tag:theconversation.com,2011:/uk/topics/ico-44020/articlesICO – The Conversation2020-03-04T13:57:52Ztag:theconversation.com,2011:article/1326202020-03-04T13:57:52Z2020-03-04T13:57:52ZGoogle wants to move UK users’ data to the US – what does that mean for your rights?<figure><img src="https://images.theconversation.com/files/318638/original/file-20200304-66064-2n5t5u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/sanktpetersburg-russia-november-8-2017-womans-750883999">BigTunaOnline/Shutterstock</a></span></figcaption></figure><p>It was <a href="https://uk.reuters.com/article/us-google-privacy-eu-exclusive/exclusive-google-users-in-uk-to-lose-eu-data-protection-sources-idUKKBN20D2M3">recently reported</a> that Google was planning to move the personal data of its UK users out of the EU and into the US. <a href="https://www.theguardian.com/technology/2020/feb/20/uk-google-users-to-lose-eu-gdpr-data-protections-brexit">Several outlets</a> <a href="https://www.cnet.com/news/uk-google-users-to-lose-eu-data-protection-due-to-brexit-gdpr/">reporting on this story</a> have suggested that this would mean that, as Britain has left the EU, the data would no longer be covered by the EU’s world-leading data protection law, <a href="https://theconversation.com/gdpr-ground-zero-for-a-more-trusted-secure-internet-95951">the GDPR</a>.</p>
<p>If this were the case, it would make it much harder to access personal data Google holds on you or to work out how, why and for what purposes the data was being used. It would also make it more difficult to make Google correct or delete that data and Google would be able to process your data free from the conditions currently imposed by the GDPR. But this representation of the situation is misleading. </p>
<p>The <a href="https://www.out-law.com/en/articles/2016/november/gdpr-will-come-into-force-in-the-uk-in-2018-minister-confirms/">key message</a> of the UK government has always been that the substance of the GDPR, if not the GDPR itself, will continue to apply in the UK after Brexit. In fact, the main tenets of the GDPR have already been enshrined into UK law with the <a href="https://www.gov.uk/data-protection">Data Protection Act 2018</a>.</p>
<p>This legislation will continue to be enforced in its current form by the UK’s data regulator, the Information Commissioner’s Office (ICO), until the end of the Brexit transition period on Dec 31 2020. To all intents and purposes, the UK will still be treated as if it were a part of the EU until this time. That means data processing activities involving UK citizens will still be subject to EU regulatory and judicial bodies (such as the European Court of Justice). </p>
<p>After the transition period elapses, the <a href="https://www.gov.uk/eu-withdrawal-act-2018-statutory-instruments/the-data-protection-privacy-and-electronic-communications-amendments-etc-eu-exit-no-2-regulations-2019">Data Protection, Privacy, and Electronic Communications Regulations 2019</a> will come into force and introduce a new “<a href="https://www.itgovernance.co.uk/eu-gdpr-uk-dpa-2018-uk-gdpr">UK GDPR</a>”, which will replicate the majority of the EU GDPR’s substantive features.</p>
<p>So the protections of the GDPR are unlikely to disappear from UK law any time soon, and Google will be required to comply with its substantive provisions. Claims that Google will be able to use UK citizens’ data completely free from GDPR requirements are, for now at least, overblown and hyperbolic.</p>
<p>However, the UK will be able to amend data protection rules set out under the UK GDPR, as it can with any other national legislation. In theory, this will include the ability to establish lower data protection standards than are currently demanded by the EU, including those related to international data transfers. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/318645/original/file-20200304-66089-1gbnu6y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/318645/original/file-20200304-66089-1gbnu6y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/318645/original/file-20200304-66089-1gbnu6y.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/318645/original/file-20200304-66089-1gbnu6y.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/318645/original/file-20200304-66089-1gbnu6y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/318645/original/file-20200304-66089-1gbnu6y.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/318645/original/file-20200304-66089-1gbnu6y.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Moving user data to the US won’t exempt Google from UK data protection law.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/network-server-room-computers-digital-communications-715802656">Connect world/Shutterstock</a></span>
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<p>The EU GDPR currently bans data transfers to non-EU countries that do not provide adequate levels of data protection. Although the US and the EU do have a data transfer agreement, it <a href="https://www.lawfareblog.com/european-court-justice-opinion-clouds-future-transatlantic-commercial-data-transfers">is being challenged</a> by privacy and data protection interest groups who think US data protection law isn’t strong enough. In particular, they are worried that transferred data could be caught up in the US government’s mass surveillance initiatives.</p>
<p>Another practical change is that enforcing data protection law in the UK will be entirely up to the ICO. And it is perhaps doubtful that this regulator will be as effective as the might of European data protection authorities, backed by the European Court of Justice.</p>
<h2>Will other firms follow suit?</h2>
<p>Tech firms often view data protection law as a bureaucratic hindrance to their business models. For these sorts of companies, the fewer rules and conditions attached to the processing of their users’ data, the better. If Google moves UK user data from Ireland to the US then, for the reasons explained above, the data could eventually be subject to lower standards and levels of enforcement. </p>
<p>This means there is an obvious and clear incentive for Google to make this shift. In many ways it would be foolish for them not to. And it is probably only a matter of time before we see other tech firms doing the same. </p>
<p>However, it all depends on what the UK actually does after the Brexit transition period. The government may set lower data protection standards, perhaps as a condition of a potential trade deal with the US. But if the standards fall below what the EU deems adequate then it could ban data transfers to the UK, which would be hugely disruptive for many companies with operations in the UK.</p>
<p>On the other hand, there is nothing to stop the UK from adopting higher standards than those of the EU. Given the lack of political interest in matters of data protection, this is perhaps unlikely.</p>
<p>At this point, it is too early to say what is likely to happen in the long term. We simply have to wait and see. But for now, the protections established by the GDPR will play a significant role. Google won’t just be able to do whatever it likes with your data.</p><img src="https://counter.theconversation.com/content/132620/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Henry Pearce does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Reports that UK citizens are to lose the data protection from GDPR are overblown.Henry Pearce, Senior Lecturer in Law, University of PortsmouthLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1147062019-05-13T10:37:13Z2019-05-13T10:37:13ZHow cryptocurrency scams work<figure><img src="https://images.theconversation.com/files/273690/original/file-20190509-183112-75zv1.jpg?ixlib=rb-1.1.0&rect=404%2C31%2C4781%2C3421&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Don't end up like this person.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/shocked-stressed-young-woman-reading-bad-1297544869">fizkes/Shutterstock.com</a></span></figcaption></figure><p><a href="https://navms.com/allegedly-head-of-the-bitconnect-cryptocurrency-scam-arrested-in-dubai/">Millions of cryptocurrency investors</a> have been scammed out of massive sums of real money. In 2018, losses from cryptocurrency-related crimes amounted to <a href="https://www.reuters.com/article/us-crypto-currency-crime/cryptocurrency-thefts-scams-hit-1-7-billion-in-2018-report-idUSKCN1PN1SQ">US$1.7 billion</a>. The criminals use both old-fashioned and new-technology tactics to swindle their marks in schemes based on digital currencies exchanged through online databases called blockchains.</p>
