognizing its potential to change the world. Many startups in the Bitcoin space credit Keiser Report for getting them started in the business. Bitcoin Capital allows the founders and investors to experiment with new crypto financial business models and currencies to transform global finance.”

Overstock.com to Offer World’s First Cryptosecurity on Bitcoin Blockchain

E-commerce giant Overstock.com has become the first company to offer qualified buyers the option of purchasing corporate bonds that will trade using Bitcoin’s blockchain protocol.

In a speech last year at Inside Bitcoins Las Vegas, Overstock CEO Patrick Byrne announced a special partnership with Counterparty that led to the creation of a project known as Medici. The Medici project was designed to create a decentralized stock exchange within the Counterparty platform. Thus, the Medici project itself is based on blockchain technology.

The bonds will be sold privately and will sell for a combined total of $25 million.

“The cryptorevolution has arrived on Wall Street,” said Byrne. “We’re making it official by offering the world’s first ‘cryptosecurity.’”

Overstock’s cryptosecurities will be traded on a unique platform with much greater speed and reliability than traditional bond trading technology. Overstock’s cryptosecurities will be traded using custom-built TØ.com technology. TØ.com means that trades made with the system clear in the same day instead of the standard Wall Street technology, which traders call T+3, which clears and settles trades in three days.

Based on blockchain technology, TØ.com technology increases the reliability and speed of trades. In addition to the speed, buyers of the cryptosecurity will be able to track asset ownership directly on Bitcoin’s blockchain.

“Issuing the TIGRcub bonds on the TØ.com platform proves that cryptotechnology can facilitate transparent and secure access to capital by emerging companies,” Byrne said.

Information about the cryptosecurity offering was distributed to investors on June 1. The offering is being made only to institutional buyers that meet the legal definition of an accredited investor by rule 506(c) of Regulation D under the Securities Act of 1933.

By offering bonds while following regulations, Overstock.com is able to bring the world’s first security based on blockchain to investors. Decentralized trading systems have the ability to improve trading infrastructure in the future.

Blockchain technology itself is drawing more attention; projects at Citibank’s EMEA Mobile Competition were named as ‘Top Innovations.’ Social media startup, GetGems, is to receive $400,000 from the Magma VC in recognition of their innovative platform that is based on top of Telegram.

Startup Accelerator Boost.VC Ends Bitcoin Focus And Diversifies Into VR Tech

After raising a $6.6 million fund from premier investors, including Marc Andreessen, Ben Davenport and others last November, Boost.VC announced its next batch of startups would all be bitcoin-related. But recently, the accelerator announced its next batch, “Tribe 6,” will be split equally between bitcoin, virtual and augmented reality startups.

Boost.VC founder and CEO Adam Draper told TechCrunch why they made the shift: “We’re good at building communities around early tech sectors. We bring together investors, entrepreneurs and builders, and by focusing investments on a category over time, we ourselves become experts in the subject, and thus more valuable to startups that might want to join.”

Boost.VC has always been bitcoin-friendly, funding some of the first Bitcoin exchanges in the United States, BitBox and Coinbase, in 2013. But in early 2014, Draper shocked many when he said he was going to accelerate 100 Bitcoin startups by 2017. So far, Boost is making good on that promise with nearly 50 digital currency startups already in its portfolio.

Many of the Bitcoin startups it has accelerated have gone to raise large rounds. Most recently, Mirror, formerly a Bitcoin exchange but now a marketplace for smart contracts, announced a $8.8 million funding round raised from Route 66 Ventures, Battery Ventures, Crosslink Capital, RRE Ventures and Tim Draper. Many other Boost startups have gone on to raise rounds in the hundreds of thousands or millions.

To early stage entrepreneurs Boost.VC offers mentorship, free living and office space in their Silicon Valley headquarters, access to their network of advisers and experts and $15,000-$25,000 in funding for 6 percent of a startup.

Draper’s interest in VR and AR comes from wanting to build out chasm industries (ones that will eventually turn into billion-dollar businesses but aren’t there yet) and thinks VR is next, specifically consumer apps. Boost.VC will not be accepting any VR companies building hardware, noting that Sumsung, Google and others already have that covered. Instead, his company will focus on trying to build killer software apps for those devices.

