5 posts tagged

Crowdfunding

ICO Smart-contracts vulnerability

Initial Coin Offering Models of fundraising still have a lot of loops which makes the money fraud and steal quite often and large-scaled.

According to the latest security researchers made by Positive last year as stated by the Bleeping Computer an average number of vulnerabilities in ICOs stands at number of 5.

The results had shown the very negative trends and outcomes. According to researchers, only one draft of the original offer of coins did not contain bugs.

The study found that 71% of the projects contained vulnerabilities in smart contracts. Among the common problems, analysts pointed out the inconsistency with the ERC-20 standard, the incorrect generation of random numbers and other significant shortcomings.

Experts said that such vulnerabilities appear due to lack of proper qualification of programmers and insufficient testing of the source code.

Most of the security breaches analysts found in ICO-projects to develop mobile applications. Among the common vulnerabilities were named the following: unsafe data transmission, unreliable storage of user data in phone backups and disclosure of the session identifier.

Some vulnerabilities in web applications were aimed at attacking investor funds. For example, because of a lack of proper security, hackers could register a domain similar to ICO, create phishing sites, thereby deceiving investors.

According to the research, every third project contained vulnerabilities that allowed hackers to access data and savings of companies-organizers. Analysts also noted that many initiators of ICO did not use two-factor authentication for important accounts.

https://www.bleepingcomputer.com/news/security/researchers-last-year-s-icos-had-five-security-vulnerabilities-on-average/

Speaking about the background of the this research and former industry vulnerability issues, other things should also be remembered.

Currently, there are hundreds of thousands of smart contracts in the Ethereum blockchain that manage wallets, tokens, applications or are used to store funds. A group of some British researchers alone was able to identify 34,200 vulnerable smart contracts according to the Motherboard data.

An assistant professor from University College London Ilya Sergey and his colleagues conducted a large-scale study to detect all possible vulnerabilities of smart contracts on the Ethereum blockchain. To do this, they downloaded the Ethereum, in effect creating its fork for personal use, and began to launch a variety of scenarios, trying to achieve undesirable consequences. When these consequences came, they marked a smart contract “with a tracked vulnerability.”

Having analyzed about a million smart contracts in this way, the researchers found that 34,200 of them contained critical vulnerabilities. They tested their assumptions on 3,000 smart contracts, and in 89% of cases, they caused the most undesirable consequences. In theory, this could allow them to steal $ 6 million in Ethereum.

According to experts, early detection of vulnerabilities prevents
possible negative consequences. So, for example, in November 2017, a user under the pseudonym DevOps19 found a vulnerability in the code of the Ethereum-purity library Parity and accidentally blocked $ 150 million.

“We are working with applications that have two very unpleasant features: they are used to manage your money and can not be fixed,” Ilya explained.

Attempts to find the creators of vulnerable, smart contracts were in vain. However, since researchers do not say which vulnerabilities were found in smart contracts, they can be considered as safe.
“If someone wants to take advantage of our idea, he, at least, will have to do as much work as we did,” the researcher summed up.
Recall, in January, the Cisco unit detected many vulnerabilities in the Ethereum-client Parity. First of all, it was about the creation of operating code, the incorrect operation of which could lead to a large-scale DoS-attack on its supporting nodes. Moreover, some “loopholes” in the purse software allowed access to private information.

A few days later, representatives of Parity Technologies said that the vulnerabilities were corrected in new versions of the software Ethereum-client.

As we see, the ICO suffers from numerous vulnerabilities, and the further develops the market the points of hacker intrusion also appears.

Read the similar material about how to ensure safety from Ddos-attacks in our official blog

https://blog.merklion.com/all/how-to-ensure-security-from-ddos-attacks/

2018   Artificial Intelligence   Blockchain   Crime   Crowdfunding   Future   Hacks   ICO

Music Industry Blockchained

The “blockchainization” marches victoriously throughout the world, and there seems to be no shortage of industries that the blockchain can disrupt or improve. Modern music companies are sure to hate the streaming services. Those, in turn, do not like the data storages, and the artists and content creators dislike nearly everyone for making huge profits on their work and not giving them a fair cut.

The blockchain is right the long-term awaited tool that can make the difference. With so many past and present conflicts of interest, it seemed that no service or business model would be able to organize everything correctly so that everyone will be satisfied.