<p>From <a href="https://scholar.google.com/citations?user=Qx3YMi4AAAAJ&hl=en&oi=ao">researching</a> <a href="https://doi.org/10.1109/MITP.2017.3051335">blockchain</a>, <a href="https://doi.org/10.1109/MITP.2017.3680961">cryptocurrency</a> and <a href="https://www.springer.com/us/book/9783642115219">cybercrime</a>, I can see that some cryptocurrency fraudsters rely on <a href="https://thenextweb.com/hardfork/2019/04/04/indian-entrepreneur-implicated-in-300-million-bitcoin-ponzi-scheme-gets-bail/">tried-and-true Ponzi schemes</a> that use income from new participants to pay out returns to earlier investors. </p>
<p>Others use <a href="https://www.buzzfeednews.com/article/ryanmac/cryptocurrency-scammers-are-running-wild-on-telegram">highly automatized and sophisticated processes</a>, including automated software that interacts with Telegram, an internet-based instant-messaging system popular among people interested in cryptocurrencies. Even when a cryptocurrency plan is legitimate, fraudsters can still <a href="https://theconversation.com/how-can-criminals-manipulate-cryptocurrency-markets-97294">manipulate its price in the marketplace</a>.</p>
<p>An even more basic question arises, though: How are unsuspecting investors attracted to cryptocurrency frauds in the first place? </p>
<h2>Fast-talking swindlers</h2>
<p>Some cryptocurrency fraudsters appeal to people’s greed, promising big returns. For example, an unknown group of entrepreneurs runs the scam bot iCenter, which is a <a href="https://medium.com/@nickcryptoltc/ponzi-investment-schemes-new-and-improved-on-the-blockchain-icenter-co-f9ee68f6c8fe">Ponzi scheme for Bitcoin and Litecoin</a>. It doesn’t provide information on investment strategies, but somehow <a href="https://www.buzzfeednews.com/article/ryanmac/cryptocurrency-scammers-are-running-wild-on-telegram">promises investors 1.2% daily returns</a>.</p>
<p>The iCenter scheme operates through a group chat on Telegram. It starts with a small group of scammers who are in on the racket. They get a referral code that they share with others, in blogs and on social media, hoping to get them to join the chat. Once there, the newcomers see encouraging and exciting messages from the original scammers. Some newcomers decide to invest, at which point they are assigned an individual bitcoin wallet, into which they can deposit bitcoins. They agree to wait some period of time – 99 or 120 days – to receive a significant return.</p>
<p>During that time, the newcomers often use <a href="https://thenextweb.com/hardfork/2018/12/17/cryptocurrency-italy-silly-scams/">social media to share their own referral codes</a> with friends and contacts, bringing more people into the group chat and into the investment scheme. There’s no actual investment of the funds in any legitimate business. Instead, when new people join, the person who recruited them gets a percentage of the new funds, and the cycle continues, paying out to earlier participants from each round of newer investors.</p>
<p>Some members work especially hard to bring in new funds, posting <a href="https://www.buzzfeednews.com/article/ryanmac/cryptocurrency-scammers-are-running-wild-on-telegram">tutorial videos and pictures of themselves holding large amounts of money</a> as enticements to join the scam.</p>
<h2>Lies and more lies</h2>
<p>Some scammers go for straight-up deception. The founders of scam cryptocurrency OneCoin <a href="https://cointelegraph.com/news/us-district-attorney-charges-onecoin-founders-with-billions-in-alleged-fraud">defrauded investors of $3.8 billion</a> by convincing people their <a href="https://qz.com/1568908/onecoin-is-unraveling-as-a-cryptocurrency-pyramid-scheme/">nonexistent cryptocurrency was real</a>.</p>
<p>Other scams are based on impressing potential victims with jargon or claims of specialized knowledge. The Global Trading scammers claimed they took advantage of <a href="https://www.wsj.com/articles/bitcoins-crashing-that-wont-stop-arbitrage-traders-from-raking-in-millions-1517749201">price differences on various cryptocurrency exchanges</a> to profit from what is called arbitrage – simply buying cheaply and selling at higher prices. Really they just took investors’ money.</p>
<p>Global Trading used a bot on Telegram, too – investors could send a balance inquiry message and <a href="https://www.buzzfeednews.com/article/ryanmac/cryptocurrency-scammers-are-running-wild-on-telegram">get a response with false information</a> about how much was in their account, sometimes even seeing balances <a href="https://steemit.com/bitconnect/@jjona/global-trading-bot-promising-6-gains-per-day">climb by 1% in an hour</a>. With returns looking like that, who could blame people for <a href="https://steemit.com/bitconnect/@jjona/global-trading-bot-promising-6-gains-per-day">sharing the scheme</a> with their friends and family on social media?</p>
<h2>Exploiting friends and family</h2>
<p>Once a scheme has started, it stays alive – at least for a while – through social media. One person gets taken in by the promise of big returns on cryptocurrency investments and spreads the word to <a href="https://news.bitcoin.com/crypto-scams-comprise-0-6-fraud-australian-consumer-watchdog/">friends and family members</a>.</p>
<p>Sometimes big names get involved. For instance, the kingpin behind <a href="https://entrackr.com/2019/04/amit-bhardwaj-bail-bitoin/">GainBitcoin</a> and other alleged scams in India convinced a number of Bollywood celebrities to <a href="https://www.ccn.com/indian-authorities-round-up-on-bitcoin-scammers-properties-worth-60-million">promote his book, “Cryptocurrency for Beginners</a>.” He even tried to make himself <a href="https://cointelegraph.com/news/india-crypto-scamsters-bhardwaj-brothers-arrested-for-duping-investors-out-of-300-mln">a bit of a celebrity</a>, proclaiming himself a “<a href="https://www.prnewswire.com/in/news-releases/cryptocurrency-guru-amit-bhardwaj-launches-pioneering-e-book-632585663.html">cryptocurrency guru</a>,” as he <a href="https://www.ccn.com/indian-police-find-crucial-clues-in-300-million-gainbitcoin-scam">led</a> <a href="https://www.businesstoday.in/current/corporate/cryptocurrency-guru-arrested-for-bitcoin-ponzi-schemes-scam-could-run-into-rs-13000-crore/story/274255.html">efforts</a> <a href="https://captainaltcoin.com/scam-alert-mcap-coin-is-dead-as-a-dodo/">that</a> <a href="https://www.crowdfundinsider.com/2018/12/142666-indian-police-arrest-10-in-gb21-crypto-ponzi-fraud-case/">cost</a> investors between <a href="https://coinjournal.net/exit-scam-vietnamese-cryptocurrency-company-goes-dark-after-allegedly-duping-investors-of-us660m/">$769 million and $2 billion</a>.</p>
<p>Not all the celebrities know they’re involved. In one blog post, iCenter featured a video that purported to be an <a href="https://www.buzzfeednews.com/article/ryanmac/cryptocurrency-scammers-are-running-wild-on-telegram">endorsement by Dwayne “The Rock” Johnson</a>, holding a sign featuring iCenter’s logo. Videos of Justin Timberlake and Christopher Walken were deceptively edited so they appeared to praise iCenter, too.</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/3yGlurBytwA?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Dwayne ‘The Rock’ Johnson does not actually endorse this cryptocurrency scam.</span></figcaption>
</figure>
<h2>Fraudulent initial coin offerings</h2>
<p>Another popular scam technique is called an “initial coin offering.” A potentially legitimate investment opportunity, an initial coin offering essentially is a way for a startup cryptocurrency company to raise money from its future users: In exchange for sending active cryptocurrencies like bitcoin and ethereum, customers are promised a discount on the new cryptocoins.</p>
<p>Many initial coin offerings have <a href="https://ethereumworldnews.com/consumers-lose-100-million-ico-exit-scams/">turned out to be scams</a>, with organizers engaging in cunning plots, even renting fake offices and creating fancy-looking marketing materials. In 2017, a lot of hype and media coverage about cryptocurrencies fed a huge wave of initial coin offering fraud. In 2018, <a href="https://www.cryptoglobe.com/latest/2018/12/nearly-1000-dead-cryptocurrency-projects-identified-by-coinopsy-deadcoins/">about 1,000 initial coin offering efforts</a> collapsed, costing backers at least $100 million. Many of these projects had no original ideas – <a href="https://www.wsj.com/graphics/whitepapers/">more than 15% of them</a> had copied ideas from other cryptocurrency efforts, or even plagiarized supporting documentation.</p>
<p>Investors looking for returns in a new technology sector are still interested in blockchains and cryptocurrencies – but should beware that they are complex systems that are new even to those who are selling them. Newcomers and relative experts alike have fallen prey to scams. </p>
