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Turning over a new leaf
MIT Technology Review
Chain
Letter
Blockchains, cryptocurrencies, and why they matter
11.20: Turning over a new leaf

Welcome to Chain Letter! Great to have you. Here’s what’s new in the world of blockchains and cryptocurrencies. Note: We'll be taking a break this Thursday, but don't worry, Chain Letter will be back next week.

The ICO is probably dead. The US Securities and Exchange Commission sent shockwaves through the cryptocurrency world on Friday with an announcement that it has settled charges against a pair of companies for conducting illegal digital token sales. The two initial coin offering (ICO) projects, called Airfox and Paragon, resemble many others that have occurred during the past two years. That probably means more busts are on their way.

The SEC has already cracked down on a few ICOs, but these charges are the first that did not involve charges of fraud as well. Airfox and Paragon simply failed to register with the SEC before selling their tokens, which the agency says are not exempt from regulations that govern traditional securities investments like stocks and bonds. That’s important, because it appears the agency has developed a template for future prosecutions, writes Stephen Palley, a lawyer at the DC firm Anderson Kill.

The penalties for the two companies are the same: they have to refund investors, pay a $250,000 penalty to the SEC, register their tokens as securities, and submit periodic reports so that the SEC can make sure they are complying with securities law.

All this isn’t really much of a surprise—and is consistent with what the SEC has been saying recently. (see “Like it or not, the future of cryptocurrency will be determined by bureaucrats.”) What this means for the hundreds of other ICOs isn’t yet clear, though Palley tells CoinDesk that the new rulings “would appear to apply to 95% of all the token sales in the last two years.” If you ran an ICO and are wondering if your token is a security, you should probably check with a lawyer, he says. (see “The next generation of ICOs will actually have to follow the rules”)

The Bitcoin Cash hard fork has created a confusing mess. Bitcoin Cash, the cryptocurrency that split away from Bitcoin last yearhas effectively gone away. In its place are two new coins which represent the opposing sides of yet another acrimonious (and expensive) split. But at this point there are more questions than answers about what it all means.

To begin with, what to call the two coins? The group advocating for the software implementation called Bitcoin Cash ABC appears to be winning the so-called “hash war,” in which both sides have spent massive amounts of computing power in attempt to wrestle control of the original chain from the other. Does that make it the true Bitcoin Cash? Not so fast, says Craig Wright, one of the front men for the group advocating for a different implementation called Bitcoin Cash SV (for Satoshi’s vision). Wright tweeted that the hash war will “take a few months.”

In the meantime, the cryptocurrency exchanges that had listed Bitcoin Cash seem as confused as the rest of us. Some are listing the new coins as Bitcoin Cash ABC and Bitcoin Cash SV. Others have chosen to reserve the “Bitcoin Cash” label for the ABC version. (Still with me?!) Still others have decided to wait until more of the dust clears.

Meanwhile, the popular exchange Kraken has alerted its customers to a number of “red flags” associated with the SV version. For example, the exchange said in a blog post, there are not yet any wallets for the new coin that support so-called replay protection, a tool that prevents the same transaction from occurring on both blockchains at the same time. Talk about a headache.

If nothing else, the Bitcoin Cash drama has further exposed cryptocurrency as an extremely nascent technology that raises new and rather perplexing questions (How the hell should we react to a hard fork?) for institutions that are interested in adopting it. Stay tuned.

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Loose Change

Fill your pockets with these newsy tidbits.

Crypto prices keep crashing across the board; yesterday Bitcoin fell below $5,000 for the first time in 18 months (and by 30% in a week). (CoinDesk)

Nvidia has blamed the “crypto hangover” due to falling demand for mining chips for missed expectations in Q3 and a lower-than-expected forecast for Q4. (Reuters)

US sanctions forced Iran out of the global cross-border payment platform SWIFT. So now its government wants a national cryptocurrency. (Finance Magnates)

Chinese crypto-mining chipmaker Canaan has allowed its Hong Kong IPO application to expire, raising doubts about the company’s prospects. (Reuters)

Mythical Games, a startup aiming to develop games that run on the EOS blockchain, has exited stealth mode and raised $16 million in venture capital. (TechCrunch)

A startup says it has tackled a long-standing problem that has kept smart contracts from responding to events in the outside world. (TR)

The Money Quote

Technology will change, and so must we. Lest we remain the last leaf on a dead branch, the others having decided to fly with the wind.”

Christine Lagarde, head of the International Monetary Fund, in a recent speech arguing that governments should seriously consider issuing their own cryptocurrencies or risk ceding their influence over the global financial system. (IMF)

Mike Orcutt
We hope you enjoyed today's tour of what's new in the world of blockchains and cryptocurrencies. Send us some feedback, or follow me @mike_orcutt.
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