Anti-money-laundering refers to a set of procedures, laws and regulations designed to stop the practice of generating income through illegal actions.
Cryptocurrencies and open blockchain networks have created a new way to raise money to develop and maintain novel products and services—whether devices on the Internet of Things, new cloud services on the Internet, or even financial products and investments. This is an unprecedented form of crowdfunding that may raise various legal and policy questions. Developers and investors are eager to have answers to these questions so that they can safely take advantage of this innovative model.
People’s propensity to do something primarily because other people – especially a lot of other people – are doing it
Bitcoin is a digital currency created in 2009. It follows the ideas set out in a white paper by the mysterious Satoshi Nakamoto, whose true identity has yet to be verified. Bitcoin offers the promise of lower transaction fees than traditional online payment mechanisms and is operated by a decentralized authority, unlike government-issued currencies.
A bubble is an economic cycle characterized by the rapid escalation of asset prices followed by a contraction. It is created by a surge in asset prices unwarranted by the fundamentals of the asset and driven by exuberant market behavior. When no more investors are willing to buy at the elevated price, a massive sell-off occurs, causing the bubble to deflate.
Crypto-commodity is a general term used to describe a tradable or fungible asset that may represent a commodity, utility, or a contract in the real- or the virtual-world on the blockchain network through exclusive tokens.
A cryptocurrency is a digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of this security feature. A defining feature of a cryptocurrency, and arguably its most endearing allure, is its organic nature; it is not issued by any central authority, rendering it theoretically immune to government interference or manipulation.
A cryptocurrency exchange is any system that operates on the basis of trading cryptocurrencies with other assets. Like a traditional financial exchange, the cryptocurrency exchange’s core operation is to allow for the buying and selling of these digital assets, as well as others.
A cryptocurrency exchange is also known as a digital currency exchange (DCE).
Counter-terrorist financing policy (this may be abbreviated as either CTF or CFT). Under these policies, most financial institutions are required to fulfill many strict requirements regarding monitoring customers’ transactions and behavior, conducting proper due diligence, and maintaining appropriate records.
Generally, equity is the value of an asset less the amount of all liabilities on that asset. As an accounting equation, one can represent it as Assets – Liabilities = Equity.
Launched in 2015, Ethereum is a decentralized software platform that enables smart contracts and Distributed Applications (ĐApps) to be built and run without any downtime, fraud, control or interference from a third party. The platform is also the basis for its own virtual currency, Ether. Ethereum is not just a platform but also a programming language (Turing complete) running on a blockchain, helping developers to build and publish distributed applications. The potential applications of Ethereum are wide ranging.
Fiat money is a currency ($,€, …) without intrinsic value that has been established as money, often by government regulation. Fiat money does not have use value, and has value only because a government maintains its value, or because parties engaging in exchange agree on its value.
The Securities Act of 1933 and the Securities Exchange Act of 1934 dictate much of the U.S. government’s approach to financial regulation, even nearly 100 years after they were established. Under these acts, transactions which qualify as “investment contracts” are considered securities, meaning that they are also subject to specific requirements related to disclosure and registration.
Predictably, this has a significant impact on how the financial world views and interacts with those securities, so it is necessary to have a consistent and thorough way of determining whether a transaction is, in fact, an example of an “investment contract.” The Howey Test is the standard methodology, put in place by the U.S. Supreme Court, to make that determination.
An initial coin offering (ICO) in the world of cryptocurrency defines an event by which a community raises funds for a new cryptocurrency project. It is like the cryptocurrency version of an IPO (Initial Public Offering) without much of the regulation and process that accompanies similar efforts within the regulated financial world.
The main difference is that an IPO allows investors to acquire shares of a company, while an ICO allows to acquire tokens, which most often do not represent shares of capital. These tokens represent, for example, a right to use the service that is to be developed. As a result of an ICO, tokens become exchangeable on exchanges.
Know Your Customer: process to verify the identities of clients, investors, partners, etc.
A public key is a cryptographic code that allows a user to receive cryptocurrencies into his or her account. The public key coupled with the private key are significant tools required to ensure the security of the crypto economy.
A private key is a sophisticated form of cryptography that allows a user to access his or her cryptocurrency. A private key is an integral aspect of bitcoin and altcoins, and its security make up helps to protect a user from theft and unauthorized access to funds.
Return on Investment
Return on Investment (ROI) is a performance measure, used to evaluate the efficiency of an investment or compare the efficiency of a number of different investments. ROI measures the amount of return on investment, relative to the investment’s cost. To calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment. The result is expressed as a percentage or a ratio.
A security token is electronic software access and identity verification device used in lieu of or with an authentication password. Security token technology is based on two-factor or multifactor authorization.
Security token is also known as Universal Serial Bus (USB) token, cryptographic token, hardware token, hard token, authentication token or key fob.
A security is a fungible, negotiable financial instrument that holds some type of monetary value. It represents an ownership position in a publicly-traded corporation (via stock), a creditor relationship with a governmental body or a corporation (represented by owning that entity’s bond), or rights to ownership as represented by an option.
SEC (Securities & Exchange Commission)
An agency of the U.S. Government that serves at the primary regulator of the securities trade. It attempts to ensure that all trades are fair, and that no price manipulation or insider trading occurs. Additionally, the SEC promotes full disclosure and monitors mergers and acquisitions to ensure continued competitiveness. It works with several self-regulatory organizations, notably FINRA, to enforce its regulations. Most securities offered through interstate commerce must be registered with the SEC.
Stablecoin refers to a new class of cryptocurrencies which offer price stability and/or are backed by reserve asset(s). In recent times, stablecoins have gained enough traction as they attempt to offer the best of both world’s – the instant processing and security of payments of cryptocurrencies, and the volatility-free stable valuations of fiat currencies.
Security Token Offering (STO)
In practice, selling security token is comparable to ICOs, though the process is instead termed a Security Token Offering (STO). Much like an initial coin offering, STOs issue coins to investors. However, similarities usually end there. In an ICO, investors are purchasing tokens to benefit from the possibility of token appreciation or to unlock the ecosystem’s utility. By comparison, STO investors are investing with the expectation of receiving future cash flows, dividends, or voting rights directly tied to the security.
Security tokens are backed by assets, profits, or cash flows, and thus have an intrinsic value from the moment they are issued unlike utility tokens, where the value is largely theoretical until an application is developed. Additionally, STOs are fully compliant with regulatory frameworks, allowing investors from all over the world to participate without violating respective securities laws. This is especially true in countries like the US, which exhibit stricter oversight of securities and investments.
Another key aspect of STOs is that they allow companies to create whitelists and blacklists, a factor that easier to comply with know-your-customer (KYC) and anti-money-laundering (AML) reporting requirements. By operating more transparently, STOs can effectively negate some of the bigger issues facing utility token offerings — a lack of corporate accountability, the possibility of fraud, and no recourse in the event of a company failure.
In a sense, many STOs will look more like IPOs than ICOs. Instead of a “wild west” approach to fundraising, whereby companies are simply aiming to raise as much capital without any concern for the source of funds, STOs are subjected to strict regulations. However, this clears the way for institutional participation, a factor that may represent a potential tidal wave of capital destined for blockchain-based services.
Security-wrapped ICOs (SICOs)
These are “network assets” or “utility tokens” of the ICO generation that are offered pursuant to registration exemptions so that their offering complies with U.S. law. SICOs typically do not offer debt (an enforceable promise to repay) or equity (i.e. a proportional share of ownership, dividend right, participation in issuer governance) rights to their buyers, and often provide minimal investor protection, offer minimal issuer disclosures, and afford limited recourse against the issuer. These assets are natively digital unless offered as a secondary product to be distributed by the issuer pursuant to a simple agreement for future tokens (SAFT) or similar agreement.
T-REX (Token for Regulated EXchanges)
The T-REX standard is a decentralized set of global tools, based on the Ethereum blockchain, to allow for the interoperable, frictionless and compliant transfer of tokenized securities.
There are three key pillars to these tokens, the identity management system, a set of validation certificates and the transfer manager. These three components essentially allow issuers to use a decentralized validator to control transfers and ensure investors meet the obligations in each jurisdiction the tokens are distributed in.
Tokenized Asset-Backed Securities (TABS)
These are digital tokens that represent an ownership claim against, or ownership share in, an asset or pool of assets. This category includes products based on a claim against metals, gems, commodities, securities, real estate, art, unique goods, and other assets maintained by the issuer or issuer’s designee.
Tokenized Equity or Debt (TEDs)
These are traditional securities (i.e. equity/debt) issued in digital token form. These products are identical to traditional private placements except that they are issued in token form, rather than in the form of a spreadsheet entry, or a piece of paper. These instruments will eventually incorporate new features and functionalities like direct-to-holder data reporting, and interactive governance.
Transactional Security Instruments (TSIs)
These assets are securities, issued in token form, that may be redeemed or accepted by the issuer or the issuer’s designee in direct exchange for products or services. The process of redemption or acceptance of these instruments allows an issuer to directly retire debt or redeem equity in exchange for the performance of services or provision of goods for the investor. Although these products do not yet exist, and would require updates to certain securities laws to implement, they represent a new asset class which may be enabled by tokenization of securities.
The Trading Platform
The trading platform is a regulatory-compliant suite of smart contracts serving as an Alternative Trading Solution (ATS) that allows trading and fast settlement of securities in t-0 time. Built on the Ethereum chain, the platform provides secure, fault-tolerant, transparent, and fast transaction settlement while being compliant to regulatory requirements.
a digital token of cryptocurrency that is issued in order to fund development of the cryptocurrency and that can be later used to purchase a good or service offered by the issuer of the cryptocurrency
The first cryptocurrency wallet was introduced by Satoshi Nakamoto when he first released the bitcoin protocol in 2009. Bitcoin is the most popular and widely used cryptocurrency, but others building upon its blockchain technology have emerged, and any of them can be stored on a cryptocurrency wallet. Wallets can hold multiple cryptocurrencies.
When you want to acquire cryptocurrency, whether by purchasing it in a currency exchange or receiving it as a gift or as revenue, you direct the sender to a unique cryptographic address issued by the wallet. You might picture your cryptocurrency stored on the wallet the same way files are stored on a USB drive, but, in fact, the information stored on the wallet only points to your cash’s location on the blockchain, the public ledger that records and authenticates all transactions for a cryptocurrency. Spending with the wallet is as simple as scanning a retailer’s QR code or directing a specific amount of cryptocoins to the retailer’s public address.
Sources: Investopedia, Wikipedia, Hackernoon, technopedia, Merriam-Webster, Coincenter, Coindesk