<p>In an environment like the current cryptocurrency market, potential investors should be very careful to research what they’re putting their money into and be sure to find out who is involved as well as what the actual plan is for making real money – without defrauding others.</p><img src="https://counter.theconversation.com/content/114706/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nir Kshetri does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Cryptocurrency fraudsters have swindled their victims out of hundreds of millions – even billions – of dollars. What do they do to earn people’s trust and then take their money?Nir Kshetri, Professor of Management, University of North Carolina – GreensboroLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1016902018-08-17T13:24:55Z2018-08-17T13:24:55ZBitcoin’s rollercoaster ride reflects the biggest issue facing cryptocurrencies: regulation<figure><img src="https://images.theconversation.com/files/232448/original/file-20180817-165967-v7e38.jpg?ixlib=rb-1.1.0&rect=7%2C0%2C5168%2C3445&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/bitcoins-new-virtual-money-conceptgold-candle-710889814?src=l37Sdn0-y_jQyrBkOhfGvA-1-55">Shutterstock</a></span></figcaption></figure><p>The rollercoaster of cryptocurrency pricing is on the downward slope again. <a href="https://www.coindesk.com/price/">Bitcoin</a> has fallen by a quarter in the past month, with other large currencies such as <a href="https://www.coindesk.com/ethereum-price/">Ethereum</a> and <a href="https://coinmarketcap.com/currencies/ripple/">Ripple</a> down more than 40%. So where does this latest bout of losses leave cryptocurrencies?</p>
<p>Sceptics point to the multitude of <a href="https://www.forbes.com/sites/tedknutson/2018/04/10/cryptocurrency-fraud-widespread-warns-regulator/#5ada81bb6b06">regulatory issues</a> and avenues for fraud and outright theft. <a href="https://www.raconteur.net/finance/cryptocurrencies-future-bright">Advocates</a> continue to insist that these are the “future of finance”. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/232341/original/file-20180816-2906-1q8a6ps.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/232341/original/file-20180816-2906-1q8a6ps.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/232341/original/file-20180816-2906-1q8a6ps.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=335&fit=crop&dpr=1 600w, https://images.theconversation.com/files/232341/original/file-20180816-2906-1q8a6ps.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=335&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/232341/original/file-20180816-2906-1q8a6ps.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=335&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/232341/original/file-20180816-2906-1q8a6ps.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=421&fit=crop&dpr=1 754w, https://images.theconversation.com/files/232341/original/file-20180816-2906-1q8a6ps.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=421&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/232341/original/file-20180816-2906-1q8a6ps.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=421&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Bitcoin’s slide over the last month.</span>
</figcaption>
</figure>
<p>One of the reasons for the latest sell-off is that investors are selling their crypto to pay off the <a href="https://smartereum.com/5636/the-real-reason-behind-bitcoins-price-crash-revealed-thu-aug-16/">capital gains tax</a> they are required to pay on their gains. It has been estimated that <a href="https://www.cnbc.com/2018/04/05/wall-streets-tom-lee-predicts-massive-outflow-from-cryptocurrencies-ahead-of-tax-day.html">US$25 billion is owed</a> in the US alone. </p>
<p>But there is a more fundamental issue at play of investors rushing to convert their profits from <a href="https://theconversation.com/explainer-what-are-initial-coin-offerings-icos-and-why-are-investors-flocking-to-them-84330">initial coin offerings</a> (or ICOs) into fiat currency like dollars. This is where a new crypto token is created in exchange for existing cryptocurrencies like bitcoin. </p>
<p>The lack of regulation to protect the profits made from ICOs reflects the wider issue facing the future of crypto. If cryptocurrencies are to become a more mainstream asset, they will require regulation – but this will be unpopular with much of its existing fan base which is inherently libertarian.</p>
<h2>ICO trouble</h2>
<p>The transfer of crypto gains from an ICO to fiat currency can generate quite the scrummage as cryptocurrency investors attempt to exit the market with the largest amount of value possible. In early 2018, it was <a href="https://news.bitcoin.com/46-last-years-icos-failed-already/">reported</a> that almost 46% of 2017 ICOs had already failed. </p>
<p>The pressure to exit in a timely manner has been exacerbated by the substantial number of ICO scams that have taken place. Crypto analysis site Diar <a href="https://diar.co/volume-2-issue-32/">estimates</a> that, since 2017, nearly US$100m had been lost to ICO exit scams where organisers have little or no intention of developing a financial product that will perform to the standard that is advertised to investors.</p>
<p>The cryptocurrency world is largely unregulated and so ripe territory for scammers to operate. Fraud in cryptocurrency markets has to date taken multiple forms. As well as ICO issues, there has been fraud at exchange level, the most famous example of which was the <a href="https://cointelegraph.com/news/the-mess-that-was-mt-gox-four-years-on">collapse of the Mt. Gox exchange</a> which once handled 80% of global bitcoin trading. </p>
<p>The number of issues and vast sums of money involved has resulted in the US Securities and Exchange Commission casting its supervisory gaze on the crypto world. </p>
<h2>Substantial questions</h2>
<p>A growing body of academic research has raised substantial questions over the true underlying integrity of cryptocurrency markets. It highlights the various areas where regulation is needed if bitcoin and others are to have a viable future.</p>
<p>For example, economist Neil Gandal and colleagues <a href="https://weis2017.econinfosec.org/wp-content/uploads/sites/3/2017/05/WEIS_2017_paper_21.pdf">found</a> that trading volumes on all Bitcoin exchanges increased substantially on days where they found suspicious trading activity. The authors demonstrated that this suspicious activity by one single actor or agent was most likely a big factor behind the sharp increase in the price of Bitcoin from US$150 to US$1,000 in late 2013. </p>
<p>Declines in liquidity <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3194869">have also been found</a> to contribute to the risk of a crash in Bitcoin. This is problematic given that, even under normal trading conditions, Bitcoin is found to be more volatile, less liquid <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3204237">and costlier to transact</a> than other assets. </p>
<p>Finance researchers John Griffin and Amin Shams <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3195066">analysed blockchain data</a> and found that tether, a cryptocurrency pegged to the US dollar, deeply influenced other cryptocurrencies during the sharp price appreciations of 2017 and 2018. They concluded that tether transactions were responsible for up to 50% of the increase of Bitcoin and 64% of the increase in value of other top cryptocurrencies. </p>
<p>Our own research has suggested that cryptocurrencies are <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3070288">only very lightly linked</a> to other financial or economic assets, and that the majority are <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3073727">unaffected</a> by the main market announcements. This all goes to show that cryptocurrencies can be manipulated and do not reflect normal market activity.</p>
<p>The underlying economic value of cryptos has also been evaluated, with <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2394024">some suggesting</a> that a crypto’s value is determined solely by the willingness of its holders to hoard. Others have found that crypto values are <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3078248">mainly a function of their network depth</a> and not their intrinsic usefulness – again leaving it open to manipulation. <a href="http://www.nber.org/papers/w24717.pdf">Still others</a> point to the economic limits to bitcoin arising from its <a href="http://arxiv.org/pdf/1805.07610">mining cost</a>. </p>
