Overview

Dash (DSH), like Bitcoin Cash and Litecoin, aspires to be a common currency, one that can be spent or saved like any fiat currency. It emerged in 2014, before the boom of cryptocurrencies and so-called “altcoins”, and has slowly built a stable market presence within the top ten tokens by market capitalization.

Dash was originally conceived by Evan Duffield, who used Bitcoin’s source code to create his own coin, originally called Xcoin. Later it was named Darkcoin in reference to its privacy features, and then eventually settled on Dash, which is short for “Digital Cash”.

Purpose

Dash simply aspires to be a global digital currency, accepted at any and every store, restaurant, or place of business, online or off. It was conceived to do exactly what Bitcoin originally promised to be, a peer to peer currency, the only difference being technological improvements to provide more speed, security, and privacy.

Technical

Dash sought to solve perceived problems with Bitcoin, and those solutions are the core of what constitutes Dash’s differentiating features. One is increased privacy, by use of a built-in transaction mixing system called PrivateSend. This system breaks transactions into preset increments of 0.01, 0.1, 1, 10, 100, or 1000 Dash. These denominations are mixed with increments within transactions made by other users so that they are in essence shuffled in between senders and recipients. This makes it hard to trace the history of any Dash amount, preserving the privacy of users.

Another feature is a built-in system of governance by using masternodes. Bitcoin, according to Dash supporters, was a great technological revolution but has no methodology in place for participating developers or users to direct the course of the evolution of Bitcoin. If there is contention, as there has been in the Bitcoin community, there is no way to come to a consensus, and there can be harsh factionalization leading to splits and competition.

Dash’s masternodes are servers on the network where users commit at least 1000 Dash and a server capable of running continually with no downtime. These servers help with the operation of the network by providing consistent computing power, but they also give the owners of masternode the right to vote on proposals that affect the development of the network. In 2016, a proposal was made to the Dash network on whether or not to increase the block size from one megabyte to two, and they voted on an answer, which was to increase the block size, within twenty-four hours. Compare that to the Bitcoin block size debate, which has raged on for years and ultimately led to the divisive creation of Bitcoin Cash.

The third significant feature of Dash is the speed of its transactions. Blocks are not only mined and transactions committed every two and a half minutes, but also Dash has a system of “quorums” where ten masternodes can lock in a transaction’s details before the next block is mined. A quorum can process a transaction within seconds so that a buyer and seller can have near instant gratification, and the quorum will lock out other attempts to access Dash associated with those coins, preventing double spends.

Market

The total supply of Dash is 18 million coins, and a little more than a third have been put into circulation. At the time of this writing, it is the seventh largest token by market capitalization, and it looks like a stable contender to more or less maintain its position, barring some exceptional unforeseen circumstance.

Dash does have its loyal supporters, but, it’s most often accepted at places that take cryptocurrencies in general, meaning in the larger market it hasn’t clearly carved out a niche for itself. The challenge for Dash is that, unlike tokens that seek to find some kind of niche, a currency is definitely defined by how common its usability, which means the common person wants to have the currency that is most widely used by everyone else. This leaves little room for a second and third place contender. Cryptocurrency is still very much unknown in the wider world, which means there is a huge market to grow into, but, should one cryptocurrency start to gain mainstream acceptance, it could snowball into being the one winner. Dash could be that coin, but it has very strong established competition.

ripple logo

Overview

Ripple has roots in a company called Ripplepay that predate Bitcoin and blockchain technology. It was first conceived as a network for banks to use as a settlement system. Essentially, the Ripplepay network was a way for participants to trade debt with each other. After the advent of Bitcoin and blockchain technology, Ripplepay was taken over by a company called Openpay, which is now Ripple Labs. When Ripple labs took over, they incorporated a blockchain into their process and created a token called XRP in order to help facilitate more liquidity in their system. However, they differ from Bitcoin and other cryptocurrencies in how their token works, such as having a consensus protocol in place of proof-of-work. This consensus protocol is one of many differences that make Ripple controversial in the cryptocurrency market.