The recent advanced in blockchain technology development and implementation had shown the right direction for the investors and tech specialists from different areas to go hand in hand with the demand of the musical industry.

As it is known, the blockchain technology is backed by the distributed ledger which can check up and verify transaction without having to authorize any central node.
To make a long story short – the registry has no owner – it is distributed among all the nodes making up the network, and is accessible to everyone.

Information that is stored in the registry passes through a so-called cryptographic hashing algorithm, which makes it virtually irreversible and protects against unauthorized access. This means that users can exchange data, money, and anything valuable in any amount safely and secretly.

How exactly can the blockchain be applied to the music industry?

With the help of the blockchain, one could transform the processes of publication, monetization, and the relationship of artists with the fan communities.
Like in many other fields of work and industries, the advantage of blockchain usage is the ability to simplify the relationship between creators and consumers.
First of all, music could be published in the registry with a unique identifier and timestamp so that it will make the further changes impossible. This will help to solve a long-standing problem of digital content – downloading, copying and arbitrary modification. Each audio recording can store metadata about the owner and copyrights so that everyone can see it and check it. Thus, the fee for the use of content will be received by its creator only.

Moreover, this technology can bring about a revolution in the field of music monetization. At the heart of the infrastructure are the smart-contracts – programs that can be launched through the block system along with the payment procedure. Crypto-cash loans, such as Bitcoin and Ethereum, support micropayments, which is not feasible in traditional payment services because of the cost of transferring money. This way a new kind of music services can appear on demand. Users will be able to select songs and immediately transfer money to copyright holders while listening.

Finally, another advantage of the register in the blockchain is the ability to simplify the relationship between creators and consumers. Composers and artists will no longer need to purchase platforms and attract brokers, who often take a large part of their earnings. Musicians will be able to receive compensation directly from each listening song. This is especially useful to amateur musicians who do not have the support of major record labels.

ke any other solution to the problems of the music industry, the blockchain has its weak sides.

For example, last year, the singer and songwriter Imogen Hip began work on a new music system called Mycelia. A platform that works on the basis of a blockchain will support direct payments to artists and will allow them to control better how their songs get to listeners and other musicians. The singer describes her idea as “an attempt to transfer power from the top down and allow artists to manage their future independently.”

So, is it possible to solve all problems with the help of a blockchain tech?

Like any other solution to the problems of the music industry, the blockade is not without its shortcomings. However, he can, at least, equalize the rules of the game for all parties. It will bring the most benefit to artists, authors, performers, and musicians – the real trendsetters in the industry – because now they will finally be able to own their own works and receive for their work on merit.

At the same time, such changes will not appeal to those who benefit from a lack of transparency in the music industry, as well as significant technology companies that prefer to create monopolies of market openness. If the idea of ​​using a detachment really does develop, then conflicts are unlikely to be avoided.

2018   Blockchain   Crowdfunding   ICO   Music Industry   Start-ups

Old World ICO Regulations

Initial Coin Offering regulations in the European countries differ from the ones of Northern American and Asian regions – the so-called “Old World” always has its own approach to any problem. In this article, we examine the ICO regulations in top European world countries.

Nowadays, one of the problems that many governments have with ICOs is that, technically, they represent a regulatory workaround. The problem is, that instead of seeking initial public offering businesses mostly can find low amount seed funding without the due diligence regulatory requirements, time, or fiduciary permissions as the  “traditional” IPO model would require. For a small business dealing with untested or unknown technologies, this peer-based alternative offers funding opportunities to firms otherwise ineligible for conventional funding approaches.
Of course, this approach can definitely help the ambitious enthusiasts to embody their perspective ideas. However, the last year’s reality shows that the number of fraudsters in this area of activity had risen to an unexpected level of 90% or close. Such countries as China and South Korea both claim that the possibility of scammers using ICOs to defraud investors is the primary reason they have moved to ban the creation or selling of them in their countries.

Many nations are pursuing changes to their regulatory policies to codify adherence to anti-money laundering/know your customer (AML/KYC) practices into law for ICOs and require additional oversight, such as registrations and disclosure statements.
Additionally, if the ICO relates the property transfers to fiat currencies, these ICOs, in fact, may be dealing with securities. This has implications for taxation and securities integrity.

