All posts in “money”

Today in brighter crypto news: SEC says tokens are securities

Crypto news got a little boost last week after a dark month of crashes, stablecoins, and birthdays. The SEC ruled that two ICO issuers, CarrierEQ Inc. and Paragon Coin Inc., were in fact selling securities instead of so-called utility tokens.

“Both companies have agreed to return funds to harmed investors, register the tokens as securities, file periodic reports with the Commission, and pay penalties,” wrote Pamela Sawhney of the SEC. “These are the Commission’s first cases imposing civil penalties solely for ICO securities offering registration violations.”

From the release:

Airfox, a Boston-based startup, raised approximately $15 million worth of digital assets to finance its development of a token-denominated “ecosystem” starting with a mobile application that would allow users in emerging markets to earn tokens and exchange them for data by interacting with advertisements. Paragon, an online entity, raised approximately $12 million worth of digital assets to develop and implement its business plan to add blockchain technology to the cannabis industry and work toward legalization of cannabis. Neither Airfox nor Paragon registered their ICOs pursuant to the federal securities laws, nor did they qualify for an exemption to the registration requirements.

This behavior – a sort of “damn the torpedoes” for the Fintech set – was all the rage at the beginning of the year as no clear guidance was available for filing security tokens – essentially pieces of company equity – versus utility tokens which were, in theory, used within the company ecosystem. In fact ICOed companies contorted themselves into all sorts of knots to appear to fit their “utility token” within the torturous confines of securities law.

“We have made it clear that companies that issue securities through ICOs are required to comply with existing statutes and rules governing the registration of securities,” said Stephanie Avakian, Co-Director of the SEC’s Enforcement Division. “These cases tell those who are considering taking similar actions that we continue to be on the lookout for violations of the federal securities laws with respect to digital assets.”

The SEC fined both companies $250,000 each. Future ICOs, at least in the U.S., would do well to keep this in mind.

Initiative Q doesn’t exist. But its marketing is genius.

Viral marketing campaigns on the internet are nothing new, but Initiative Q is something else. 

The project that calls itself “tomorrow’s payment network” has people buzzing, signing up, and sharing invites. For their troubles, users who successfully invite more users are promised a “future currency” called Q, with potential value that supposedly goes into tens of thousands of dollars. The project claims the value of all Qs might reach “several trillion dollars.” No wonder everyone’s jumping on board — on Oct. 30, the project boasted 2 million users. 

And yet, there’s no product here, nor is any being developed. At least, not yet. 

Initiative Q isn’t a new project. It launched several months ago, relying mostly on word of mouth and its clever marketing method to acquire new users. 

A marketing pyramid

This tactic is intriguing: Sign up with only your name and email, and you get a number of Qs (which the site often equates to dollars). Invite more members, and your Q count increases. For testing purposes, I’ve signed up and invited a couple of people, which increased my Q balance to 16,117. Not bad for a minute’s work. But what have I gotten myself into?

Pyramid schemes are businesses created in such a way that you have to pay to join.  Founders and early members invite new members, earning a commission when those new people sign up. The bigger the pyramid, the bigger the payoff for the folks on top. And even though such a company may offer a product and service, if it’s primarily making money off those commissions, it’s a pyramid scheme.

Initiative Q does a very similar thing, but the devil is in the details. When I asked Initiative Q about it, they told me what they’re doing is a “common marketing practice.”

“The key differentiator is that the potential future gains are a result of the currency becoming widely adopted, not from newcomers paying to join,” the company told me via e-mail. 

The important bit is that there’s no money changing hands here, at least not yet. One might argue that a database of names and e-mails holds a certain worth; just by providing your name and e-mail and using your time to promote the service, you’re giving something of value to Initiative Q. But the company claims that effort alone wouldn’t be worth the trouble. 

“A database of merely names and emails may be worth a few tens of thousands of dollars at most — not something worth getting into lawsuits and losing reputation for,” I was told. 

Making a service invite-only, and then giving members the ability to invite more members is a marketing strategy that’s been very effectively used by Google. The company famously made Gmail — a valuable service as it provided users with a ton of e-mail storage space — invite-only at first, and everyone went crazy about it. As a result, Gmail became the world’s most popular webmail client. 

