Crypto, Crowdfunding & Other Crazy Concepts (Series: Cryto Currency - 101)

Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™
Receive our free weekly newsletter at www.financialpoise.com/subscribe
Insert the cover image for this webinar on this slide entirely
1

Practical and entertaining education for
attorneys, accountants, business owners
and executives, and investors.
2

DISCLAIMER
The material in this webinar is for informational purposes only. It should not be
considered legal, financial or other professional advice. You should consult with an
attorney or other appropriate professional to determine what may be best for your
individual needs. While Financial Poise™ takes reasonable steps to ensure the information
it publishes is accurate, Financial Poise™ makes no guaranty in this regard.
About this PowerPoint: if you are looking at this PowerPoint without the benefit of
listening to the conversation that surrounded it then you are doing yourself a disservice.
This PowerPoint was prepared in contemplation of being viewed in conjunction with
listening to a one hour webinar on the topic
3

MEET THE FACULTY
Moderator:
Chris Cahill – Lowis & Gellen LLP
Panelists:
David Carman – FinTank
Jordan Fishfeld – CFX Markets
Josh Hughes – Crypto-Markets
Zach Smolinski – Smolinski Rosario Law
4

ABOUT THIS WEBINAR:
Crypto Currency – 101
What is money? How is cryptocurrency different? Is permitting or requiring crypto
payment of contracts sound from a legal or accounting perspective? How will the
underlying technology of blockchain bear upon future commercial practices? What are you
or your client investing in when investing in cryptocurrency? What is an initial coin
offering (or ICO), and what are the legal risks involved? Federal regulators have defined
cryptocurrency as commodity in one context, and as a security in others. In this
introduction to cryptocurrency, panelists active in the field will discuss cryptocurrency as
payment mechanism and as investment, with peculiar risks and opportunities. We will
discuss the history and adoption of cryptocurrency, as well as the underlying technology
(including blockchain, but we will not make your eyes water), cybersecurity, and fraud.
5

ABOUT THIS SERIES: Crypto,
Crowdfunding & Other Crazy Concepts
Two “crazy” concepts, but crazy how? What is money and why is cryptocurrency different,
in paying for goods and services and as currency for the performance of commercial
contracts? Should I (or my clients) enter the “crowd” in crowdfinance, and thus get in on
start-ups that scale into unicorns? For investors, each of these concepts implies assets not
correlated with returns from index funds that invest only in public securities. So there are
opportunities to do better than “the markets.” However, these concepts are also associated
with actual examples of large-scale fraud or at least fear of fraud. Are crypto and
crowdfinance investments crazy-beneficial (notwithstanding the presence of risk) or just
crazy? This series seeks to give professionals, investors, users, and their advisors useful
insight into relevant opportunities and risks.
6

EPISODES IN THIS SERIES
4/30/19 Episode #1:
Crypto Currency-101
6/4/19 Episode #2:
Crowdfinance-101
7
Dates shown are premiere dates.
All webinars will be available
On Demand approximately 4 weeks
after they premiere.

Episode #1:
Crypto Currency – 101
8

2138 CRYPTOCURRENCIES IN 2019
Bitcoin is top in market capitalization at $93,262,696,346 and a price of $5,278.26, with a
circulating supply of 17,669,200 (Bitcoin created in 2009)
2d is Ethereum, with a market cap of $16,747,513,469 and a price of $158.23 and a
circulating supply of 105,840,948
Approximately 2/3 of 2138 listed cryptocurrencies have market capitalizations exceeding $1
million
See “All Crytocurrencies” set forth at https://coinmarketcap.com/all/views/all/, visited 9/2719
United States currency in circulation is approximately $1.5 trillion; M2 is approximately $14.5
trillion as of January 2019
9

CRYPTO-FIAT CURRENCY ATMs
Crypto or Bitcoin ATM is a new type of ATM which provides customers an easy and quick
way to buy cryptocurrencies with cash or credit card on the go
* 3423 Bitcoin ATMs in the world
* 1.301 were added in 2018 alone
* 6.5 Bitcoin ATMs are added daily
* >3.5 million fiat currency ATMs globally
1
0

CRYPTO-FIAT CURRENCY ATMs (cont’d)
• Must have a paper or virtual wallet for storing your newly purchased crypto
• Usually one selects the amount of Bitcoin or cryptocurrencies desired for purchase on the
ATM’s user interface: inputs wallet address; pays the amount either by depositing cash or
inserting one’s debit/credit card; and confirms the purchase
• Purchaser receives crypto on the entered wallet address once the transaction is confirmed on
the blockchain
1
1