Purpose of Ripple

Ripple is directly targeting banks as its market, aspiring to become the default network that banking institutions use as a settlement system for all their transactions. The Ripple network, as conceived before blockchain technology, allows participants to trade debt of any kind. In this paradigm, a financial institution can store a debt made of any currency or other assets on the network, it does not necessarily have to be converted to XRP. XRP can be used as a medium of exchange or for handling fees associated with transactions of other types.
Anyone can buy XRP, but this is almost entirely for speculative purposes, because XRP is not targeting end users transacting among themselves directly.

Technical

Ripple’s software is open source and any developer can submit proposals on their Git repository. However, because of the way the Ripple network is constructed, it is not a decentralized, trustless system.
The consensus protocol used by Ripple requires that each node on the network must be trusted by at least one other node on the network. In theory, any transaction can go from any node to any other node so long as each node trusts its immediate connection, even if it does not trust all nodes on the chain. However, in order for a transaction to be verified on the Ripple ledger, all nodes must eventually connect back to a servers operated by Ripple Labs which run the algorithms that establish consensus. This means that Ripple ultimately has central control over the network, and one needs to have trust in the company that runs it, Ripple Labs. This is the root of the controversy surrounding Ripple, as many cryptocurrency advocates believe this violates a central ideology of cryptocurrency, which is to be decentralized and trustless.

Market

Ripple is number 3 in overall market capitalization, though it’s place relative to other cryptocurrencies might not be the most relevant measure of Ripple’s potential, because it is mainly competing to replace non cryptocurrency inter bank systems such as the SWIFT network.
Ripple Labs has set aside 55% of the tokens it has created for itself, which is a source of concern for investors, as it means Ripple Labs has a great deal of control over the market value, depending on whether they decide to hold or sell their holdings.
As of 2018, Ripple Labs is facing a lawsuit in the US by a plaintiff claiming that XRP is a security, and therefor has certain responsibilities to “shareholders” that they have not lived up to. Ripple Labs claims that XRP is a currency, and therefore not beholden to the laws that govern securities. Ultimately, only the SEC determines whether something is a security or a currency within the US. However, the market is paying close attention to how this lawsuit plays out, as any result may have an effect on how if the SEC regulates Ripple, and how that might affect its value.

bitcoin3d

Overview

Bitcoin is almost synonymous with the term “cryptocurrency”, as it is the first one to be developed, the most well known, and still by far the largest by just about any metric one might use to compare it to others. That may change though, as new cryptocurrencies emerge to fill niche markets and offer different approaches to issues of security, speed, and privacy.

Purpose

Bitcoin originally started out as an attempt to build an online cash system, which are the terms used to describe it in the original whitepaper that defined its creation in 2009.

Since that time, various interested parties have disagreed about that original vision, and Blockstream, the organization most in control of Bitcoin’s development, proposed that Bitcoin should be a “settlement layer”. Under this paradigm, Bitcoin would not be accessed directly by end users, as Bitcoins themselves would be too valuable and expensive to move for most people. Instead, all transactions would be handled through secondary systems such as “SegWit” and “Lightning” and then be settled in aggregate on the Bitcoin blockchain. This approach has been compared to how money has sometimes in the past been a secondary system that stands in for high-value assets like gold. People transact in cash, and then banks collectively settle large groups of transactions by trading between themselves in gold.

A large community of people want Bitcoin to operate in a similar fashion, partly because they believe that high fees for transacting Bitcoin is critical for incentivizing miners to keep the network running.

Technical

Bitcoin’s blockchain is mined on dedicated computers known as an Application-Specific Integrated Circuit, or ASIC. These are computer chips dedicated to the mining of Bitcoin, and coins derived from the same codebase as Bitcoin, such as Bitcoin Cash and Litecoin. With a large number of miners having invested in ASIC computers for the sole purpose of mining Bitcoin, they have a strong incentive to see Bitcoin sustained in the marketplace. Bitcoin is pseudo-anonymous, which means that all transactions are identified using a code generated by a sha256 hashing algorithm. However, all transactions are publicly visible on the blockchain, using “block explorers” such as the one on this site.  So, if someone successfully associates a transaction ID with one of the people involved, it is possible to trace some of that person’s past and future activity with the Bitcoins involved.

