Browsing Tag

ICO

ICOs, Token

What is Trans-Fee Mining?

June 27, 2018 • By

The “Trans-Fee Mining” model seems to be growing in the smaller, exchanges as evidenced by a couple of recent news stories on FCoin and Bit-Z, CoinBene, and BigOne. Liquidity challenged, smaller, cryptocurrency exchanges compete for users and funds. Exchanges adopting this model seem to be enjoying record volume.

FCoin, based out of China, led by former Huobi CTO, Zhang Jian, (according to this paid press release) is perhaps considered the pioneer of this model with Bit-Z and CoinBene implementing similar models.

Using the FCoin whitepaper, here’s a brief look at how this proposed model will work. It is important to add forward looking emphasis, as the project is only a little over a month old with most of the concepts still waiting to be tested in the months ahead.

FCoin (FT) is an issued token, it is not mined.

FT provides transaction free mining. The platform charges fees, payable in BTC or ETH and then issues FT to reimburse 100% of the fees. It functions similar to a reward token, giving the trader FT as a reward for utilizing the platform.

Total Supply = 10 billion

Token Distribution

Private Sale = 5%
Strategic Partners = 9%
Founding Team = 12%
FCoin Fund = 23%
Community Rewards = 51%

The FT tokens in the Community Rewards serve as the reimbursements.

What may be some of the potential benefits and uses of this model? For the exchange, this certainly would increase the supply of BTC and ETH. Additionally, with ICO fatigue, and projects looking for innovative methods to increase user adoption, this will serve to distribute the token and increase network effects. Finally, the exchange will see increased volume.

For the FT token holder, the rights and interests are:

  • Revenue distribution – 80% of the revenue will be distributed to token holders and the remaining 20% will be used for operations and future growth
  • Voting – FT holders will be able to vote using smart contracts on operational decisions and governance

So far, transaction free trading and participation in an autonomous organization sounds ideal. What could possibly go wrong? Let’s have a look at some of the criticisms raised to date, mainly by Binance Co-founders:

  • Is it an ICO? The user is paying BTC or ETH for the token. Albeit, there is the utility of a trade in the mix, substantively it resembles an ICO.
  • With “no fee” trading, it is possible to “create” fictitious volume. Traders may trade with themselves or a bot. Coinmarketcap.com, an exchange aggregator, will not include trades from “no fee” exchanges in the price and total trading volume because it is not possible to verify the true volume.
  • Token price manipulation. Even if the platform is transparent, the team and project control a significant amount of the circulating supply. It does not seem difficult to imagine a bot or a small number of individuals could quickly earn a majority of the community.
  • Is it sustainable? After distribution of the tokens, how will the tokens re-enter the ecosystem?

The screen shot below of CoinBene on CoinMarketCap demonstrates some of these potential concerns. You will see the significant volume and “**” indicate that it cannot be counted toward total volume for the trading pair. To give reference, I’ve included Poloniex volume also. If you are following “Tethers,” you know that a recent study found limited “Tethers” returning or burning. Perhaps they’re all stuck on CoinBene?


Airdrops, PPI

Airdrops

May 15, 2018 • By

This past week on The Henry Raines Show, I talked about airdrops. I have been contemplating what token projects to use as an example for my blog and assisting colleagues interested in learning more about cryptocurrencies, coins, or tokens. I needed a “Rock Castle Construction,” (the iconic QuickBooks® sample company file).

Open Source Accountant at the ready.

Silicon Valley, a show airing on HBO, recently aired episodes surrounding Initial Coin Offerings (ICOs). Shortly after, a clever, well-versed in both the show and the cryptocurrency space, personality appeared on twitter as @PiedPiperCoin.

In less than six days, this handle managed to produce a wealth of humorous tweets and material, as well as developing an ERC-20 token and distributing it through an airdrop.

I consider myself a connoisseur of low-end whitepapers and tokens. What this handle has managed to assemble in such a short period of time is remarkable. It is the perfect hypothetical (I’ll reiterate it several times … it is a meme, satire, I do not recommend buying, selling, trading or doing anything other than enjoying the show). @PiedPiperCoin ($PPI) has constructed a far more transparent project than many of what I have seen. No funds were solicited, and $PPI has provided transparent, timely, relevant data for me to use as examples for many posts and lessons.

