Crypto-digest 05.08: EOS revisited: investors are taking another look at the longest-running ICO; The economics of Ethereum’s coming consensus change are taking shape; A chain of its own: mobile app Kik to fork Stellar for fee-free blockchain; Why the SEC should give amnesty to illegal ICOs; Australia’s government budgets over $500K for blockchain study; Crypto investment schemes hit with cease-and-desists in Texas.

EOS revisited: investors are taking another look at the longest-running ICO

Another blockchain for smart contracts?

As surprising as it might sound, there’s a respect for incumbency even in the world of cryptocurrencies. As such, when the upstart EOS protocol launched last year with the ambition of improving on innovations like ethereum (themselves just a few years old), incredulity was in ample supply.

Intervening months haven’t exactly helped this perception. But despite the skeptical experts, not to mention the very public derision of talk show host John Oliver, the EOS project has raised more than $2 billion in ether from the sale of EOS tokens, which will power its forthcoming network.

It’s a notable success given the ICO was done differently than most other issuers, starting in summer 2017 and staying open through a series of auction periods through June 1 of this year.

Still, less than a month away from the sale’s conclusion (and the platform’s long-awaited launch), EOS is finding itself back again in the conversation. The price of the crypto token is steadily rising, something that has the interests of investors piqued, especially so given that gains haven’t exactly been easy to find.

The crypto token’s latest pump, though, notably coincided with a bullish report from crypto fund Multicoin Capital, which took a deep dive into the promise of what’s being billed as a next-generation platform for smart contracts.

It’s quite the promise, too – Block.one touts its platform as a faster, cheaper way to execute smart contracts than rivals ethereum and NEO. Additionally, it claims user experience upgrades, such as mechanisms for account recovery and human readable addresses, built in at the protocol level (as opposed to top layers).

Looking at the platform, Multicoin Capital wrote:

“EOS takes a unique approach to creating a highly scalable platform for smart contracts. EOS prioritizes scalability and end-user experience rather than maximal censorship resistance.”

And with that, Multicoin effectively re-opened the debate among crypto community leaders about whether EOS will actually solve blockchain’s scalability problems or is anything more than vaporware. And some, including Ryan Selkis, the founder of Messari Capital, are leaning more towards the later.

Following Multicoin’s blog post, Selkis focused in on the project’s epic valuation, in his on-again, off-again newsletter, The Daily Bit.

Selkis wrote:

“We’re still talking about EOS like it’s a utility token/commodity. I don’t understand why it needs to be held in reserve at an $11 billion valuation pre-launch. Call me old-fashioned.”

Community is key

Part of the reason Selkis and others are skeptical is that the project hasn’t even launched yet.

EOS tokens currently exist as tokens on the ethereum blockchain – and investors have been getting those tokens on a rolling basis – but eventually those tokens will need to be converted into something designed more specifically on EOS and its technology.

But it’s not only that there’s no “utility” for the tokens yet, it’s the individuals engaged in the project that have still captured most of the conversation. For instance, most of the attention on EOS over the last year has stemmed from the involvement of controversial investor Brock Pierce, although he and Block.one officially parted ways in March.

Pierce aside, project founder and CTO Dan Larimer has also taken his fair share of criticism, with many alleging EOS will end up like former projects such as BitShares and Steem, which haven’t quite replicated early successes after he removed his involvement.

Block.one did not reply to a request for comment from CoinDesk.

In this way, some worry about the community that will gather around EOS. Since it’s an open-source project, it’s strength will depend on developers willingness to continue developing it once it is released into the world. But currently a large portion of the tokens are being turned over to large hedge funds to manage and make large investments in the building of the ecosystem, which some believe won’t see the money allocated to the correct things.

Selkis points this out in his post, contending that ethereum growing from developers investing their money and elbow grease makes it a more stable project than EOS, which he argues was born at the height of the unrestrained ICO-mania.

Selkis wrote:

“My bet is that culture and community matters if you want to bootstrap a currency or something valued like it.”

Strength in censorship

That said, Multicoin takes the opposite stance.

As outlined in its work, it believes the community developing around EOS might actually offer an interesting counterpoint to those that gathered around earlier networks, arguing that its community could be more willing to make trade-offs deemed too unorthodox for other platforms.

For instance, MultiCoin wrote a follow-up blog post arguing that EOS may be stronger than it seems by sacrificing on decentralization, contrasting it with protocols like bitcoin and ethereum, which have tended to argue censorship-resistance is a key feature, and thus have effectively employed large networks of individuals who run the computers necessary to process transactions.

