The Breakdown - The SEC's ICO cleanup / China's convenient surveillance money / Recruiting new blood

Episode Date: August 14, 2019

What is dead may yet still die. At least, that seems to be the case as the SEC goes one by one through its list of unregistered securities offerings and outright scams. This week it was one unregistered SAFT settlement and one emergency lawsuit involving frozen assets and lifetime bans, oh my my. We also look at China's forthcoming convenient surveillance money..err..central bank digital currency. Finally, a Lambda School-Blockstack partnership brings up the question of recruiting new blood to crypto.  Watch: https://www.youtube.com/nathanielwhittemorecrypto

Welcome back to another crypto daily 3 at 3. All right, so today, number one, we're going to talk about the SEC's ICO cleanup. Number two, we're going to talk about the China Central Bank digital currency that seems to be forthcoming, or at least is in the news right now. And three, we're going to talk about a new partnership between Lambda School and Blockstack and what it means in terms of developer recruitment. But let's start in with the SEC's ICO cleanup, or as I put it here, what is dead may yet still die. So the ICO bubble was a huge moment in the crypto industry, undeniably so, right? It was the space that or the time that probably brought more people into this industry than any other singular event. And obviously the folks that have stuck around, the folks who found their way into Bitcoin,

the folks who found their way into kind of exciting legitimate products, that's a good thing. However, of course, for a lot of people, it was just a ruinous, strange financial moment. And, you know, we could spend an entire episode of this or six episodes. or 10 episodes on the crazy combination of factors that led that ICU boom to happen. Larry from the Block recently looked into performance results, you know, and just kind of really summed up what I think that we all knew in terms of the terrible long-term outcome. And he really pinned it down to misaligned incentives between founders and investors and how basically the liquidity that enabled such a crazy, fast,

global token sales was also the thing that allowed people to cash out so fast and there to be what, you know, Meltem called the shit coin waterfall. But anyways, that's not actually what we want to talk about. What I want to talk about today is the SEC in recent action. So two, two recent notable cases, pieces of news of the SEC still engaging with previous ICOs. So the first was reported by CoinDesk. And this was from Monday. The SEC said on Monday that New England-based simple vital health raised around 6.3 million and it's via pre-sale of its tokens and and basically they settled with this firm settled with the SEC over an unregistered SAFT. Simple agreement for future tokens is what a SAFT means. And so this is an example of kind of a, the SEC saying,

hey, this was a securities offering. You didn't register it as such. And so we have a problem with it. Interesting. There was a source from 2018 in a conversation with the SEC who said the SEC is targeting SAFs, again, safe agreement for future tokens. The new approach of the SEC is to consider tokens as both utility and security at the same time, meaning a token can bring utility to a platform, but at the same time can be considered as a security if you sold it to parties that mainly looked for profit on its increase in value. You know, it's interesting. I think that we're still left without really clear definitions of all these kind of token designations and when they become what. However, it's, again, the notable thing here is that the SEC is pursuing these actions.

A second one, which got even more attention, SEC files emergency action against organizer of, quote, fraudulent $15 million ICO. So this was against Veridicium and Reggie Middleton, which was a much higher profile ICO that a lot of people were involved in. And basically, the SEC is seeking to freeze the assets of Middleton. And basically, they're accusing him of propagating false information about the business, conducting trades that made the price higher, misappropriating investor funds. Like, you name it the full litany.

They're asking, basically, to, they're asking a court to prohibit him from not only destroying evidence, but to ban his operating a public company or participating in a digital asset security's offering ever again. So this is a big, big time stuff. A few different people made a couple different notes about this. So one, you have press in here, legal significance. This action relates to an ICO that closed before the Dow report was issued. The point here being that this is, you know, multiple years ago now that this actually happened. And the SEC is only just catching up.