What exactly is an airdrop? They typically are the disbursement of native tokens (for future or current use on a platform/project).  Many refer to them as “free,” I prefer to liken them to a coupon. They can be provided as the result of a fork, a bounty, holding a particular currency or wallet, or being on an exchange. I’ll address forks and possible accounting implications for the ICO in future posts. With social media and larger technology companies banning advertising of ICOs, an AirDrop is an alternative method of creating awareness for the token and project by distributing the native token to potential users.

The first airdrop utilized what I consider a set of best practices as a consumer signing up for an airdrop. Most ICOs will ask you to register for an airdrop, providing the Ethereum public address to send the tokens.

  • Protect your private keys. – $PPI asked for your public, Ethereum Address and provided instructions on how to sign up for the two primary ERC-20 token wallets. MyEtherWallet.com (and MetaMask) provides a detailed safety tutorial on the difference between public and private keys.
  • Use caution when downloading native wallets of smaller projects – ($PPI) does not have a separate wallet nor a website requiring registration.
  • Do not click on redirect links to wallets – $PPI gives explicit instructions on how to be certain you are at the correct website with SSL certificates and “Secure” is noted in your browser.
  • Do not send cryptocurrencies in exchange for the airdrop – The $PPI did not ask you to send ETH in exchange for $PPI.
  • Beware of scams and hijacked accounts – someone is already scamming the satire!

  • Do not share personally identifiable information (social security numbers, government issued id’s, banking information, etc.) $PPI asked for a few, basic public identifiers and references to the show. (Public Ethereum Address, twitter handle, a link to a tweet about the airdrop, and a couple of TV show references in a Google Doc)

 

After the airdrop completed, $PPI published a post on how to check for your tokens and an additional post covering the history and possible future of the project. I am happy to see in this update that $PPI is going to take some time to focus on the project and building out the team (I can barely keep up, I’ve had to put my cat to work).

I spy $PPI … tokens in my wallet.

$PPI is offering an additional type of airdrop, a social bounty.

I am looking forward to blogging about the additional events and accounting for the transparent smart contract in the days ahead.

This blog post is for informational purposes only. Nothing herein shall be construed as financial or legal advice.


ICOs

Have you seen a blockchain shoebox?

April 2, 2018 • By
Big Pile of Stacked Shoe Boxes

With the number of Initial Coin Offerings (ICOs) increasing in the last quarter of 2017 and continued surge in 2018, I sense that there should be some “virtual” shoeboxes starting to fill corners of tax preparers’ offices.

I realize that not all of these are US based, have US employees or contractors, nor transact in the US. I am also aware that not all of these offerings are by individuals intending to comply with federal and state tax laws.

For a look at those well-intentioned participants, transacting in the US and may be seeking professional tax assistance … this is what I envision would be under the lid of that shoebox:

  • tokens issued to employees and contractors with value
  • exchanges of USD, crypto currency, and the token
  • transactions for USD, crypto currency, and the token
  • 1099’s with no basis for individuals trading cryptocurrencies
  • a few pieces of paper with long wallet addresses
  • transactions with 8 or more decimal places

It is with these well-intentioned individuals, my dedicated colleagues who deserve a few restful hours, and my enthusiasm for what the future of the accounting profession may look like as it evolves with the latest technology that I launch this blog and my practice.

There is plenty of fear, uncertainty, and doubt (FUD) in this space. However, the position of the IRS is known and I will begin with how we may address the knowns.

This blog and my practice are for small practitioners who may not have a crypto department, but have clients transacting in cryptocurrency or issuing ICOs.

Should you need assistance calculating payroll tax liabilities for alternate payment methods, navigating the blockchain, exchange rates, basis, have clients interested in accepting alternate payments, or other needs in this space, please get in touch.

For those projects and organizations that are considering issuing a token, I urge you to seek the advice of an accountant. It is imperative not only for tax planning, but also to test your model with some supply and demand scenarios.

Creating a token is neither a one-sided entry nor free.

I welcome comments and interaction. This is a centralized blog with my fellow practitioners in mind. So please see my blog guidelines here.

T-Accounts, token economic models, software examples, and ‘80s references (as my humor is not as advanced as my technology adoption) in the days ahead.

This blog post is for informational purposes only. Nothing herein shall be construed as legal advice.