In contrast, EOS will only use 21 validators with a slew of backup validators ready to take over if one of those validators fails or misbehaves, though the project’s creators believe these disadvantages are more than made up for by faster throughput.

In this way, it could be argued that neither bitcoin nor ethereum have put a limit on the number of miners that can take part in validating the networks. (Most people agree that it’s too many for even the largest state to roll back the records and censor activities on either blockchain.)

Still, it’s in some ways a minority view.

Spencer Bogart, a partner at Blockchain Capital, wrote a Medium post about decentralization and why there’s really no censorship-resistance that counts if it isn’t maximum resistance.

He state:

“Either these platforms will offer strong assurances (‘permissionless-ness’), in which case they will attract ‘sovereign-grade’ attackers (and ‘platform-grade’ censorship resistance will be insufficient) OR they will embrace censorship and permission-ing, in which case they will end up as less efficient varieties of today’s centralized platforms. Regardless, neither path appears sustainable.”

Existential questions

That said, EOS may in some ways be part of a larger trend that finds newer investors perhaps more willing to pursue novel design choices.

For example, Bogart told CoinDesk that his post wasn’t meant as a specific response to MultiCoin’s report, but to a larger trend he sees in the space, of protocols that trade some level of decentralization for scalability, of which EOS is a good example (but so is Ripple and Stellar).

Bogart’s point isn’t that EOS is worse than ethereum, but that in the end comparing it to ethereum is the wrong comparison.

“People are painting it as the competition is between EOS and ethereum, and I have a feeling that’s totally the wrong way,” Bogart told CoinDesk. “Its competitors are AWS and Azure [the giant cloud services offered by Amazon and Microsoft, respectively].”

Blockchain Capital invested in Block.One, the builder of EOS, and Bogart said he appreciates every effort on the spectrum, but he sees what may be a glut of projects far from either pole.

Still, even with that more nuanced conclusion, he seems unsure of what to make of trend exactly. “I see a lot of people rushing into this middle ground, but what if that middle ground is no man’s land?” he asked.

Looking ahead, however, the market may ultimately play the role of decider.

Major exchange Binance, for example, has announced full support for EOS token conversion, marking an early and notable nod of support from that community. Though, it’s possible that this says more about the risk appetite for investors eager to see multiple large blockchains available for different use cases,

As Multicoin wrote:

“Multicoin Capital doesn’t believe that we will see convergence around a single smart contract platform, at least in the near-to-medium term. Rather, we believe that a handful of dominant platforms will emerge, each offering a different set of features and tradeoffs.”

The economics of Ethereum’s coming consensus change are taking shape

1,500 ether.

That’s how much cryptocurrency users will need to participate in testing ethereum’s upcoming consensus protocol, Casper, at least according to the blockchain’s creator Vitalik Buterin. During the final day of an ethereum conference in Toronto last week, Buterin took the stage to discuss his version of the software designed to change the way those running the software reach agreement.

Called Casper FFG, the algorithm has recently seen notable progress (with the first specification arriving last month), and Buterin said at the event he expects the pace of experimentation to quicken (though no timeline for the change has been given).

Heralded as a more egalitarian form of keeping the global software in sync, proof-of-stake enables users to set aside funds whereby they act as virtual mining machines). As such, Buterin spent his time on stage outlining the protocol and how the change will alter participation in the network.

Whereas today users must buy specialized hardware, Buterin explained that participating in Casper will first require submitting a minimum of 1,500 ETH (or just over $1 million) into a smart contract. While 1,500 ETH might seem like a large sum of money, Buterin emphasized that nodes with less ether can participate in a pool, or a group of nodes that work together and split the profits.

“[Casper] will hopefully be one of the more joyous experiences in ethereum in a fairly short time,” Buterin said.

The high price is due in part to ethereum’s current scaling challenges (the consensus protocol simply cannot support more than a certain number of nodes). However, once sharding, a scaling solution that works by splitting up the blockchain into smaller chunks, is implemented, Buterin estimates this figure will be lowered to around 32 ETH ($25,856).

Still, even users with less available crypto will be able to experiment with staking on the Casper testnet, which is currently only running on a handful of nodes “soon.”

The developer said:

“You will also soon be able to stake – ‘soon’ with a trademark. So, that’s more than two weeks.”