Market

As of May 2018, Bitcoin has a market capitalization of roughly 166 billion US dollars. This is over double the coin with the next largest market cap, which is Ethereum with around 79 billion US. However, while this indicates Bitcoin is still the dominant coin in the overall market, it should be noted that up until the start of 2015, Bitcoin held over 90% of the market share, and from mid-2016, Bitcoin’s share has dropped sharply to its current standing of 40%. It is not at all clear if Bitcoin will continue to be a major player, the way Microsoft maintains significance in the PC market in spite of strong competition, or if Bitcoin will be left behind, similar to how Facebook rendered MySpace irrelevant in the social network market.

Image courtesy of Carty Sewill
http://cartyisme.com

A SAFT is an investment contract (security) offered by blockchain developers to accredited investors. The tokens that are ultimately delivered to the investors, though, should be fully-functional, and therefore not securities under U.S. law. The SAFT imitates the Y Combinator Simple Agreement for Future Equity, or “SAFE,” which has been widely used to finance early-stage companies for years.

What’s the problem?

The ICO model is an increasingly popular mechanism to raise startup funds from all over the world. Without clear regulations, token issuers and investors have operated under a cloud of legal uncertainty. Did these public sales result in unregistered securities? Why does that matter?

Issuing unregistered securities is a violation of Section 5 of the Securities Act of 1933. Beyond significant monetary penalties, issuers could face a maximum of five years of federal prison.

At a U.S. Senate hearing in February, Securities and Exchange Commission chairman Jay Clayton stated, “I believe every ICO I’ve seen is a security.” As technology continues to outpace regulations, the industry is in desperate need of a standard, compliant transactional framework to finance token networks.

The SAFT: A Potential Solution

The reasoning behind the SAFT framework is the fact that there is no bright line determining which types of tokens are securities and which are not.

Security tokens may serve as a substitute for traditional securities such as corporate stocks. On the other hand, utility tokens are designed to function like a Chuck-E-Cheese token, providing utility to purchase a service on its native network.

The SAFT framework initiates a way to help utility token issuers finance a distributed network without breaking financial regulations; specifically securities laws. Although utility tokens aren’t designed to be securities, they might end up being considered securities at the time of issuance by the U.S. Securities and Exchange Commission (SEC) when sold to the public.

 

How does a SAFT Work?

  1. Developers of a token-based decentralized network enter a written agreement (SAFT) with accredited investors. The document calls for investors to fund the development of the network in exchange for discounted tokens at a future date. The company developing the network registers with the SEC and does not issue tokens.
  2. The developers use investor funds to develop the network. Investors do not receive tokens at this point.
  3. Once the network is functional, tokens are issued and delivered to investors. At this stage, tokens can be sold to the public directly or through exchanges.

At a high-level, you can think of a SAFT as a deferred ICO. Rather than issuing tokens for cash simultaneously, developers create a contract (SAFT) and raise money to develop a functional platform before creating tokens.

At this time, utility tokens are genuinely functional, supporting the argument that they are not actual securities. This argument is essential as no court, regulator, or taxing authority has yet interpreted the SAFT framework.

Benefits

  • The framework can work within existing laws, one that doesn’t assume legislative change to accommodate the technology.
  • SAFTs can reduce risks for institutional investors, and public investors can still access tokens, albeit at a later date.
  • Potentially mitigates the mass exodus of crypto developers to foreign jurisdictions.

Limitations

  • The SAFT framework is not very useful to non-utility tokens that are themselves securities when sold to the public
  •  It won’t aid utility tokens where purchasers rely on efforts of the seller to increase the price after the token is already in circulation. Examples include buybacks and promises to develop functionality after the token sale.
  • The framework currently focuses on U.S. federal law and potentially deemed illegal in other jurisdictions.
  • Excludes public investors from participating in the early stages of a presale.

A Move in the Right Direction

The SAFT framework is an initial step towards an emerging standard for how blockchain network developers can responsibly innovate. It provides one approach to balancing the risk and reward among stakeholders and benefits from adhering to existing laws.

The SAFT project is a community attempt at self-regulation and has a long way to go before becoming an industry standard. That said, there is an open call for participation, and you are encouraged to join the project.