• Unlike conventional ATMs, where you can withdraw fiat currencies like USD or EUR from
your bank account or credit card, crypto ATMs work more like a stationary exchange where
you can anonymously exchange fiat for cryptocurrencies like Bitcoin
• Most crypto ATMs are specialized to allow you to buy Bitcoin, while some also offer you the
option to buy a wider array of coins and may support cryptocurrencies such as Ethereum
and Monero
1
2

• The convenience and anonymity offered by cryptocurrency ATMs comes at a price
• The average buy fee on Bitcoin ATMs is 9.46 %
• The average sell order fee is 8.06 %
See Maya Leonard, “What is a Cryptocurrency ATM?,” Coin Codex (June 2018)
(https://coincodex.com/article/1965/what-is-a-cryptocurrency-atm/, visited 4/27/19)
1
3

IS STARBUCKS ACCEPTING BITCOIN?
Answer: Not now, not ever, not no-how. But . . .
• Starbucks is taking steps to enable Bitcoin as a payment method, but will not be handling
any crypto directly
• Starbucks will help develop software tools to allow customers to easily exchange their
crypto into fiat currency in order to buy coffee and other products
• This functionality could be integrated into Starbucks’ mobile app
• Use of crypto in Starbucks could lead to a major increase in the number of Bitcoin users
See David Robb, “Starbucks and Bitcoin: what are the facts?,” Chepicap (March 16, 2019)
(https://www.chepicap.com/en/news/8160/starbucks-and-bitcoin-what-are-the-facts-.html, visited 4/27/19)
1
4

EXAMPLES OF HYPER-INFLATION OF
FIAT CURRENCY, FOR WHICH CRYPTO
COULD BE A WORK-AROUND
(Annual inflation rates)
Venezuela (March 2019): 1.62 million percent (having fallen from 2.30 million percent
in February 2019), per Trading Economics (https://tradingeconomics.com/venezuela/inflation-cpi, visited on
4/2719)
Zimbabwe (November 2008): 179.6 billion percent, per Hanke S., & Kwok, A. (2009) "On the
Measurement of Zimbabwe's Hyperinflation", Cato Journal, 29 (2)" (PDF).
((https://object.cato.org/sites/cato.org/files/serials/files/cato-journal/2009/5/cj29n2-8.pdf, retrieved 4/2719)
1
5

EXAMPLES OF HYPER-INFLATION OF
FIAT CURRENCY, FOR WHICH CRYPTO
COULD BE A WORK-AROUND (cont’d)
Weimar Gemany (November 1923): 4,210,500,000,000 German marks to one US
dollar (up from 320 German marks oer dollar in May 1922) See “Hyperinflation in Weimar Germany,”
Wikipedia (https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic, visited 4/27/19)
1
6

COUNTRIES WITH FOREIGN
EXCHANGE CURRENCY CONTROLS,
WHICH CAN BE EVADED BY CRYPTO
Algeria, Angola, Armenia, Bahamas, Barbados, Cameroon, China, Cuba, Ethiopia, Ghana,
India, Iran, Libya, Morocco, Myanmar, Mozambique, Namibia, Nepal, Nigeria, North
Korea, Russia, Samoa, South Korea, South Africa, Sudan, Tunisia, Ukraine, Uzbekistan,
Venezuela, Zimbabwe
Per “Foreign Exchange Controls,” Wikipedia (https://en.wikipedia.org/wiki/Foreign_exchange_controls, vitied 4/2719)
1
7

CRYPTO-NAYSAYER: WARREN BUFFET
• “Bitcoin has no unique value at all”
• “It is a delusion, basically”
• “It attracts charlatans”
• “If you do something phony by going out and selling yo-yos or something, there’s no money in
it — but when you get into Wall Street, there’s huge money”
• (re Bitcoin:) “probably rat poison squared,” a “mirage,” “not a currency,” and “tulips”
Other naysayers: Bill Gates, Nouriel Roubini, Robert Shiller, Ray Dalio, and Howard Marks
Kate Rooney, “Warren Buffett says bitcoin is a ‘delusion’ and ‘attracts charlatans,” CNBC.com (Feb. 25, 2019)
(https://www.cnbc.com/2019/02/25/warren-buffett-says-bitcoin-is-a-delusion.html, visited 4/27/19)
1
8