A how-to

Elsewhere in his speech, Buterin gave a breakdown of the various steps involved in setting up a Casper validator, or a node that will participate in the ethereum proof-of-stake protocol.

For developers, Buterin explained, the Casper FFG code offers a lot of customization freedom. In the first stage of the setup, for instance, nodes have the option to introduce features like multiple keys and additional security.

For non-developers, the process of configuring Casper code may seem complicated, but Buterin said that for most users, the setup phase will be as simple as clicking a button.

He told the audience:

“The good news is … that in practice, you personally as a user probably don’t need to worry about which validation code you’re using. You as a user basically just click a button that says deposit.”

After that setup, users will then need to pick a wallet for which to receive returns, but again, Buterin said, “Your client will do all this magic for you.”

Once users have submitted the 1,500 ETH minimum, the money will be locked up into a deposit, and by running the software, rewards will be dolled out in proportion to the amount of ether at stake. Nodes will automatically vote on potential blocks, and the average user doesn’t need to worry about how this works, but just needs to keep the node online to see returns start to come in.

“From your point of view, as a regular user you just need to keep your node online, keep your node running, and your node will just do all this voting automatically,” Buterin said.

Money maker

With that node online, Buterin then detailed what returns a node could expect from staking in the network (although he stressed that the exact numbers were not final yet).

Assuming a deposit of 10 million ETH – if validators are constantly online – they will earn somewhere between 0 percent and 5 percent returns annually, Buterin said, adding, “Probably closer to five than to zero.”

But if a user’s node goes offline for the majority of the time, they’ll actually start losing some of their deposit, because the protocol begins to penalize inactive nodes. Yet, Buterin said, even if validators are only online between two-thirds and one-half of the time, they’ll still see returns.

“So, yes, it is safe to validate if you just have a laptop. Unless you’re like me and you travel 24/7 and can’t even count on your laptop being connected to the internet,” he joked.

Yet, these returns are contingent on users being good actors in the system.

With Casper’s internal “slasher” concept – that is, not simply rewarding those who perform well, but punishing those who perform badly – the protocol disincentives certain behaviors, such as the formation of large staking pools and double voting on which transaction history is correct.

If a user is caught doing these things, they can lose between 1 percent and 100 percent of their deposit, Buterin said.

Yet, this would jeopardize a significant amount of money, which to Buterin and many ethereum developers will deter bad behavior.

“Who here wants to successfully attack Casper FFG?” Buterin asked, adding:

“You can do this at the low, low price of 1.67 million ether, which I believe is somewhere north of $1 billion dollars.”

A chain of its own: mobile app Kik to fork Stellar for fee-free blockchain

The cryptocurrency that will soon help power the popular Kik messaging app is making a big technology shift — again.

Kik’s crypto token, kin, currently exists as an ethereum-based ERC-20 token, yet CoinDesk recently reported that’d the company would be moving to a two-chain system whereby its tokens were supported on both the ethereum blockchain and the stellar blockchain. But today, the Kin Foundation, the non-profit organization managing the development of kin, has announced another move, deciding instead to fork stellar to create its own blockchain.

While Kik had first envisioned the two-chain system because it worried about transaction fees on ethereum – a blockchain that pushed up against its scale when the crypto-collectable cat game, CryptoKitties, went viral – Kik has decided that even stellar’s minimal fees were too much for what the company hopes to accomplish.

For its kin token, the problem with stellar is that it costs a tiny amount to make a transaction on that blockchain, and that has to be paid in lumens, stellar’s native cryptocurrency.

Whereas on Kik’s own blockchain, transactions won’t cost anything.

This is especially important given Kik’s goal for its cryptocurrency – to facilitate micropayments, as small as a penny or even less, across the internet more efficiently. The theory is that, if these seamless transactions are possible, entrepreneurs will start creating new digital services that encourage transactions between users for things like inexpensive private chats, digital gifts (like stickers or gifs), personalized photos and more.

Speaking to CoinDesk about the decision, Kik CEO Ted Livingston told CoinDesk:

“I think what makes Kin unique is it’s one of the very few projects where product is driving the technology and not vice versa.”

To encourage entrepreneurs to create these services on the Kik app, the Kin Foundation has a giant pool of kin in reserve that it will use to automatically pay entrepreneurs for fostering economic activity, called the Kin Rewards Engine (KRE). The KRE will pay out a share of kin every day, rewarding each app based on how much economic activity it generated that day.

According to the announcement Tuesday, all that activity will now take place on kin’s blockchain.