<p>Strangely, we now live in a world where joke cryptocurrencies such as the <a href="https://uetoken.com/">Useless Ethereum Token</a> and <a href="https://coinmarketcap.com/currencies/fuzzballs/">Fuzzballs</a> have tangible value, despite being miniscule in comparison to Bitcoin or Ethereum. The former advertises itself with the statement: “Seriously, don’t buy these tokens”, the latter contains a warning on its website stating: “There seems to be a problem with the Fuzzballs chain/source” and “mine Fuzzballs at your own risk.” </p>
<p>Would a neutral, independent observer look at these facts and buy these tokens? What would an observer that survived the <a href="https://www.wired.com/insights/2013/08/tech-boom-2-0-lessons-learned-from-the-dot-com-crash/">dot-com crash</a> think?</p>
<p>To be merited as a somewhat viable and trustworthy financial market product, cryptocurrencies must in some way adhere to a common standard of international regulation. Until this occurs, we will continue to observe situations involving substantial theft from international exchanges, continued disquiet as fraudulent ICOs are uncovered with investor funds channelled around the world, and most interestingly, a market that has become so sensitive to minute details that even the smallest hint of strife can generate substantial price volatility. </p>
<p>The challenge for proponents of cryptocurrencies is how to continue to promote their decentralised, anonymous, libertarian nature as their issuance and trading become more and more regulated.</p><img src="https://counter.theconversation.com/content/101690/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Bitcoin needs regulation to bring it into the mainstream but this goes against its libertarian ideals.Brian Lucey, Professor of International Finance and Commodities, Trinity College DublinShaen Corbet, Assistant Professor (Finance), Dublin City UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/943252018-04-05T19:53:09Z2018-04-05T19:53:09ZThe last thing the Marshall Islands need is a cryptocurrency<figure><img src="https://images.theconversation.com/files/212932/original/file-20180403-189810-1x1re77.jpg?ixlib=rb-1.1.0&rect=0%2C58%2C1497%2C830&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Marshall Islands, Laura Beach.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/mrlins/302895051/">Stefan Lins/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>The Micronesian Republic of the Marshall Islands is set to become the first country to base their <a href="http://www.dw.com/en/sovereign-cryptocurrency-marshall-islands-to-launch-world-first-digital-legal-tender/a-42810832">national currency on a cryptocurrency</a>. The Israeli company Neema will provide the technology and support to launch an <a href="https://theconversation.com/ico-des-levees-de-fonds-en-cryptomonnaie-84956">initial coin offering</a> (ICO) that is expected to raise $30 million, half of which Neema will keep.</p>
<p>The Marshall Islands’ parliament passed the law that will create the cryptocurrency, known as the sovereign (SOV) earlier this month, giving it full legal status as a currency to be used alongside the US dollar. Unlike bitcoin, all 24 million of the sovereign coins will be issued at once with 6 million being sold to foreign investors and 2.4 million going to Marshallese residents. The money raised will pay for the system in addition to funding anti-global-warming projects and supporting citizens that are still affected by the nuclear bombs the US army tested in the area between <a href="https://www.ctbto.org/nuclear-testing/the-effects-of-nuclear-testing/the-united-states-nuclear-testing-programme/">1946-1958</a>.</p>
<h2>Dodgy or politically motivated ICOs</h2>
<p>The news of the Marshall Islands’ ICO comes at a time of growing concern about ICOs being thinly disguised scams. Google <a href="https://www.bloomberg.com/news/articles/2018-03-14/google-to-ban-cryptocurrency-initial-coin-offering-ads-in-june">announced in March</a> that it would be banning all advertising promoting cryptocurrencies and initial coin offerings, a move that follows a similar move in January by <a href="https://www.bloomberg.com/news/articles/2018-01-30/Facebook-bans-ads-associated-with-bitcoin-cryptocurrencies">Facebook</a>. European and US authorities have also <a href="https://www.ft.com/content/bd74fcdb-8bbf-3548-aa48-7bdf3e0d4502">warned</a> of the risks of investing in ICOs. ICOs are <a href="https://www.bitcoinmarketjournal.com/ico-regulations/">banned</a> in China and South Korea.</p>
<p>Perhaps the most contentious of recent ICOs has been that of the Venezuelan government’s “petro” cryptocurrency that President Nicholas Maduro <a href="https://www.telesurtv.net/english/news/Venezuela-Petro-Cryptocurrency-Reaps-US5B-in-Pre-Sales-20180310-0001.html">claimed</a> has raised US $5 billion. If true, this would have represented a significant victory for the country in bypassing US sanctions that are currently in place. However, until the currency begins trading on exchanges, it will be impossible to verify if the claims made by the Venezuelan government are true. Right now, the ICO is being used mostly for propaganda</p>
<p>In the case of the Marshall Islands, it is absolutely not clear what purpose a digital currency would serve. The country suffers high unemployment and incidences of chronic diseases and most of its national income comes from <a href="http://www.imf.org/en/Publications/CR/Issues/2016/12/31/Republic-of-the-Marshall-Islands-2016-Article-IV-Consultation-Press-Release-Staff-Report-and-44150">foreign aid</a>. Slow speed Internet access is <a href="http://www.ntamar.net/index.php/services/Internet">available</a> but out of the financial reach of most residents of the islands. Only <a href="https://www.budde.com.au/Research/Marshall-Islands-Telecoms-Mobile-and-Broadband-Statistics-and-Analyses">19% of the population use the Internet</a> and 30% have a mobile phone with the mobile phone network still being <a href="https://www.gsmaintelligence.com/research/?file=23485245295f02524925b2bd3aeec6de&download">predominantly 2G</a></p>
<p>It is hard to see what would maintain the value of the sovereign once it is issued, a problem faced by most of the new cryptocurrencies. In addition, even though the sovereign is technically a cryptocurrency, the fact that it is controlled by a central government, that all of the coins are issued at one time, and that it requires all parties to a transaction to be identified, is completely contrary to the original idea of <a href="https://bitcoin.org/bitcoin.pdf">bitcoin</a>. The use of identification, possibly by facial recognition, is part of a “Yokwe” permissioning protocol that has been added to the cryptocurrency to make it <a href="https://www.nasdaq.com/article/new-sovereign-cryptocurrency-will-be-legal-tender-in-the-marshall-islands-cm928197">non-anonymous</a>.</p>
<h2>Cryptocurrencies and climate change</h2>
<p>The biggest irony of the Marshall Islands’ launching a cryptocurrency is the country faces <a href="http://www.imf.org/en/Publications/CR/Issues/2016/12/31/Republic-of-the-Marshall-Islands-2016-Article-IV-Consultation-Press-Release-Staff-Report-and-44150">annihilation from global warming</a>, yet the technology on which cryptocurrencies are based consumes <a href="https://www.theguardian.com/technology/2018/jan/17/bitcoin-electricity-usage-huge-climate-cryptocurrency">massive amounts of electricity</a> and thus contributes to large amounts of CO<sub>2</sub> emissions – driving the very sea rise that threatens the Marshall Islands. Bitcoin has been estimated to use 42 TWh of electricity per year, which is more than New Zealand’s annual consumption and would be responsible for 20 megatonnes of CO<sub>2</sub> emissions. Bitcoin and Ethereum combined use only slightly less energy every year than <a href="https://digiconomist.net/ethereum-energy-consumption">Venezuela</a>.</p>
<p>The reason that cryptocurrencies use this amount of energy is all to do with the way transactions are recorded on the blockchain. To prevent fraud and verify that currency has been sent between one party and another, a great deal of intensive computer work is done which uses a large amount of electricity. Even though Ethereum uses <a href="https://digiconomist.net/ethereum-energy-consumption">less energy</a> than Bitcoin, its use is still significant as is the associated CO<sub>2</sub> emissions that result.</p>
<p>The debate in the Marshall Islands’ parliament about the adoption of the cryptocurrency focussed on the financial costs and benefits of that money to the country. The government even plans to <a href="https://www.nasdaq.com/article/new-sovereign-cryptocurrency-will-be-legal-tender-in-the-marshall-islands-cm928197">allocate</a> 10% of the proceeds from the ICO to a Green Climate Fund.</p>