CRYPTO BOOSTER: TIM DRAPER (US
VENTURE CAPITAL INVESTOR)
• fiat money will become laughable and obsolete in five years
• he believes his money in the bank to be less secure than his money in Bitcoin. “My bank is
constantly under a hack attack,” Draper has stated, adding that to date, nobody has managed
to hack Bitcoin’s blockchain
• believes that the existing financial system is much more culpable for things like terrorism and
crimes than blockchain technology perhaps will ever be
1
9

CRYPTO BOOSTER: TIM DRAPER (US
VENTURE CAPITAL INVESTOR) (cont’d)
• In November 2018, Draper reaffirmed his April 2018 Bitcoin prediction that the biggest
cryptocurrency will trade as high as $250,000 per coin by 2022 [was trading at $5,165.78
per Coindesk as of 4/27/19]
See Helen Parz, “Tim Draper Predicts CryptoWill Rule, Only Criminals will Use Cash in Five Years,” Coin Telegraph (Feb.
18, 2019) (https://cointelegraph.com/news/tim-draper-predicts-crypto-will-rule-only-criminals-will-use-cash-in-five-years,
visited 4/27/19)
2
0

BLOCKCHAIN AND CRYPTO:
NOMENCLATURE
Blockchain is a shared, immutable record of transactions, frequently referred to as a
digital ledger, and a type of distributed ledger technology
Blockchain uses cryptography to allow each participant on the network to manipulate the
ledger in a secure way without the need for a central authority
2
1

NOMENCLATURE (cont’d)
Each block in the chain represents a set of transactional records; the chain links them
together via a “hash” function
The hash function distills an original piece of information into a code that is recgnizable
and archived on the blockchain ledger
Note: the technical definitions in this powerpoint rely upon “Digital and Digitized Assets,” prepared by the American Bar
Ass’n (March 2019)
2
2

A purpose of blockchain is to eliminate the need for a trusted third-party intermediary or
central authority (e.g., bank or government) to verifiy transactions
When blockchain participants transact, a Miner runs a series of complex algorithms to
verify the transaction, ensuring that it is valid and matches the blockchain’s history. Then
the tranaction is broadcast to other miners and added to the blockchain ledger
All participants maintain identical copies of the same ledger
A ledger monitored and verified by multiple participants should be less vulnerable to
falsified entries
2
3

Digital asset is an electronic record (on a blockchain) in which an individual has a right or
interest; the term is also used generically to refer to both digital assets and digitized
assets, e.g., Bitcoin
Digitized asset is a physical asset for which ownership is represented in an electronic
record (on a blockchain), e.g., land title
Token is used to refer to both digital and digitized assets
2
4

All cryptocurrencies are Payment Tokens
A Wallet stores digital “coins” by keeping safely the keys (a string of characters) and
passwords for cryptocurrency. Losing these means losing access to the cryptocurrency (see
QuadrigaCX example below)
An Asset Token represents assets such as a debt or equity claim on the issuer (analogous
to equities, bonds, or derivatives)
A Smart Contract is a set of coded instructions that execute automatically, without
human involvement, when certain conditions are met
2
5

CRYPTO AS AN INVESTMENT
Driven by Fear of Missing Out (FOMO) as prices climb?
There are some 780 crypto funds with $10-15 billion in assets under management
See Autnonmous Research LLP, “Crypto Fund List,” (https://next.autonomous.com/cryptofundlist, visited 4/28/19)
2
6

CRYPTO AS AN INVESTMENT: CRYPTO
FUTURES
A futures contract is a standardized exchange-traded derivative contract to buy or sell real or
financial assets at a set price on a specified future date, in a predefined quality and quantity
In December 2017, the Chicago Board of Options Exchange (CBOE) and the Chicago
Mercantile Exchange (CME) introduced bitcoin futures contracts
In March 2019, the CBOE decded to stop listing additional futures contracts as it re-assesses
its approach to that market
2
7

CRYPTO AS AN INVESTMENT: CRYPTO
FUTURES (cont’d)
CME continues to list new bitcoin futures contracts
• All such futures contracts are cash settled, and do not involve the exchange of actual bitcoin
• The CFTC regulates derivative exchange operators
2
8

INITIAL COIN OFFERING AND FUND-
RAISING
ICOs offer Asset Tokens for sale, often to raise money to fund early stage ventures
At first, issuers simply published a white paper describing the proposition and then sold
“coins” ($6 billion raised in 2017)
The SEC clarified that many such virtual currencies are “securities” subject to SEC
regulation
2
9

QuadrigaCX: MY KINGDOM FOR A
PASSWORD
QuadrigaCX is Canada’s largest cryptocurrency exchange
• About $190 million worth of cryptocurrency supposedly held by QuadrigaCX is
missing
• 115,000 people affected
• Holdings (if they exist) are stuck in an electronic vault because the company’s founder
and sole employee died without sharing the password
See Tim Copeland, “The Complete Story of the QuadrigaCX $190 Million Scandal,” Decrypt Media (March 13, 2019)
(https://decryptmedia.com/5853/complete-story-quadrigacx-190-million, visited 4/27/19)
3
0

DEBACLE AT MT. GOX (BITCOIN
EXCHANGE BASED IN JAPAN)
• Launched in July 2010, by 2013 and into 2014 it was handling over 70% of all bitcoin (BTC)
transactions worldwide, as the largest bitcoin intermediary and the world's leading bitcoin
exchange.
• In February 2014, Mt. Gox suspended trading, closed its website and exchange service, and
filed for bankruptcy protection from creditors – and later liquidated
• Mt. Gox announced that approximately 850,000 bitcoins belonging to customers and the
company were missing and likely stolen, an amount valued at more than $450 million at
the time
3
1

DEBACLE AT MT. GOX (BITCOIN
EXCHANGE BASED IN JAPAN) (cont’d)
200,000 bitcoins have since been "found"
Evidence presented in April 2015 by Tokyo security company WizSec led them to conclude
that "most or all of the missing bitcoins were stolen straight out of the Mt. Gox hot wallet
over time, beginning in late 2011"
“Mt. Gox,” Wikipedia (https://en.wikipedia.org/wiki/Mt._Gox, visited 4/27/19)
3
2

CRYPTOCURRENCY PONZI SCHEMES
The Ponzi Scheme Blog for March 2019 (http://theponzibook.blogspot.com/, visited
4/27/19), which compiles one month’s tally of charges, arrests, and sentencings, lists 16
cryptocurrency Ponzi schemes
3
3

REGULATORS IN THE U.S.
SEC – Securities and Exchange Commission: regulates the exchange of securities [when
digital assets are securities]
CFTC – Commodities Futures Trading Comission: regulates derivative exchange operators
and the sale of commodities [such as some digital assets]
IRS – Internal Revenue Service: subjects the sale of property, including crypto, to capital
gains taxation
FinCEN – Financial Crimes Enforcement Network (US Treasury Dept.): monitors
cryptocurrency transfers for anti-money laundering purposes
State regulators oversee spot exchanges of crypto through state money transfer laws
3
4

REGULATORS OUTSIDE THE U.S.
EU – European Union
European Parliament (anti-money laundering legislation)
EMIR – European Market infrasrtucture Regulation
ESMA – Europena Securities Markets Authority
BIS – Bank of International Settlements
Regulators in UK, Switzerland, France, Germany, Austria, Slovenia, Malta, Japan,
Singapore, China, Australia, South Korea, and other nation-states
3
5

ABOUT THE FACULTY
3
6

Chris Cahill – ccahill@lowis-gellen.com
Christopher Cahill is Head of the Bankruptcy and Restructuring Practice Group at Lowis &
Gellen LLP, in Chicago. He advises businesses on relationships with vendors, customers, and
lenders, to maximize market share, return, and liquidity. He also litigates on behalf of secured
creditors, trade creditors, and in chapter 11 cases and advised more generally on corporate
restructuring, including workouts, loan forbearance, assignments for the benefit of creditors,
UCC Article 9 foreclosure sales, and avoidance litigation.
Mr. Cahill also publishes and speaks frequently on commercial insolvency and commercial
transaction issues. He is an Executive Editor of Commercial Bankruptcy Litigation, 2d Edition
(Jonathan P. Friedland, Elizabeth Vandesteeg & Christopher M. Cahill eds., 2017), a
comprehensive treatise that is updated annually and published by Thomson Reuters. In
addition, Mr. Cahill is the host of Financial Poise Radio, a weekly interview and commentary
podcast for investors and other market participants, with 100 episodes and counting.
3
7