He told TechCrunch that he specifically is excited about the potential for educational uses of VR. Google’s Expeditions, which allows users to go on “virtual field trips,” is an app that highlights the technology’s potential in education, Draper said.

Image via Boost.vc.

Two Key Lessons From Sand Hill Exchange

Analysis by Drew Hinkes of Berger Singerman LLP.

On June 1, 2015, the Securities and Exchange Commission (SEC) shut down and fined Sand Hill Exchange for acting as unregistered broker-dealers, selling security-based swaps, and offering swaps on an unregistered securities exchange.

Sand Hill was a bold experiment: Could a trading platform operated across the Bitcoin blockchain allow parties to trade derivatives based on the perceived value of pre-IPO companies? Although Sand Hill may have accomplished the construction of a functional derivatives market traded over the blockchain, the SEC was unimpressed, quickly shutting it down.

The story of an audacious startup skirting regulations viewed by some as overbearing, with the ensuing swift and severe regulatory response may be old news to businesses operating the virtual currency space, but Sand Hill’s saga emphasizes two key points to remember for any business seeking to disrupt regulated financial markets.

Change Must Occur Within the Confines of the Law

Sand Hill sold synthetic derivatives linked to the perceived value of unlisted pre-IPO companies. Sand Hill used illegal “Contracts for Difference” (CFD), a contract with a counterparty to settle in cash if the value of an asset changes at a time in the future.

Thus, if the projected valuation of a share of pre-IPO “Business X” was $10 when Purchaser obtained a CFD of Business X on Sand Hill, and the valuation increased at the contract settlement date, Purchaser would have earned value that could be liquidated.

To skirt the considerable registration burden associated with trading (legal) equities, Sand Hill apparently conducted its transaction activity over the Bitcoin blockchain. CFDs, however, are illegal to sell over any trading medium in the United States. Sand Hill also confessed to having inserted trader “bots” that created the illusion of active trading volume to populate their marketplace. Of course, these bots could also be used to intentionally manipulate values of the instruments being traded.

Less than a month after taking its platform live, Sand Hill reported that it was shut down and fined $20,000 for multiple violations of SEC regulations, including acting as unregistered broker-dealers, selling security-based swaps, and offering swaps on an unregistered securities exchange. Notably, Sand Hill stated in its blog that it had customer holdings only in the low thousands of dollars.

Co-founder Elaine Ou’s blog post about the SEC shutdown is eye-opening, and captures a zeitgeist common among virtual currency startups: We are hacking the system to make it better and nobody is getting hurt, so regulators, please leave us alone.

However, as Bloomberg observed, “Just because you mumble the word ‘blockchain’ doesn’t make otherwise illegal things legal.” As Sand Hill, Ripple, and others are learning, regulators will enforce the law against violators regardless of their philosophical ideology, level of funding, or stated intention.

Blockchain technology may inevitably reform the financial structures of many markets, but illegal, unregistered activity will always draw the attention of regulators. Innovation based upon blockchain technology may be the future, but that innovation can and should be conducted within the present confines of the law.

Just Because You Can Does Not Mean You Should.

It appears that Sand Hill knew that it was being investigated by the SEC. The company posted a series of blog entries noting the use of its site by the SEC. Using Google Analytics and other forensic tools, ostensibly to track user engagement, Sand Hill published a blog post demonstrating:

the SEC was aggressively using Sand Hill’s site,
the number of SEC users using the site,
information regarding the interests and surfing habits of the SEC users of the site, including the IP addresses, those users’ other frequently visited sites, and the amount of time spent engaged with Sand Hill’s service.

Predictably, according to unofficial comments, this was viewed as ‘doxing,’ or publishing personal information about the SEC investigators, and considered a serious affront.

Sand Hill appears to have used legal means to track the SEC’s investigative behavior. However, from a strategic standpoint, exposing this information publicly may not have been in Sand Hill’s interest. The SEC has considerable regulatory power and can seek injunctions and levy significant fines.

Although Sand Hill’s technology and philosophy may be of interest to the virtual currency community, its behavior and the likely effect on its experience with regulators should be noted. Antagonizing regulators is a poor negotiating strategy, even if you are using legal means and public information to do so.

No matter the perceived wrong, potential regulatory targets will always benefit from sound legal advice from counsel. Just because you can do it, does not mean you should do it.

Photo by AgnosticPreacherskid / CC BY-SA 3.0