The European Union

For now, within the European Union, overall, there has been a focus bringing ICOs in line with current legislation. The main idea of the process was in contending with them is to allow ICOs to operate within this territory, as long as they adhere to Anti-Money Laundering/Know Your Customer (AML/KYC) policies. However, like many of the nations in this category, The European Securities and Market Authority declared that they represent a substantial risk for investors.

United Kingdom

Up to latest time, the UK allows for the operation of ICOs but expects them to regulate themselves to the existing financial laws and regulations. On top of that, there have also been some issued warnings.
The Financial Conduct Authority warned that ICOs are unregulated and potentially fraudulent, while investors may be provided with “unbalanced, incomplete or misleading” documents by the ICO issuer, the Financial Times reported.

Isle of Man (UK)

The Isle of Man has indicated that it is seeking to forge regulations in the future that will establish and protect ICOs’ legal status.

Germany

One of Europe most developed countries, Germany is another one that has not yet set out direct regulation of ICOs, but they expect any new Coin Offering to adhere to the existing legislation, including the Banking Act, Investment Act, Securities Trading Act, Payment Services Supervision Act, and Prospectus Acts. They have also gone as far as to issue a warning however that there are risks in ICOs.

Moreover, there had been an official statement issued which stated: “Due to the lack of legal requirements and transparency rules, consumers are left on their own when it comes to verifying the identity, reputability, and credit standing of the token provider and understanding and assessing the investment on offer. It can also not be guaranteed that personal data will be protected in accordance with German standards”.

Estonia

For now, Estonia is currently considering starting its own ICO to raise funds. However, the Eurozone rule on nation states not having their own currencies continues to split opinions about the possibility of this happening.

Russia

The Kremlin issued five orders in October 2017, requiring altcoin miner registration and taxation, the application of securities laws to ICOs, and the use of altcoins to create a  “single payment space” in the Eurasian Economic Union to oppose the Eurozone. Russian President Vladimir Putin in May 2018 states, that “Russia will not issue its own government cryptocurrency.”

Switzerland

In one of Europe’s wealthiest countries, the recent attempts to regulate ICOs have failed, but the need to codify protections may reignite the regulation efforts. The Swiss Financial Market Supervisory Authority (FANMA) has started to examine ICOs for possible breaches of securities laws, which may be the first signs of a new wave of campaigning for regulatory oversight. Regulations are not thought, however, to be able to stop the current momentum to incorporate ICOs into Swiss culture.

2018   2018   Blockchain   Crowdfunding   Crypto industry   ICO Regulations

Initial Coin Offering vs Crowdfunding model

The modern digital world had seen the creation and development of the fundraising platforms due to rising need of an individual availability of the real opportunities and small private businesses development as well as innovative ideas financing via the Internet.

Even long before the Initial Coin Offering model came into big-time market play, the popularity of those largest platforms had been more noticeable, which had provided the chance to promote and finance the project online, like the most significant players of this business – Kickstarter and IndieGoGo.

Nowadays, the promising startups of independent projects have the opportunity and alternative to the classic venture capital funds. Anyway, both models do exist in parallel at the moment, each of them having apparent advantages and disadvantages, cons, and pros. Let’s have a closer look at the ICO and crowdfunding models, considering their best and worst current features.

The rise and fall of crowdfunding: from first success to the major problems.
The first example of the successful fundraising by the public network had been made 20 years ago – in 1997 the British band Marillion successfully raised $60,000 for its American tour, which was a significant event at the time.

However, this model of financing had gone mainstream only after more than a decade – with the advent of specialized websites like Kickstarter and IndieGoGo. Gradually, the private business shifted to the Internet, and yet, despite the popularity of such money investments grow even year, the main problem is still not resolved – the number of technological solutions of development had only increased the competition run, but it had not created fundamentally different mechanisms of financing for independent projects.

Right now, the undisputed market leader among the crowdfunding projects is the Kickstarter for sure. The platform, launched back in 2010, had shown consistent growth of almost 200% every year, but since 2014 the situation began to change, and it began to show serious problems.