Yet, ethereum will still be involved. When a founder has earned enough kin that they want to hold, the idea is they could use a technique called atomic swaps to move their kin over to ethereum. In short, every kin token will exist on two ledgers: one on the ethereum blockchain and one on the kin blockchain.

When its kin half is in a user’s wallet, the ethereum half is locked up in a smart contract, and vice versa.

But while this is the roadmap today, Livingston won’t hazard a guess about when this system will officially go live. Although, the company is currently moving forward with building its own open-source codebase, cloned from the stellar protocol and, as Livingston put it, “taking destiny into our own hands.”

Federated nodes, zero fees

While Livingston remains bullish on stellar, having evaluated other blockchains as he looked for workable solutions, stellar still wasn’t exactly the right fit for Kik.

“It wasn’t that the fees were too high, it’s that they cost something and that created an incentive for spammers,” he said.

While originally, the team had thought it could just subsidize the transaction fees, they soon realized that it would have to put lumens in people’s wallets to do that. As such, they theorized that bad actors could then just create a bunch of wallets and scrape up the lumens, in an effort to secure enough money to make an impact on the network.

As such, Kik has created a fee-less proprietary blockchain, and have done so with the use of established, permissioned nodes.

“When you look at the Stellar network and compare it with Kin’s fork of Stellar, the two networks are identical, with one exception: the people running the federation nodes,” Livingston said.

For instance, the Kin Foundation will run the first node, but Livingston said, that as the company brings on more partners, those partners will be expected to run trusted nodes, too. As such, even though the Kin Foundation will initially control the blockchain, because all nodes will be treated equal, eventually the foundation’s voting power over the network will diminish.

Unlike nodes in the stellar federation, these partners won’t earn anything for validating transactions (if they did, there would need to be a transaction fee). But Livingston believes future kin nodes will be run by the large services driving the kin economy, the ones that earn a lot of income through the KRE, so have a strong interest in seeing the value of kin grow steadily and as such, will volunteer as nodes.

“As more digital services come on board, and as the Kin ecosystem gets bigger and the consumer base gets bigger, there’s more incentive for more people to run these federated nodes,” Livingston said.

This move, while trading off some decentralization for high throughput, aligns with what some industry analysts, including Blockchain Capital’s Spencer Bogart, have predicted as a forthcoming trend. Bogart worries that these systems will become not innovative blockchain systems but ones that resemble the current centralized systems we have today.

But Livingston argues that difference is trustlessness.

“If this is going to be a common currency between billions of consumers across thousands of digital communities, we need it to be trustless,” he said, adding that consumers can rest assured that it isn’t possible for any one entity on the network to take their cryptocurrency from them.

But censorship resistance?

Yet, what could suffer in this federated node model is cryptocurrency’s first raison d’etre – censorship resistance.

For instance, if the kin token ran on stellar, validation would be separate from use cases. Validators would earn income from securing the network, and companies building services to use kin would have paid those validators in fees for use of the network. But under Kin’s new vision, the larger companies driving the public facing use cases will also provide back-end validation.

And those will be companies who could collectively decide, for example, to ban a service viewed as offensive or malicious from using the network (in other words, to censor it).

Think of it like this: imagine that the internet today were built in a similar way to the kin blockchain. The big nodes – services probably like Ebay, Etsy, Vimeo and others that successfully encourage people to spend money with each other – could get together and decide to block a site’s transactions that they or their users think is offensive.

Would the stellar nodes made up of largely unknown back-end internet services companies cave to collective social pressure before a bunch of companies with widespread name recognition and a large base of consumer users decide to act as dictator?

Knowing that the latter is probably more likely, this is what many crypto enthusiasts want to guard against through the use of decentralized cryptocurrency protocols.

It’s a question Livingston has grappled with, but contends it’s an exception that maybe isn’t as bad as it sounds.

“The question is less about the terrible stuff of the world. That’s stuff we’re all going to have to grapple with as a global society,” he said, adding, “The question is more about centralized powerCould Kin become a centralized authority in the kin ecosystem? And we want the answer to that to be no.”

Governance, Livingston continued, is one of the most interesting topics in cryptocurrency right now, and the team behind kin is thinking about all these problems actively.

He concluded:

“I think the really exciting thing from an engineering point of view is kin is at the bleeding edge of solving these blockchain challenges and leading the industry there.”