He goes into what it means. And then Nick Carter also makes this point. So the SEC finally plunged the dagger into one of the most comically stupid ICOs. to ever exist. We all knew it was coming. I was just too optimistic on the timing. It was my list of coins that I thought would die in 2018. This is the thing that I thought was most interesting, however. Final thought. Given that it took the SEC two full years to nail the most obvious instance of securities fraud ever, I expect they'll get to XRP and EOS in 2026. I think that the key point here is that there is a very long arm of the law sort of thing here. And as much as we as an industry

might have moved on. The SEC has not necessarily moved on from these offerings. And there are implications even now, right? So, of course, a lot of the chatter continues to be alt-season, alt-season, alt-season. And I've talked before about, you know, what I think about that kind of, but, you know, again, to really reinforce this point, Jake Chravinsky makes the point, Veridicium was trading around $17 yesterday when news of the SEC's emergency ban broke, nine hours later was trading around four. Again, this is obvious. This is sort of a not a surprising thing in a lot of ways. But the point is that these are, these cases are just beginning still, right? We're still just seeing the start of the trickle. And they're kind of,

it seems like, you know, a lot of the folks who are watching this carefully feel like they are moving their way from kind of outright scams to just kind of, you know, intentional or not bad actors. And there's going to be a lot of people who are caught up on this. And I think one more point from Jake that I really liked. Eventually, the mass majority of crypto-related lawsuits he tweeted will be common and unremarkable. Cases will be filed, litigated, and settled without much notice or fanfare. The fact that we're so interested in tracking these cases today shows how early we are and how far we have to go. I think that's true. I think that we're still just coming to grips with understanding the ICO movement as things like IEOs happen. We're still trying to figure out what the right

way to regulate crypto asset offerings is and to understand what they mean. This is a new space. it's a new territory. But thinking you can get away and around the law is not necessarily the right way to go. One more recommendation for anyone who's interested in this topic. Drew Hinkies, Drew, I'm not sure actually how to pronounce your last name. I apologize if you're watching. But Drew does a ton of kind of primary source legal document sharing on his Twitter thread. So if you want to see kind of notes and annotations on actual cases,

Drew's a really great follow. And with that, we'll move on to number two. So number two, we actually saw this at the end of last week. I included it in Long Read Sunday. The block reported, this is the first place that I saw it, just in a senior official within the People's Bank of China said today that the country's central bank digital currency is ready after five years of research and development.

So China has been working on a basically their version of a digital R&B, right? a digital currency for China. And it is now, seems to be the case that they're closer to actually implementing this. Dovey also posted a bit more about it. She posted a few of the highlights, it being ledger agnostic, it focusing on being an actual money source

versus something like Libra, which isn't supposed to create kind of a money multiplier or is not supposed to be a money base money in terms of world accounting. And other folks looked at what it actually is from a technology perspective. So Roger, contributor to Forbes, wrote basically that it's not exactly a cryptocurrency. It kind of takes parts from it, but that it's got an even higher degree of control. Likely that the Chinese central bank will operate much as it has with commercial banks,

with some liberalization, but largely in lockstep with the CCP's political goals. The People's Bank of China will likely design all wallets and have access to all. data on the transactions. Central Bank, China Central Bank seems intent on shoring up and making the Chinese Yuan more versatile rather than launch a separate cryptocurrency. So basically, his conclusion is that the PBOC is using some features of cryptocurrencies, but ultimately most indicators drive to the conclusion that the PBOC is unlikely to be building a cryptocurrency similar to Bitcoin or even Libra, but rather its own version of centralized digital cash with extra surveillance on top. So this is, I think, the point that I wanted to make about this particular topic.

We're entering this interesting moment where you're really seeing a trifurcation of what we call crypto, what we call the crypto industry. On the one hand, there are permissionless public chains. So these are the bitcoins and Ethereums of the world. Forgive me, Maximilus from any chain who don't like being lumped together. But relative to this context, I think it makes sense. So you got one, permissionless public chains. Two, you have permission corporate chains. So these are things like Libra.