Moreover, as the number of ambitious projects grew, eventually the attracted volumes of funds had reached tens of millions of dollars. Unfortunately, some of the extremely expensive projects had become an excellent example of the high-profile scams either dissatisfaction with the final product after the release date shown by many investors.

Here is the most striking example of such phenomena – at the time the project team behind the refrigerator Coolest Cooler creation, which raised $13 million, had not fulfilled its promises, and backers supporting the project lost severe investments. Another excellent case of the significant losses – a video game micro-console Ouya, which had cost its investors nearly $9 million. The project had been successfully funded, but in the final prototype was something much less than expected – beyond the user’s hope, as well as its sales were unsatisfactory.

An infamous project of Zano drone that devastated pockets of its bakers by as much as $3 million is also worth mentioning. At its time, it had been one of the most successful European project platforms, but with 12,000 investors extreme dissatisfaction of the unfulfilled promises by developers and the final poorly working prototype, general disappointment in the platform Kickstarter and crowdfunding had come along.

Video game developer had undoubtedly liked the crowdfunding model – a lot of teams collected vast amounts of funds, but the projects often did not reach even the stages of beta versions. Someone had focused their efforts for simple theft of tiny amounts– the indie project “Mansion Lord” developer had just disappeared a few years ago, after collecting a total of $30,000 from his project contributors.
These factors had a significant influence on the popularity of Kickstarter at all: if during 2013 more than 44,000 campaigns had been created, in 2014 the number raised to 67,000, 2015 had already started to show the growth rate slowing down – only 77,000. In 2016 the number of created campaigns decreased to the total number of 58,000, which gives a very negative outlook for future if the rules of the game on the platform stay the safe in forthcoming future.

Next, another serious problem is that the original essence of the platform created for the development and funding of the independent projects had somehow become smudged and almost lost. After the waves of success of particular small projects on the platform, the stable big-budget companies with colossal funding came into play. It is a fact that significant investments lead to significantly higher losses.

The fraud schemes involving the use of several hundred or more users appeared, which meant that companies had funded the successful launch of the campaigns from their own pockets – only to have real backers joined after noticing the sky-high start of a particular project on the platform. Because of such dishonest practices, the chances for the small developers and enthusiasts had been reduced slightly – without proper investments in PR-campaigns and Internet traffic, they risked to collect absolutely nothing or fail while being half-way to success.

According to all-time official statistics of the platform, over $ 3.3 billion of investment had been raised since launch, 13.6 million users had supported at least one campaign, and the total number of successfully funded projects is now more than 132,000.

If in the nearest future arrangements for the regulation of domestic competition are not introduced, the major players from the world of business will continue to reduce the number of advanced independent projects even more. Also, such things as fraud, deceit, and failure of obligations of the campaign organizer of the project are still present at large.

With the growth of demand for independent financing, the number of websites for crowdfunding is growing, but they mostly just copy the functionality with the addition of minor features to the existing and heightened competition. With the development of blockchain technologies and the emergence of ICOs independent entrepreneurs had gotten a real chance.

ICO features

Initial Coin Offering is a crowdfunding campaign based on the blockchain technology, it has a lot in common with the traditional crowdfunding, but there are also significant differences. Initially, ICO was one of the crowdfunding variants specified for cryptocurrency projects that did not want to work with traditional venture funds and capital – because it would, in fact, mean the loss of desired independence.

The most important difference between the ICO-crowdsale and crowdfunding lies like a financial asset that investor acquires. The crowdfunding campaigns get the real, Fiat money from its sponsors and that is, actually a payment in advance for the final product of a particular project. ICO, in turn, involves the purchase of a digital token for use by the client of the service project after its launch. In most cases, these tokens can be traded on the stock exchange, and some investors have the opportunity to obtain exclusive rights of a shareholder.

The ICOs organizers seek to obtain investments in the project by the concerned community, where funding is likely to be done with the use of Bitcoin or other cryptocurrencies. The nature of these digital assets allows one to send them to the recipient anywhere in the world, quickly and almost without any cost, as well as avoiding the traditional banking system. No doubt, such advantages will be appreciated by those who had ever transferred money overseas.