Why the SEC should give amnesty to illegal ICOs

With an estimated $4 billion or more raised in investment capital, 2017 was a boom year for initial coin offerings (ICOs). But it was accompanied by another kind of boom: the sound of a crashing regulatory framework.

By one count, more than 50 companies per month were using token sales to raise funds – and mostly all of them proceeded without regard to U.S. securities laws.

Then, in July 2017, the U.S. Securities and Exchange Commission issued The DAO Report, which, by employing the U.S. Supreme Court’s long-established Howey test, concluded that certain digital tokens sold to investors were “investment contracts” under the Securities Act of 1933 and therefore subject to SEC registration.

Slightly more than four months later, the SEC reiterated and enforced that determination in the Munchee case, a proceeding in which the agency administratively halted an ICO as an impermissible sale of unregistered securities.

These developments were followed in early 2018 by a cascade of SEC subpoenas and enforcement actions targeting similar token offerings – many of which smacked of fraud.

Putting aside the waning debate as to what may constitute a “utility” token that does not satisfy the Howey test (and thus is not an investment contract), it is now clear what the SEC thinks: the vast majority of ICOs conducted so far in the United States have violated federal law, and the ongoing trade in those tokens involves the illegal purchase and sale of unregistered securities.

This taint on crypto assets has had serious and adverse consequences for market participants.

For many security tokens, liquidity has dried up and prices have dropped. Moreover, the regulatory (and possibly criminal) vulnerability of ICO promoters, the resulting market instability for existing security tokens, and the flight of American capital overseas where token sales remain unrestricted, make the whole situation a royal, Humpty Dumpty-scale mess.

It’s time to clean it up.

A model amnesty program

Without recriminations of government diffidence and regulatory defiance, the SEC and ICO participants must work together to find a reasonable market fix. Any solution should have two essential components:

  • (1) a vehicle for integrating a new asset class into the established supervisory structure; and
  • (2) a mechanism for protecting, to the extent possible, the value of substantial yet legally flawed investments.

Apparently, a dialogue among stakeholders has already begun. Reports indicate that major cryptocurrency backers, along with their lawyers and lobbyists, recently met with Commission officials to request “a broad exemption from federal oversight” that would nevertheless permit the SEC to intervene in ICOs “if a token issuer committed fraud.”

Although a “broad” regulatory exemption for unregistered security tokens is not likely in the offing, the SEC has designed and implemented an amnesty program for a different class of securities law violators that could also serve as a blueprint for unscrambling problematic ICOs.

This past February, the Commission’s Enforcement Division announced the “Share Class Selection Disclosure Initiative” (SCSD Initiative). The SCSD Initiative is an agency effort to resolve widespread and lingering violations of disclosure rules by investment advisors.

Many advisors have been selling certain classes of mutual fund shares to clients without telling them that they receive an advisor fee in connection with those shares and that other less expensive shares, that do not involve advisor fees, are available to purchase. This scenario plainly involves a material conflict of interest for investment advisors with fiduciary obligations.

Under the SCSD Initiative, investment advisors who self-report their violations are eligible to settle with the SEC according to standardized terms: (1) the issuance of a cease-and-desist order and censure on consent, in which an advisor neither admits nor denies the SEC’s findings; (2) the disgorgement of an advisor’s ill-gotten gains and the payment of interest on those revenues; and (3) the acceptance by an advisor of specified undertakings intended to correct the sale procedures that resulted in the disclosure violations.

Finally, in return for those commitments, the SEC Enforcement Division will recommend that the Commission impose no penalties on the self-reporting advisor.

The problem of unregistered security tokens warrants a similar approach.

How it would work

As some have already suggested, we basically need a regulatory do-over for the first wave of ICOs. An amnesty program like the SCSD Initiative could be one way of accomplishing that goal.

If engineered correctly, it would assimilate rogue security tokens into the fold of regulated instruments without rewarding prior violations of securities law. It could also provide issuers of unregistered security tokens with an ordered and more affordable way of resolving potentially ruinous civil liability under section 12 of the Securities Act of 1933 (establishing a cause of action for rescission or damages in connection with the sale of unregistered securities).

An ICO amnesty plan would need at least two core elements to meet those objectives.

To start, issuers of unregistered security tokens (let’s call them “old tokens”) would have to complete a formal SEC registration process for what are essentially replacement tokens (“new tokens”). Upon the approval of such a registration, issuers would have to swap old tokens for new tokens for all willing takers – a digital tender offer of sorts.