<p>Possibly the best scenario for the ICO is for it to succeed and provide the Marshall Islands with much needed funds but for the cryptocurrency itself never to be used so that it doesn’t hasten the nations disappearance under the sea.</p><img src="https://counter.theconversation.com/content/94325/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David Glance ne travaille pas, ne conseille pas, ne possède pas de parts, ne reçoit pas de fonds d'une organisation qui pourrait tirer profit de cet article, et n'a déclaré aucune autre affiliation que son organisme de recherche.</span></em></p>The Micronesian Republic of the Marshall Islands is about to become the first country to base its national currency on cryptomoney. Analysis of an absurd political decision.David Glance, Director of UWA Centre for Software Practice, The University of Western AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/923102018-02-23T11:03:16Z2018-02-23T11:03:16ZDon’t be fooled – Venezuela’s Petro is not really a cryptocurrency<p>Venezuela is suffering one of the <a href="https://theconversation.com/inside-venezuelas-crisis-7-essential-reads-89018">worst economic crises of modern times</a>. President Nicolás Maduro’s beleaguered government is overseeing scarcities of food and medicine, soaring crime rates and the collapse of public services and the health system.</p>
<p>But when it launched a new cryptocurrency, the Petro, in an <a href="https://theconversation.com/explainer-what-are-initial-coin-offerings-icos-and-why-are-investors-flocking-to-them-84330">Initial Coin Offering</a> (or ICO) the virtually bankrupt country says it <a href="http://fortune.com/2018/02/21/petro-bitcoin-venezuela-ico-cryptocurrency-maduro/">raised US$735m</a> on the first day of the pre-sale.</p>
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Read more:
<a href="https://theconversation.com/explainer-what-are-initial-coin-offerings-icos-and-why-are-investors-flocking-to-them-84330">Explainer: what are initial coin offerings (ICOs) and why are investors flocking to them?</a>
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<p>Any rational investor would probably steer well clear of the 100m Petro made available. The ICO is obviously a way to raise money by getting around <a href="http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.LI.2018.016.01.0014.01.ENG&toc=OJ:L:2018:016I:TOC">the</a> <a href="https://www.state.gov/e/eb/tfs/spi/venezuela/">sanctions</a> against Venezuela, which prevent it from issuing bonds or securities in the regular financial system. It is in desperate need of US dollars, with inflation <a href="https://www.bloomberg.com/view/articles/2017-12-19/venezuela-is-living-a-hyperinflation-nightmare">running into quadruple digits</a> – which has made the Venezuelan bolívar worthless. Meanwhile, the production of oil, on which the country’s economy relies, <a href="https://www.reuters.com/article/us-opec-venezuela/crisis-hit-venezuelas-oil-output-plummets-in-2017-to-decades-low-idUSKBN1F720C">has plummeted in the past year</a>.</p>
<h2>An interesting experiment</h2>
<p>That said, the Petro certainly represents a very interesting experiment. It is the biggest ICO ever proposed and, if it hits its cap of around US$5 billion – which is highly debatable – that will represent about 5% of the total number of Ethereum cryptocurrency <a href="https://etherscan.io/stat/supply">currently circulating</a> and will equal more than a half of the entire <a href="https://www.coindesk.com/ico-tracker/">revenues generated</a> by ICOs up to 2017.</p>
<p>For Venezuela this is a smart option. Rather than restructuring the whole economy and linking a new currency to the US dollar, launching a cryptocurrency is much easier in an effort to fund the government and keep it functioning. If anything, because the Petro does not lead to any interference in the domestic political economy by third-party bailing-out institutions such as the IMF.</p>
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<img alt="" src="https://images.theconversation.com/files/207544/original/file-20180222-152379-1j0fk5t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/207544/original/file-20180222-152379-1j0fk5t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/207544/original/file-20180222-152379-1j0fk5t.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/207544/original/file-20180222-152379-1j0fk5t.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/207544/original/file-20180222-152379-1j0fk5t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/207544/original/file-20180222-152379-1j0fk5t.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/207544/original/file-20180222-152379-1j0fk5t.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Venezuela’s oil production is down.</span>
<span class="attribution"><span class="source">shutterstock.com</span></span>
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<p>It is fair to assume that the millions of US dollars being spent on the Petro are not coming from the US and Europe, as Venezuela is under strict financial sanctions and so trading in the Petro could land you in trouble. So it is probably coming from Asia and Middle East – and could be anybody from drug dealers to individual retail investors fancying a punt.</p>
<p>Having read the ICO <a href="http://www.elpetro.gob.ve/Whitepaper_Petro_en.pdf">documents</a> it is unclear what the Venezuelan government plans to do with the money. More than half has been earmarked for a sovereign fund – which is yet to be created – and its exact purpose again looks quite blurry.</p>
<p>It is also very unclear as to the pricing of the Petro, which the document says will be linked to the price of a barrel of oil (currently about US$60) and given a “discount factor”, without defining how that is effectively calculated. In that respect, although anchored to the price of oil, the price of the Petro will be virtually controlled by the government. This could certainly be used to its advantage.</p>
<h2>Not really a cryptocurrency</h2>
<p>Ironically, Petro’s connection to the government goes against the whole idea of cryptocurrencies. They were originally designed to be decentralised and free from any government or central bank control. </p>
<p>In this sense the Petro is not really a cryptocurrency – it is a digital security or token, backed by oil reserves. You are not buying anything that can be freely mined and traded on open cryptocurrency exchanges. The mining is controlled by the government and, as explicitly mentioned in the ICO documents, it will decide what exchanges can trade the Petro. It is therefore simply a digital form of debt from a country with no financial credibility and that is badly mismanaging its economy.</p>
<p>This is the last resort of a country with practically nowhere else to go. Any credible democracy can raise money in the usual ways through bonds and securities, so I can only see other countries in similar problems doing this. I wouldn’t be surprised if countries like Russia are next in line to take advantage of the hype surrounding cryptocurrencies as they are suffering under sanctions as well and have lots of oil.</p>
<p>The Petro may be easy to buy in the pre-sale, where typically most, if not all, of the coins are sold in an ICO. Then the ICO carries on for an indefinite period until the Venezuelan government has sold the 100m Petros it is aiming for. That could take many weeks, if not months – and only then will investors be able to trade the Petro. </p>
<p>Once trading starts, it’s hard to see the price volatility that we have seen in other cryptocurrencies, because the price is essentially controlled by the government. It is not linked to supply and demand. So anyone thinking of buying Petro should think: it might be easy to buy now, but will you be able to trade it after the ICO? </p>
<p>So despite representing a milestone in the growth of the cryptocurrency market, the Petro should be seen as a last-ditch attempt of a defaulting and desperate government to make a quick buck. It’s something that should probably raise concerns among anyone thinking of investing in it.</p>