It should also be noted that, over time, the collection of money has ceased to be the single most crucial part of the ICO often tokens of the project are used as the local currency for various actions on a specially created platform. 2017 showed a real boom in the growth of the ICO projects. According to CoinSchedule, compared with 2016, the number of successful and active ICOs in the past year increased significantly from 46 to several hundred. As at the end of 2017, the funds raised during the ICO investments in the USA exceeded $4 billion, reports Bloomberg, citing data from Autonomous Research LLP.

Unfortunately, there is still a shortage of solutions allowing investors and startups find each other because the technological complexity sometimes is beyond the understanding of project participants and the conducting of its developers and organizers.

Besides the funding approaches, there are other significant differences. The ICOs and crowdfunding project principles of conduct are not the same, so is their audience.
The main differences between ICO and crowdfunding are:

1)The Product:

While investing in crowdfunding projects, backers pay for the result of the job of the specific team that they are interested in – final products, merely saying.
Cryptocurrency projects investors are mainly driven by the motivation of fast earnings or promotion of the new technologies in specific areas. In the first case, the prepayment is made for the product, in another – it is the financing of an idea or concept.

2) Campaign length:

Crowdfunding projects take too much time to prepare and conduct the campaign. For example, it took the LHV Company 2 long years to develop its campaign. It is not the tool that is best suitable for independent startups – the only exceptions are those campaigns that are funded by the venture capital investors. ICOs, in turn, can be carried out much faster – from weeks to minutes and seconds even.

Some striking examples of it:

Based on blockchain technology internet browser Brave raised $35 million, and although it’s not much for the modern ICO market, the fact is the full amount had been collected in only 24 seconds, and after a week the benefit of the investors of the project came to astonishing 676%. The most recent example – on Dec. 27 the Singularity Net startup, designed to create a decentralized framework for AI-based blockchain, during only 66 seconds collected $36 million for its developer company.

3) Financial features:

Top projects crowdfunding with multi-million dollar budget, as mentioned above, can often fail or merely turn out to be a Scam. With traditional crowdfunding, users can risk of losing investments of Fiat money – besides, the investor should invest their money, wait until the company begins to create the product, but if the development does not succeed, the money can be lost in many cases. In case of ICO, the investor can track what is happening with the project. The potential benefit for the future investors grows in many times.

4) Investor accessibility:

Nowadays, most crowdfunding projects are restricted to a particular region or a specific country that is native to the people behind the project. While some of the projects are global, not all apply to a broader scope, unlike ICOs.
In turn, many would be able to participate in coin offerings as the accessibility for it falls on a broader range. A lot of ICOs have gathered investors from all over the world as they are more accessible for people around the globe as they are advertised well in social media.

Besides that, they offer something much more that would attract the eye of the masses. Although some of the newer token sales set restrictions to be able to join, a lot of people still pass those restrictions and can participate in the mentioned ICO.

5) The contributor’s confidence:

In contrast to the dynamically growing ICO project markets, the crowdfunding platform like Kickstarter, in particular, is inferior not only regarding the growth rate but also in steadily decreasing of the number of completed projects. Pure statistics: back in 2015 this figure was 22,000 projects, and – already 18,800 in 2016. The share of successful projects from 2011 to 2014, on average, ranged from 45 to 50%, and this fell to 20-25% in some categories. Slightly better things are with the budget projects with funding of up to $10,000 – 69% of current success, according to the recent statistics Kickstarter campaign.

6) Regulations

Fact is, existing crowdfunding platforms are registered and regulated by the law.
This perspective market is expected to reach $96 billion by 2025. Anyway, some countries governments have already come up with regulations that set requirements for crowdfunding projects and define liabilities. One of such regulations is JOBS Act, issued in the US in 2012. Only qualified investors could invest in startup projects due to it, and France is the only country to perform government control over crowdfunding in the European sector.

Nowadays, ICOs are still usually unregulated. In consequence, ICO investors and project enthusiasts are subjected to some risks. Of course, the investors in ICO startups cannot be fully protected. As a result, many lost their money. According to Chainalysis, for the year 2017, fraudsters appropriated about 14% of the funds raised by projects using the Ethereum-based ICO, namely approximately $ 225 million out of $ 1.6 billion. As a result of fraudulent activity, about 30,000 investors suffered losses with an average of $7,500. Cybercrime concerning investors’ financial resources is growing faster than the number of investments attracted within ICO. The jump in both these indicators has become especially noticeable since March 2017.