As an incentive to exchange old tokens for new ones, issuers would probably need to offer some additional consideration – possibly paid in new tokens rather than cash in order to preserve the company’s operating capital.

Furthermore, to avoid the statutory bars against investors waiving compliance with the securities laws, this second leg of the required amnesty transaction should be structured as a settlement and release of any Section 12 Claims against issuers of old tokens. As explained in the 2017 U.S. Appeals Court decision in Pasternack v. Schrader:

“as a general principle, whenever a party offers consideration to another in order to remedy an alleged violation of the securities laws, acceptance of that offer in exchange for a release of . . . claims is tantamount to establishing ‘compliance’ with the securities laws.”

Holdout investors that chose not to redeem their old tokens would, of course, retain their Section 12 Claims. But presumably the issuer would know the approximate number of holdouts in advance of self-reporting, and – in terms of liability – that number would have to be economically manageable for the company. Otherwise, there would be no point for the issuer to seek amnesty in the first place.

Indeed, an ICO amnesty process that included these elements could help to separate the good eggs from the bad. In evaluating the swap provision, investors would have to determine whether there is greater value in reaffirming their stake in the company or pursuing their rescission rights. That sober second look should promote efficient investor decisions that reflect the health and prospects of the underlying business enterprise.

Moreover, issuers of blatantly fraudulent ICOs have little chance of successfully registering their new tokens with the SEC, and therefore have little motivation to even try. That act of self-selection should significantly assist the SEC in identifying some of the most appropriate subjects for enforcement activity.

This proposed strategy to address widespread securities violations in the crypto-asset market is not intended as a comprehensive regulatory plan. To the contrary, it is presented merely as a conversation starter. Other legal considerations and possibly technological constraints will further shape the parameters of any final program, for sure.

It is urgent, however, that serious talks get underway. While regulators, entrepreneurs, and investors all walk on eggshells, innovation slows. Sometimes you just have to break a few eggs to move forward.

Australia’s government budgets over $500K for blockchain study

The Australian government has allocated AU $700,000 (about $521,000) to its Digital Transformation Agency to explore blockchain applications within government services.

Officials earmarked the funds, which will be gleaned from existing Agency resources and allotted over the course of the next four years, as part of its 2018 – 2019 budget. Launched in 2015, the Agency helps government departments “undergo digital transformation,” in addition to leading its information and communication technology strategy.

“The Government will provide $0.7 million in 2018-19 for the Digital Transformation Agency to investigate areas where blockchain technology could offer the most value for Government services,” the budget document states.

This is not the first time that the Australian government has dedicated resources to examining the blockchain. In 2017, its top research agency issued two research reports on possible use cases and risks associated with the technology.

The government subsequently mentioned the tech in a consultation paper for its Digital Economy initiative.

Likewise, in late 2017, the government announced its plans to provide more than AU $8 million (about $5.9 million) worth of grants to a blockchain-based smart utilities pilot project.

Crypto investment schemes hit with cease-and-desists in Texas

The Texas State Securities Board (TSSB) has issued cease-and-desist orders to two bitcoin investment schemes that it alleges are selling unregistered securities and making fraudulent claims to the state’s residents

According to one order lodged on Tuesday, the securities regulator takes aim at a company called Forex EA & Bitcoin Investment LLC and two individuals associated with the scheme, James Butcher and Richard Dunn.

As well as not being licensed by the agency to deal in securities, the TSSB alleges that the company has been involved with what it calls “a classic fraud,” according to Joseph Rotunda, director of the regulator’s Enforcement Division.

The order further alleges that Forex EA & Bitcoin touted various bitcoin investment programs that promised potential investors a 10-times profit within 21 days.

Meanwhile, the regulator accuses the firm of wrongdoing by intentionally failing to disclose critical information about the background of the company and the inherent risk of bitcoin investment.

For example, the agency said although the company claims to be based in New York City, no information regarding local business registration could be found at the New York Department of State.

“Investors should remember that guarantees of excessive or unrealistic returns ring hollow unless promoters support their claims with material, relevant information,” Rotunda stated in an email.

Meanwhile the second order slaps down a cryptocurrency cloud mining scheme dubbed Bitcoin Trading and Cloud Mining Limited, or BTCRUSH, based in the U.K. and four individuals related to the firm.

The TSSB alleges that BTCRUSH deceived residents living in Texas by promising investors a 4.1 percent daily interest from their investment in the mining program regardless of the mining profitability of cryptocurrencies.

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