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<p><em>If you liked this article, check out our podcast <a href="https://theconversation.com/anthill-23-bursting-the-bitcoin-bubble-93337">Bursting the bitcoin bubble</a>.</em></p><img src="https://counter.theconversation.com/content/92310/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Daniele Bianchi does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Venezuela’s Petro cryptocurrency is a clever way to raise money by getting around international sanctions against the country.Daniele Bianchi, Assistant Professor of Finance, Warwick Business School, University of WarwickLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/908692018-01-30T12:20:05Z2018-01-30T12:20:05ZCritical infrastructure firms face crackdown over poor cybersecurity<figure><img src="https://images.theconversation.com/files/203846/original/file-20180129-89564-v12mtt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption"></span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/didcot-power-station-647783968?src=Zse7CFfEYf2wRUecrfRh3A-1-10">Shutterstock</a></span></figcaption></figure><p>An EU-wide cybersecurity law is due to come into force in May to ensure that organisations providing critical national infrastructure services have robust systems in place to withstand cyber attacks.</p>
<p>The legislation will insist on a set of cybersecurity standards that adequately address events such as last year’s <a href="https://theconversation.com/wannacry-report-shows-nhs-chiefs-knew-of-security-danger-but-management-took-no-action-86501">WannaCry ransomware attack</a>, which <a href="https://www.nao.org.uk/report/investigation-wannacry-cyber-attack-and-the-nhs/">crippled some ill-prepared NHS services across England</a>.</p>
<p>But, after a <a href="https://www.gov.uk/government/consultations/consultation-on-the-security-of-network-and-information-systems-directive">consultation process</a> in the UK ended last autumn, the government had been silent until now on its implementation plans for the forthcoming law. </p>
<p>The <a href="https://ec.europa.eu/digital-single-market/en/network-and-information-security-nis-directive">NIS Directive</a> (Security of Network and Information Systems) was adopted by the European parliament in July 2016. Member states, <a href="https://theconversation.com/uk/topics/brexit-9976">which for now includes the UK</a>, were given “21 months to transpose the directive into their national laws and six months more to identify operators of essential services.”</p>
<p>The Department for Digital, Culture, Media and Sport (DCMS) finally slipped out its <a href="https://www.gov.uk/government/news/government-acts-to-protect-essential-services-from-cyber-attack">plans</a> on a Sunday, but – given its spin on fines – it doesn’t seem as though the government was attempting to bury the story.</p>
<h2>Interesting spin</h2>
<p>The DCMS warned – in rather alarmist language – that “organisations risk fines of up to £17m if they do not have effective cybersecurity measures” in place. There are echoes of the EU’s <a href="http://data.consilium.europa.eu/doc/document/ST-5419-2016-INIT/en/pdf">General Data Protection Regulation</a> (GDPR), by matching its €20m (£17m) maximum penalty level – though the option to charge 4% of turnover for NIS as well was dropped after consultation. </p>
<p>However, exorbitant penalties have been used as a scare tactic by <a href="http://www.computerweekly.com/news/450426779/NetApp-privacy-chief-warns-enterprises-off-investing-in-GDPR-snake-oil-tech">GDPR snake oil salesmen</a>, despite clear statements from the Information Commissioner’s Office (ICO) <a href="https://iconewsblog.org.uk/2017/08/09/gdpr-sorting-the-fact-from-the-fiction/">indicating a cautious regime</a>. Did the DCMS mean to invite <a href="https://techcrunch.com/2018/01/29/uk-security-fine-nis-directive/">overblown headlines</a> about the NIS directive, too?</p>
<p>Another peculiarity is that the government announcement doesn’t once mention the EU. Instead, the NIS directive is presented as an important part of the <a href="https://www.gov.uk/government/publications/national-cyber-security-strategy-2016-to-2021">UK Cyber Security Strategy</a>, even though it is an EU initiative. A pattern is emerging here: the <a href="https://www.wired.co.uk/article/european-union-mobile-roaming-charges">removal of mobile roaming fees</a>, a <a href="https://www.gov.uk/government/news/card-surcharge-ban-means-no-more-nasty-surprises-for-shoppers">ban on hidden credit card charges</a> and <a href="https://theconversation.com/ten-stealth-microplastics-to-avoid-if-you-want-to-save-the-oceans-90063">environmental initiatives</a> have all been claimed as UK policies by Theresa May’s government without any adequate attribution to the EU. Digital minister Margot James said:</p>
<blockquote>We are setting out new and robust cybersecurity measures to help ensure the UK is the safest place in the world to live and be online. We want our essential services and infrastructure to be primed and ready to tackle cyber-attacks and be resilient against major disruption to services.</blockquote>
<h2>Who needs to be aware of the NIS directive?</h2>
<p>The <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/677065/NIS_Consultation_Response_-_Government_Policy_Response.pdf">government consultation response</a> clarifies which operators of essential services and digital service providers the directive will apply to, once transposed into UK law. It uses a narrow definition of “essential”, excluding sectors such as government and food. Small firms are mostly excused from compliance; nuclear power generation has been left out, presumably to cover it exclusively under national security; and electricity generators are excluded from compliance if they don’t have smart metering in place. Digital service providers expected to comply with the NIS directive include cloud services (such as those providing data storage or email), online marketplaces and search engines.</p>
<p>The law requires one or more “competent authorities”, which the UK plans to organise by sector. It means communications regulator Ofcom will oversee digital infrastructure businesses and data watchdog the ICO will regulate digital service providers. They will receive reports on incidents, give directions to operators and set appropriate fines. </p>
<p>It’s worth noting that the ICO, in its multiple roles, could fine a service provider twice for different aspects of the same incident – once due to non-compliance with NIS and once due to non-compliance with GDPR. But incidents need to be considered significant in order to be on the radar for this directive. It will be judged on the number of affected users, the duration and geographical spread of any disruption and the severity of the impact. </p>
<p>Clearly, once this legislation is in place, the next WannaCry-style incident will be closely scrutinised by regulators to see how well prepared organisations are to deal with such a major event.</p>
<h2>National and international coordination</h2>
<p>The coordination of many NIS activities falls to the UK’s <a href="https://www.ncsc.gov.uk/">National Cyber Security Centre (NCSC)</a>, part of the government’s surveillance agency, <a href="https://www.gchq.gov.uk/news-article/national-cyber-security-centre-2017-annual-review">GCHQ</a>. It will provide the centralised computer security incident response team (CSIRT), and act as the “single point of contact” to collaborate with international peers as a major cyber attack unfolds. The NCSC will play a central role in reporting and analysing incidents, but remains out of the loop on enforcing the law and fines.</p>
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<p>Sharing cyber incident information within an industry sector or internationally is important for larger scale analysis and better overall resilience. However, there are risks due to the inclusion of cyber vulnerability implications, business critical information and personal data in such sensitive reports. Two EU research projects (<a href="http://www.necs-project.eu/">NeCS</a> and <a href="http://c3isp.eu/">C3ISP</a>) aim to address these risks through the use of privacy preserving methods and security policies. The C3ISP project says its “mission is to define a collaborative and confidential information sharing, analysis and protection framework as a service for cybersecurity management.”</p>
<h2>More security standards?</h2>
<p>The idea of having prescriptive rules per sector was considered and rejected during the UK’s consultation process on the NIS directive. It’s in line with how the GDPR imposes cybersecurity requirements for personal data: it consistently refers to “appropriate technical and organisational measures” to achieve security, without pinning it down to specifics. Such an approach should help with obtaining organisational involvement that goes beyond a compliance culture.</p>
<p>A set of 14 guiding principles were drawn up, with the NCSC providing <a href="https://www.ncsc.gov.uk/guidance/table-view-principles-and-related-guidance">detailed advice</a> including helpful links to existing cybersecurity standards. However, the <a href="https://www.ncsc.gov.uk/guidance/cyber-assessment-framework-caf">cyber assessment framework</a>, originally promised for release in January this year, won’t be published by the NCSC until late April – a matter of days before the NIS comes into force.</p>
<p>Nonetheless, the NIS directive presents a good drive to improve standards for cybersecurity in essential services, and it is supported by sensible <a href="https://www.ncsc.gov.uk/guidance/nis-guidance-collection">advice</a> from the NCSC with more to come. It would be a shame if the positive aspects of this ended up obscured by hype and panic over fines.</p><img src="https://counter.theconversation.com/content/90869/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Eerke Boiten receives funding from EPSRC EP/P011772/1 EMPHASIS (EconoMical, PsycHologicAl and Societal Impact of RanSomware). He is a visiting professor at the University of Kent and through that involved with the EU H2020 project NeCS (Network of Excellence in Cyber Security) for which he was previously the principal investigator at Kent.</span></em></p>But despite the UK’s alarmist tone on the incoming NIS directive, it’s not just about the hefty £17m fines.Eerke Boiten, Professor of Cybersecurity, School of Computer Science and Informatics, De Montfort UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/843302017-10-16T14:54:19Z2017-10-16T14:54:19ZExplainer: what are initial coin offerings (ICOs) and why are investors flocking to them?<figure><img src="https://images.theconversation.com/files/190359/original/file-20171016-30997-bhko9m.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">shutterstock.com</span></span></figcaption></figure><p>Initial coin offerings – or ICOs – have become enormously popular with investors. They have raised more than US$1.8 billion <a href="https://www.ft.com/content/68c795ca-a680-11e7-ab55-27219df83c97?mhq5j=e6">so far in 2017</a> and one recent ICO raised US$35m <a href="https://techcrunch.com/2017/06/01/brave-ico-35-million-30-seconds-brendan-eich/">in under 30 seconds</a>. </p>
<p>But they are proving unpopular with governments around the world. The Chinese and South Korean governments <a href="https://techcrunch.com/2017/09/28/south-korea-has-banned-icos/">have shut them down</a>, while US regulators have issued a <a href="https://www.sec.gov/news/press-release/2017-131">warning</a> that ICOs may be subject to securities laws.</p>
<p>This is all part and parcel of the <a href="https://theconversation.com/rise-of-cryptocurrencies-like-bitcoin-begs-question-what-is-money-46713">rise in cryptocurrencies</a> in recent years. Bitcoin is the most famous, as the original and still dominant iteration. It was created as a form of digital cash, with a unique property: it is not backed by any bank or government. And it was specifically designed not to be centralised. For this reason it has always had a certain lawless aspect to it and has become the <a href="https://theconversation.com/by-concealing-identities-cryptocurrencies-fuel-cybercrime-82282">currency of online digital crime</a>. But it is also having a real moment – one bitcoin is currently <a href="https://coinmarketcap.com/currencies/bitcoin/#charts">worth more than US$5,000</a>.</p>
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<p>Within the cryptocurrency space ICOs have become the favoured way to raise funds in a manner akin to venture capital funding – but without any of the oversight normally found in that process.</p>
<h2>Avoiding the middle men</h2>
<p>ICOs are typically built on the technology of another cryptocurrency called Ethereum. Created by a programming prodigy, 23-year-old Vitalik Buterin, Ethereum was designed as a “world computer” rather than simply a form of money. </p>
<p>Like Bitcoin, Ethereum is a decentralised payment network with its own cryptocurrency (technically called Ether) that allows anonymous transactions to be sent across the internet without the need for a bank or other middleman. Instead, transactions are stored on the blockchain, a decentralised ledger.</p>
<p>Where it differs from Bitcoin is that, as well as allowing currency to run on its network, Ethereum can run all sorts of things including “smart contracts”, which are a form of digital contract that executes automatically once a certain set of conditions is met. ICOs are built on these contracts. An ICO involves creating a sellable token (or coin) that can be purchased with existing cryptocurrencies (such as Bitcoin or Ether).</p>
<p>The investor effectively purchases digital tokens that can be used within a specified ecosystem. Take this made-up example: an ICO for a new online betting venture, “Conversation Casinos”, might issue coins, “Conversation Coins”, which investors could buy and then use to make bets in Conversation Casinos (which would only accept and pay out Conversation Coins). Investors could also decide to hold onto their coins, speculating that the business will be successful, which will increase the demand for the coins and their market value. </p>
<p>In many ways, these tokens are not unlike the virtual currencies found in computer games like World of Warcraft and Second Life. They have a utility value, in that they are the digital venture’s medium of exchange (the money). But, often what attracts investors is the speculative value of tokens on cryptocurrency exchanges, rather than the originally intended use.</p>
<h2>Dangers inherent</h2>
<p>The ICO model has <a href="https://www.cnbc.com/2017/08/28/sec-warns-on-ico-scams-pump-and-dump-schemes.html">attracted scammers</a> who lure gullible investors into ICOs that are unlikely to ever generate a return. And, since ICOs are completely unregulated, investors have no recourse should the project not deliver or simply disappear. </p>
<p>Some ICOs do not allow citizens from certain countries, specifically the United States, to participate, in order to avoid coming under the radar of law enforcement agencies. They are also subject to the volatility that blights cryptocurrencies in general. All cryptocurrencies and tokens are tethered to the price of Bitcoin, the coin that acts as the <a href="https://www.economist.com/news/finance-and-economics/21722235-bitcoin-far-only-game-town-surge-value-crypto-currencies">crypto-economy’s reserve currency</a>. </p>
<p>While the Chinese regulators did not explain why they banned ICOs, they were probably most concerned about the danger to investors, given the prevalence of ICO scams. And they probably should be banned if they are merely schemes to avoid securities laws that exist for good reason. </p>
<p>Nevertheless, it is clear that ICOs are an interesting innovation. They allow people without access to traditional investment opportunities a chance to invest in companies that appeal to them, without the requirement of a broker (and broker fees). In turn, this allows companies to bypass the traditional venture capital scene and to get their projects in motion quicker.</p><img src="https://counter.theconversation.com/content/84330/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Within the world of cryptocurrencies, ICOs are the way to raise funds – but without any government oversight.Paul Dylan-Ennis, Assistant Professor, University College DublinDonncha Kavanagh, Professor of Information & Organisation, University College DublinLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/848402017-09-29T06:13:32Z2017-09-29T06:13:32ZAustralian regulators have finally made a move on initial coin offerings<figure><img src="https://images.theconversation.com/files/188126/original/file-20170929-31935-1o19hgf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Initial coin offerings have taken off this year</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The Australian Securities and Investment Commission (ASIC) has finally issued <a href="http://asic.gov.au/about-asic/media-centre/find-a-media-release/2017-releases/17-325mr-asic-provides-guidance-for-initial-coin-offerings/">guidance</a> to <a href="http://asic.gov.au/regulatory-resources/digital-transformation/initial-coin-offerings/">explain</a> how “<a href="https://theconversation.com/initial-coin-offerings-are-disrupting-how-startups-are-funded-but-what-are-they-84857">initial coin offerings</a>” (ICOs) will be regulated. </p>
<p>ICOs are a form of crowdfunding, with companies raising funds by selling tokens or cryptocurrencies to investors with promises of a <a href="http://www.customizablebasicincome.com">social good</a> or <a href="https://coinloan.io">financial benefit</a>. ICOs have exploded this year, with <a href="https://www.coinschedule.com/stats.php">one estimate</a> that more than US$2.2 billion has been raised so far. </p>
<p>But ICOs are also risky. They are mostly created by anonymous entities, are currently unregulated, and may not always refund money upon request or allow the resale of tokens. Investors are often left in the dark with respect to their entitlements, rights, and benefits. ICOs typically confer no ownership rights in the company and, unlike bonds, investors in ICOs do not receive interest payments.</p>
<p>Until recently regulators around the world have been scrambling to figure out how to deal with this new phenomenon. </p>
<p>ICOs are popular because the promoter or operator does not have to apply for registration or a licence, and there is no delay in waiting for regulatory approval. The cost of setting up and releasing an ICO is very low. For investors, the popularity is driven by the expectation that the price of the cryptotoken will increase in value. However, this is risky because when a currency is the subject of intense speculation, its <a href="https://dukespace.lib.duke.edu/dspace/bitstream/handle/10161/2041/Burnside_the_returns_to_currency_speculation.pdf?sequence=1">price will be volatile</a>. </p>
<p>Adding to the risk for investors, the cryptocurrencies that promise the highest returns in the shortest time are the ones with the lowest market capitalisation, and they are also the most volatile. For example, Dent’s market cap is just over US$5 million (compared with Bitcoin’s US$67 billion) and the <a href="https://coinmarketcap.com/1">fluctuations in Dent’s price</a> in the past week alone reads like a seismogram during a major earthquake.</p>
<h2>Regulators are catching up</h2>
<p>Australia’s new approach is markedly different than the path of regulators in other countries. The Chinese government recently decided to outlaw all ICOs, with seven regulators in China issuing a <a href="http://www.circ.gov.cn/web/site0/tab6554/info4080736.htm">joint decree</a>. ICOs were declared an unauthorised public financing activity, involving illegal fundraising, financial fraud, and pyramid schemes. </p>
<p>In response to the Chinese ban, many blockchain projects refunded all of the money they had raised. The ban <a href="https://beta.theglobeandmail.com/report-on-business/china-hits-booming-cryptocurrency-market-with-coin-fundraising-ban/article36160539/?ref=http://www.theglobeandmail.com&">sent the value of bitcoin</a> (in which many ICOs are denominated) into freefall. Meanwhile, the market capitalisation of <a href="https://www.cryptocoinsnews.com/china-bans-ico-successfully-completed-icos-to-return-funds-to-investors/">Ethereum declined by a staggering US$6 billion</a> within 24 hours of the announcement.</p>
<p>But China is not the only country to take steps to reign in ICOs. </p>
<p>In July the US Securities and Exchange Commission (SEC) issued a <a href="https://www.sec.gov/news/press-release/2017-131">warning</a> that US securities laws apply to ICOs. It stipulated that no matter what terminology or technology was being used, the sale of digital coins may be regulated as “securities”. The effect of this ruling is that ICO operators must <a href="https://www.sec.gov/answers/about-lawsshtml.html#df2010">comply with reporting and consumer protection legislation</a>, including keeping a register of “investors” and filing annual returns. </p>
<h2>The Australian approach</h2>
<p>ASIC’s information sheet sets out clear guidelines for how to operate within Australia’s regulatory framework, while encouraging innovation and the development of new financial business models. Australia’s approach is an amalgam of a suite of regulations that might apply to public and private companies when they launch an initial public offering (IPO), raise funds from existing shareholders, or offer financial services. </p>
<p>The many ways that ICOs stage the release of tokens remains organic. Some pre-empt the process by raising venture capital and most publish a white paper to anticipate the launch. Recently, some ICOs have started imposing a lock-up period of 3-12 months, during which time the investors cannot sell their tokens. Making sense of the projects and the rules imposed on the token sales can make it harder for investors to make an informed decision.</p>
<p>Importantly, if an ICO is operating as a <a href="http://asic.gov.au/for-finance-professionals/managed-investment-scheme-operators/starting-a-managed-investments-scheme/what-is-a-managed-investment-scheme/">Managed Investment Scheme</a> (MIS) with people brought together to contribute money in a collective investment to get an interest in the scheme (like a cash management trust or a property trust), the operator will need to comply with a range of disclosure, registration, and licensing obligations under the <a href="http://www.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/ca2001172/s601ed.html?context=0;query=managed%20investment%20scheme">Corporations Act</a>. An MIS arises when the contributor obtains an interest in the scheme, where the contributors’ assets are pooled together, and where that pool of assets is controlled by the operator of the scheme.</p>
<p>According to ASIC, an ICO could also be an offer of shares. In this case
the company must keep a <a href="http://www.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/ca2001172/s169.html?context=0;query=register">register</a> of all the shares they have issued. This is similar to the way that public companies (that is, companies with more than 50 non-employee shareholders) issue securities. The register must have information about the company’s members (or shareholders) and the number of shares in the company. The register must also contain key identification information about each member, as well as the number and types of shares held by each member. Importantly, this sort of offering must be accompanied by a disclosure document. </p>
<p>The <a href="http://asic.gov.au/regulatory-resources/fundraising/lodging-prospectuses-and-other-disclosure-documents/">disclosure document</a> must be lodged with ASIC before the launch. Only when a company is issuing shares to fewer than 20 people and raising less than A$2 million in the first 12 months will it be <a href="http://asic.gov.au/regulatory-resources/fundraising/when-can-you-raise-funds-without-a-disclosure-document/">exempt</a> from providing that disclosure.</p>
<p>If the ICO is an offer of a derivative (for example, an option or a future), then the company will need to be licensed. In Australia, companies will need a <a href="http://asic.gov.au/for-finance-professionals/afs-licensees/">financial services licence</a> if, as part of their business, they provide financial product advice to clients, deal in a financial product, make a market for a financial product, operate a registered scheme, provide a custodial or depository service, or provide traditional trustee company services.</p>
<p>As well as this detailed guidance for ICO operators, ASIC is directing potential investors to its <a href="https://www.moneysmart.gov.au/investing/investment-warnings/initial-coin-offerings-icos">MoneySmart</a> website. This provides guidance about the risks of investing in an ICO. It warns that the value of crypto-tokens is volatile, that the tokens may be stolen, and that many ICOs are scams. </p>
<h2>Buyer beware</h2>
<p>Even with this new guidance, the challenge for the investors remains to separate the schemes from the scams. ASIC’s media release and information sheet should not be regarded as a general stamp of approval. The regulator is by no means suggesting that they are fit for general consumption.</p>
<p>ASIC recommends that anyone intending to contribute to an ICO check first whether the issuer is a company registered in Australia and whether it has a licence to operate an ICO. If the company is not registered and does not have a licence in Australia, investors will have little protection if things go wrong.</p>
<p>While China is regulating the use of ICOs by banning them (for now), Australia is taking a more supportive approach by encouraging operators to play by the rules. Meanwhile, for consumers the message is clear: when it comes to ICOs, investor beware.</p><img src="https://counter.theconversation.com/content/84840/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Philippa Ryan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Despite billions raised in the past year, ICOs are still risky. But ASIC has finally given us a sign of how they will be regulated.Philippa Ryan, Lecturer in Commercial Equity and Disruptive Technologies and the Law, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.