Security and Exchange Commission had recently imposed first charges on companies that went on ICO for fraud. Among other risks are technical mistakes in smart-contracts that lie underneath ICO processes – one of the most infamous examples of it is the DAO that raised over $150 m and lost one-third of its funding due to the exploited by hackers vulnerabilities in smart-contracts. Filecoin ICO, for example, had become the first regulated ICO ever and raised record-breaking $252 million in less than an hour.

7) The rewards

Traditional crowdfunding model bakers don’t expect some decent rewards. Companies or enthusiasts who launch campaigns may offer fancy, but useless stuff like T-shirts, a copy of the final product upon the release or pure gratitude in credits. Other case sees reward models offer the possibility to pre-order the product.

The Initial Coin Offering participants receive tokens in return according to the amount contributed. Some issued tokens give access to the services that platform will offer in the future. An ICO might involve attributing equity to a token so that ownership provides voting privileges and access to future dividends. The typical use case of a token issued in an ICO is the creation of an asset that gives access to the features of a particular project. Besides, some view tokens as an investment opportunity as they hope that the price will go up sooner or later.

Both models, ICOs and CF, have a lot of advantages and significant features. Initial Coin Offering and Crowdfunding may seem to have a similar nature, at first sight, but they do differ in many key aspects. Traditional crowdfunding is regulated and is less risky for investors and the blockchain project, and ICOs is the fastest and easiest way to raise money. In some cases, the amount of money raised may surpass the sum required to launch a project.

Therefore, technical progress always wins, and there is no doubt about the future triumph of the new technologies such as blockchain startups.

2018   Crowdfunding   Crypto industry   Digital investmens   ICO   IPO

ICO Market Progress – Q1

Despite the cryptocurrency market fluctuations, Initial Coin Offering market grows progressively as the number of specialists and enthusiasts involved in this industry only rises each month.

Due to the latest statistics, the market dynamic is definetly positive. The volume of funds attracted worldwide through the ICO for the first quarter of 2018 was $ 3.3 billion. For comparison, in 2017 with the help of ICOs, $ 6.1 billion was raised. The data was provided by the well-known rating agency ICORating.

However, as noted by the company’s specialists, the indicators take into account only the funds collected during the ICO. The statistics do not apply to the data of the unfinished sale rounds of funding, indicators of presale and round of the Telegram messenger private sale (the volume of funds attracted here is undoubtedly is the highest here).

In late 2017 and early 2018, many companies have entered the ICO work in the fields of financial services, exchanges, e-wallets, as well as in the blockchain infrastructure itself.

The average duration of all ICOs during the latest time varied from one to two months. At the same time, only half of the projects were able to attract more than $ 100,000 of capitalization.

As for geography – most of the ICOs were conducted under the United States jurisdiction – 59 projects totaled about $ 583.8 million; in Singapore – 34 projects raised about $ 468.1 million, and in the UK 26 projects raised $ 99.7 million. In Russia, 13 projects raised about $ 20.8 million.

Speaking about the stage of the product, analysts found out that 46.6% of the total number of ICO-projects did not have a finished product at the time of the token sales launch. This not obviously relates to the scam project nature (which reached the 90% level by the end of 2017), but for the funds required to develop a minimum viable product (MVP). According to ICORating, MVP was available only for 26.2% of projects, 15.5% created an alpha version of the product, 11.2% – a beta version, 0.5% of the projects had a primary code available only.

“When choosing similar projects that have nothing but an idea or concept, investors cannot in any way check the network performance, its bandwidth or other characteristics. Therefore, users are faced with a choice when they can either blindly trust or look for another project,” the researchers noted.

It was also noted that only 21% of new tokens had been added to the exchanges – by comparison at the end of 2017, this figure was 33%. Such a significant fall can be explained by the fact that 83% of coins issued from January to April 2018 are now lower than during the pre-sale period.

Back in 2017, the finance sector had become the most popular segment for ICO. This is still actual for early 2018, though, in total, there are 225 crypto funds across seven strategy types.

2018   2018   Blockchain   Crowdfunding   Digital investmens   ICO   ICO 2018   ICO campaign launch   Start-ups