More Information

https://saftproject.com

https://www.cooley.com/news/insight/2017/2017-10-24-saft-project-whitepaper

https://cardozo.yu.edu/sites/default/files/Cardozo%20Blockchain%20Project%20-%20Not%20So%20Fast%20-%20SAFT%20Response_final.pdf

 

An Initial Coin Offering (ICO) is a new fundraising mechanism where tech startups, mainly from inside the digital-currency sector, create a new virtual coin or token and offer it for public sale. ICOs are similar to an Initial Public Offering (IPO) and crowdfunding.

IPOs are a highly regulated capital-raising process where shares of a company are sold to public investors to raise money for operations. On the other hand, crowdfunding brings together various individuals who commit money to new projects and companies they want to support. Crowdfunding does not involve receiving shares of the company and is usually reward-based.

ICOs combine the two dealing with early-stage supporters also motivated by a potential return on their contribution. Current regulations, or lack thereof, make ICOs an attractive method of raising money.

How does an ICO work?

Typically a team announces a project for a blockchain related project on Bitcointalk. The announcement contains information about the project such as a whitepaper, roadmap, ICO guidelines, and team. ICOs involve a public address where contributors send their digital currencies (BTC, ETH, etc…) in return for a token.

Specific token function and initial price varies but can be compared to chips at a casino. In order to use the product being developed, you will need “chips” to pay for services. For example, Ethereum conducted an ICO in 2014 selling Ether tokens for Bitcoin. It is one of the most successful ICOs to date and is currently the most popular platform for conducting ICOs. (Find out why  Ethereum has become the go-to blockchain for ICOs, here.)

Ether is simply a token used for paying transaction fees or building or purchasing decentralized application services on the Ethereum platform. The ICO ran for four weeks and raised $18 million making it the second largest ICO to date. This capital was used to fund development of services around the Ethereum blockchain. Ideally, after the initial crowdsale, a token will make its way onto exchanges. Exchanges allow tokens to be traded like stocks in the secondary-market giving early contributors the option to sell their tokens at a premium.

How much money are we talking about?

During Ethereum’s ICO one token was valued at $0.311. An investor who contributed $1,000 received 3,215.43 tokens. About 3.5 years since those same tokens would be valued near $2.73 million; around a 273,508% return!

Having already surpassed early-stage VC funding for internet companies, ICOs continue to be an attractive alternative for startups. Fred Wilson, a venture capitalist and early investor in Facebook and Twitter, stated ICOs “are a legitimate disruptive threat to the venture capital business.”

ICOs exploded in 2017 and companies are still raising a TON of cash. Total fundraising over the past four years is estimated at a staggering $6.4 billion dollars with $1.32 billion raised in Q3 2017 alone. Large rewards entail large risks and the excitement surrounding ICOs has not gone unnoticed by regulators.

Are ICOs Legal?

It depends. SEC rules state you cannot sell securities without proper compliance work. Lack of regulations means each token must be evaluated on an individual basis. Investors can evaluate if a token is a security using the Howey-Test.

Under the Howey Test, a transaction is a security (or investment contract) if:

  1. It is an investment of money
  2. There is an expectation of profits from the investment
  3. The investment of money is in a common enterprise
  4. Any profit comes from the efforts of a promoter or third party

Many tokens fall under point 2, and SEC Chairman Jay Clayton remarked: “to date no initial coin offerings have been registered with the SEC.” Note that the organization investigated the infamous DAO. They concluded the ICO violated federal securities laws with unregistered offers and sales of DAO Tokens. The agency decided not to bring charges in this instance but cautioned investors.

Regulations vary by country and are evolving. ICOs are currently banned in China and South Korea. Click here to find more information on ICO regulations in your country.

A New Hybrid Asset Class

ICOs are a new and innovative way for startups to raise money using a cryptographic token. Billions of dollars have flowed into ICOs and the model poses a potential threat to the venture capital industry.

Regulations are uncertain and catching up with the market. The fate of ICOs may not be clear but the industry is rapidly developing a compliant framework for token sales with projects like SAFT. (Simple Agreement for Future Tokens)

Oliver Bussmann, a former chief information officer at UBS, and now head of a fintech advisory firm stated: “ICO as a new business model leveraging blockchain technology will sustain as the digital way, combining crowdfunding and (a) new hybrid asset class of equity ownership and currency.”

Some ICO Resources

Research and Communities: