Cryptocurrency and the uphill battle for legitimacy
Last month, The Wall Street Journal released a much-noted analysis of 1,450 crypto currency offerings, finding that 271 of them were deceptive if not outright fraudulent. This was shocking. I expected three times as many.
It is no secret that the world of crypto currency there is much chicanery. At every meet up that I attend, there is the proverbial huckster, bending my ear about how his team of Russian investors and Ukrainian hackers headquartered in Cyprus will be the next big play in the crypto world. Red flags abound. The only elements missing were North Korean testnets and advisors in federal penitentiaries.
With the explosive growth in the value of Bitcoin in late 2017, everyone and his/her uncle got into the blockchain business, ready to issue their Initial Coin Offering (ICO) and take advantage of the huge amounts of investment money sloshing around. By early 2018, a myriad of White Papers were posted, some of them with plagiarized text, glorified business models, fictitious teams, and overstated and unrealistic revenue figures that rival any boiler room doing the same with penny stocks.
It is time for the cryptoworld to shun the shysters, ostracizing them at meetups, crypto investment summits, and cozy fireside chats. These purveyors of pump and dump schemes sully our industry. Their untrue claims about new products and services injure the rest of us trying to create a new, sustainable and innovative space – one that will benefit humanity through increased efficiency and transparency. Their criminal behavior will bring shame and heavy-handed reactionary regulation to the rest of the bona fide companies - those with solid business plans, and more importantly, real technology that can make the world a better decentralized place.
The trouble is that the hype has far outpaced the actual deployment of tested and true blockchain platforms on the main net. Given the massive media coverage of blockchain, it is no surprise that easy money is in search of the next homerun. If only the engineering was actually in place to make good on the investment. Even if the blockchain solution was real, there are still so many companies not yet ready for primetime.
Enter the government regulators and the self-regulating agencies. Legitimate companies, with solid technology and realistic business plans, should consider collaborating with the Securities and Exchange Commission, Commodity Futures Trading Commission, and the North American Securities Administrators Association to help create workable regulations that reward innovation and honesty. Likewise, crypto companies operating or promoting in the United States should work with the Financial Industry Regulatory Authority, a non-governmental, non-profit, self-regulating agency authorized by the United States Congress to protect U.S. investors by ensuring the broker-dealer industry operates fairly and honestly.
Given the real risk of money laundering by Eastern European mobsters, narcotrafficantes, and other criminal organizations, it is in the best of interest of crypto companies to find their own solutions to end this scourge that could undermine the full development and deployment of blockchain technology.
As the bugs of public blockchain platforms are remedied and real revenues start pouring in, more crypto crooks will have taken investors for a ride. Until governmental authorities around the globe beef up their regulatory response to blockchain and crypto currency, it is up to the good people in the industry to call out the bad.
James Cooper is a Professor of Law at California Western School of Law in San Diego. He is an advisor for Truechain, a global blockchain company.
Author： James Cooper
Executive editor： Nino