Of course, permissioned is sort of up for debate in this context, I guess. It's kind of a mixed bag of permission. But no matter what, it's a corporate chain, right? It's run by a corporation hoping to decentralize itself to a bunch of corporations. JPM coin is another example of this. And you're going to have lots more. And this might be the whole, even the whole context of kind of enterprise chains and private blockchains, right? So it's, again, these things ultimately serve, at least to some extent,

interests of the initiators, the owners, the whatever. And then third is this convenient surveillance money, as I put it, which is obviously central bank digital currencies. The reason that I call them convenience surveillance money is that, one, they are likely to be unbelievably convenient for citizens, right? They will be, they offer potentially a cash type experience but digitally. That's faster, that's easier. That's accepted everywhere. That's just, again, convenient, convenient, inconvenient. However, they also allow for surveillance in a way that cash never did. They are a kind of an autocrats' wet dream in some ways. They are so easy to surveil. You take all those things about a public chain and on-chain data and put it in the context of a central bank,

you know, like the PVOC that has, you know, in that case, official connection to the government or in the U.S. just tight, tight controls or connection to the government. And you have just an unbelievable ability to surveil people's financial transactions with all of the negative things that that hold so I think it's really important that when we discuss crypto quote-unquote we discuss these these in these different contexts and understand that they are in fact different phenomenon if all interrelated but with that we'll move on to number three so block stack has been making a lot more news lately they've been upping their marketing aggressively which I like seeing you know if for no other reason then I think that a you know it's an interesting time

in the kind of the smart contract wars and the base layer chain wars. They've been putting the can't be evil signs all over Silicon Valley, for example. If you drive up the 101, you see a don't be evil, which famously used to be Google's slogan crossed out the don't with can't be evil. And it's this promise of Web 3, right? Really what they're doing is they're advertising Web 3. Well, yesterday, I think it was yesterday, they announced a partnership with Lambda School, which is a coding boot camp basically. It's a long term. So whereas the first generation of coding boot camps were, you know, nine weeks or something like that. This is a much longer form meant to take students from kind of zero developer talent to developers who are able to be hired by top companies. It's a, you know, there is actually more debate around the model and what it promises.

And, you know, there's a lot that we get into around those coding boot camps. However, they are a fixed. of the world now. They are one of the biggest ways that people are learning how to code in kind of a formal or semi-formal environment. And I think they're going to be a mainstay, right? In fact, right now, I think you're more likely to see people trying to find ways to adapt that model

of intensive short-term training with no upfront cost and instead kind of taking a bigger chunk on the back end from initial earnings and salary. You're going to see more and more of that model. I think there's experiments with that lines of incentives that are really interesting to a lot of people and to a lot of money. So you're going to see a lot more of these, not just coding boot camps, but this kind of boot camp model for a huge number of different disciplines and skills. So anyways, the Blockstack partnership is basically creating a mechanism by which Lambda students can actually start to participate in the blockchain industry vis-a-vis block stack and how they can participate.

participate in that. And so what I wanted to talk about is not necessarily even the specifics of that. I think there's a lot to dig into there and it's super interesting. I think it's a super savvy smart move for block stack. And that's actually kind of where I wanted to spend just a minute. You know, one of the things that I notice is there's so many chains emerging right now, baselayer chains who are competing for developer attention. And I find a lot that the marketing strategy and the recruitment strategy tends to focus on how do they create messaging that differentiates them from other, from other base layer chains for the same, you know, whatever it is, 10,000, 20,000, 30,000 developers who are already interested in the cryptocurrency space, in the smart contract space, rather than doing this sort of thing and going out and actually recruiting

new audiences in. And I think that just from a pure strategic standpoint, there's a lot to be said for actually going and getting those new audiences, right? Like if you look at the Venn diagrams of all developers in the world and developers who are, you are, you know, or just people who are interested in cryptocurrency, it's a very small overlap. And that pool of people who are not yet interested or not yet involved, but who might become involved, is a really interesting place to play. I did notice as I was preparing this that Outlier Ventures in the UK is thinking in similar ways. We're looking for volunteer ambassadors.

They tweeted around the world to inspire devs and entrepreneurs to build app spots, agents and APIs with the convergence stack, which is kind of their name for Web3. So anyways, just I think it's notable to start to see this sort of partnership between a crypto institution and a crypto project and a non-crypto project that is notable, that has distribution, that has reach, that has access to an audience. And we'll be interesting to see how it plays out. But for now, that's it for the Daily 3 at 3. Thanks for hanging out, guys. Thanks for listening if it's where you're catching this. And I will see you tomorrow.

Peace.