David Carman – david@fintank.org
David is Co-Founder/COO of FinTank, a global fintech hub headquartered in
Chicago. FinTank incubates fintech startups in its accelerator program, raises capital via
its broker/dealer license, facilitates networking & education with its monthly fintech
groups, and hosts major conferences which bring together hundreds of entrepreneurs,
investors, enterprise companies, senior-level executives, and policymakers.
3
8

Jordan Fishfeld – jordan.fishfeld@cfxtrading.com
Jordan Fishfeld is the co-founder and CEO of CFX Markets, a venture-backed trading platform that is
changing the way people access alternative asset with offices in Chicago, New York and California.
An early innovator in the crowdfunding space, Jordan assisted on the rule creation and implementation
of the JOBS Act regulations as well as the intra-state crowdfunding rules in a number of different
states. Jordan is the elected Treasurer of the Crowdfunding Professional Association (CfPA), and
continues to advocate and educate on behalf of the crowdfunding industry. Jordan was also named one of
Chicago’s Jewish Community 36 under 36. He is also a board member of the young professional real
estate division of the Jewish United Fund and a Board Member of UpStart, a San Fransisco based
accelerator focused on Jewish engagement and innovation. Prior to that, Jordan worked as a finance
attorney for Katten Muchin Rosenman, LLP, where he assisted on more than $1 billion worth of
syndicated loan transactions.
Jordan received his Bachelor of Arts in Political Science and his Bachelor of Science in Business
Administration from the University of Florida and his Masters of Business Administration and his Juris
Doctor from the University of Miami, where he graduated Magna Cum Laude.
3
9

Josh Hughes – josh.cryptomarkets@gmail.com
Josh Hughes has been following the development of crypto currencies since the beginning of
2013 and is the Co-Founder of CryptoMarkets.com. His interest in crypto and blockchain was
sparked by seeing small meetup groups taking it upon themselves creating systems to transfer
value outside of traditional banking.
Josh is an award winning sales and business development professional who has successfully
helped launched two startups and is also recognized for managing and leading sales teams in
larger corporations.
Josh is a 2002 Saint Joseph’s College graduate and he earned Bachelors Degrees in Business
Management as well as a focus in macro and micro economics. His four years in track and
field ultimately earned him an Athlete of the Year award in 2002.
Josh’s focus is to help support and grow the infrastructure of these new blockchain based
networks and the communities that are giving them value.
4
0

Zach Smolinski – zach@smoroslaw.com
Zach Smolinski is an experienced general counsel having a focus on intellectual property,
transactional, and M&A law and a strong interest in emerging technologies. Mr.
Smolinski’s skills include evaluating and negotiating license agreements and cloud
services contracts, coordinating IP due diligence for investors and purchasers, and
working with founders and executives to optimize their companies’ legal strategies.
Mr. Smolinski is a registered patent attorney with a background in physics, and he speaks
regularly on legal matters of importance to founders, executives, and investors.
He is a Principal at Smolinski Rosario Law, a Chicago law firm that provides intellectual
property, contract negotiation and drafting, M&A and due diligence help, and other legal
services to clients in a wide range of technical fields.
4
1

QUESTIONS OR COMMENTS?
If you have any questions about this webinar that you did not get to ask during
the live premiere, or if you are watching this webinar On Demand, please do
not hesitate to email us at info@financialpoise.com with any questions or
comments you may have. Please include the name of the webinar in your email
and we will do our best to provide a timely response.
IMPORTANT NOTE: The material in this presentation is for general educational purposes only. It has been prepared primarily
for attorneys and accountants for use in the pursuit of their continuing legal education and continuing professional education.
4
2

ABOUT FINANCIAL POISE
DailyDAC LLC, d/b/a Financial Poise™ provides
continuing education to attorneys, accountants,
business owners and executives, and investors. Its
websites, webinars, and books provide Plain
English, entertaining, explanations about legal,
financial, and other subjects of interest to these
audiences.
Visit us at www.financialpoise.com.
4
3
Our free weekly newsletter, Financial Poise
Weekly, educates readers about business,
business law, finance, and investing. To receive
it simply add yourself by going to:
https://www.financialpoise.com/newsletter/
Email addresses are never sold to or shared
with third parties.

Crypto, Crowdfunding & Other Crazy Concepts (Series: Cryto Currency - 101)

Recommended

Recommended

More Related Content

More from Financial Poise

More from Financial Poise (20)

Recently uploaded

Recently uploaded (20)

Crypto, Crowdfunding & Other Crazy Concepts (Series: Cryto Currency - 101)