Now, in the post-Bitcoin world, when people are aware that a valuable payment network/world currency can arise seemingly out of nothing, Initiative Q appears to have struck marketing gold. 

Initiative Q doesn’t exist yet

But Initiative Q is interesting for a different reason: There’s no product or service yet. The project’s website is pretty detailed and even offers a FAQ that answers how this or that aspect of the service might work. But there’s nothing solid there — no beta to sign up for, no test environment to try, no technical document that explains how the product works. 

And Initiative Q confirmed this, flat out. 

“Q is trying to gather a large user base of people who want it to succeed and then building the payment network itself — a network that is not limited by backward-compatibility requirements. Thus, the system itself has not been developed yet, nor is there a test environment.”

This is disarming in an odd way. With no product being developed yet, there’s nothing to try out, review, praise, or criticize. The stakes are both incredibly high (“trillions” of dollars, remember) and extremely low. 

The team is legit

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Without a working product to check out, I tried to at least find out whether the team behind the project is legit. Initiative Q advertises itself as being built by ex-PayPal guys, but the website only mentions the founder, serial entrepreneur Saar Wilf, and one advisor, economist Lawrence White. 

Both people check out. White is a published author who taught economics at several universities, most recently George Mason University. Wilf is a bit enigmatic: His Twitter feed consists of two tweets (absent replies) and he’s known as a professional poker player. But he sold a startup called Fraud Sciences to PayPal/eBay in 2008 for $169 million, and he worked at PayPal for a while. He also started several more startups since, including Rootclaim, a crowdsourced platform for assessing the truth behind controversial topics. 

I asked Initiative Q who the other “ex-PayPal” guys are, and the company told me eight people are “involved at this point,” including another ex-PayPal employee, Aviv Cohen

It’s hard to say what results regarding Initiative Q has this team produced so far. But their credentials are real. 

Could be something, could be nothing

I’ve seen numerous projects like this in the cryptocurrency space. A fairly strong team, an extremely bold vision of changing the world’s finance system, and no working product… every other ICO fits the bill. 

But Initiative Q is different in several key ways. We don’t really know what it is. It’s not a cryptocurrency, the company told me that much. It’s not asking for your money (yet). 

In a way, it’s the epitome of internet in 2018: a project that values your attention above everything else, and makes a play for that first. It feels dirty, but it’s clever. If Elon Musk (the definitive ex-PayPal guy) said he’s changing the way money works, and asked you to give him his e-mail, you’d sign up just in case he actually succeeds. So that’s what Initiative Q’s “users” are doing: Signing up in the case these guys might be onto something. 

And yet, I feel cheated. All I did was leave my name and email on a website, but I still think Initiative Q should have at least some semblance of a product (or a paper, or anything) before inviting me in. So let’s call a spade a spade: Initiative Q is a clever marketing ploy with lofty promises but virtually nothing to show for them at this point. We’ll see whether it turns out to be more in the future, but don’t count on cashing in any Qs anytime soon. 

Disclosure: The author of this text owns, or has recently owned, a number of cryptocurrencies, including BTC and ETH.

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This service could finally make you ‘good with money’

Just to let you know, if you buy something featured here, Mashable might earn an affiliate commission.
Dollar dollar bills, y'all.
Dollar dollar bills, y’all.

Image: Pexels

Like exercising regularly or refraining from hitting the snooze button seven times each morning, managing (and inevitably saving) money is one of those things we know we should do but don’t. Numbers are confusing, right? And who would want to spend their free time looking over bank statements and invoices? 

But if you want a bright and prosperous future, you need to know how to manage your money. And if we’re being totally honest, now’s a better time than any to do so. You see, the holidays are just around the corner, so you’re likely to spend a lot of money on presents, travels, and decadent holiday parties. In fact, studies show that the average American spends over $900 on presents each yearWow.

A service like Kualto Money Management makes keeping tabs on your finances easy and, honestly, kind of fun. Once you sync your banking information to Kualto’s safe and secure system, the service will analyze your spending habits and see how they can impact your financial future. Kualto can provide everything from weekly reports to bill reminders, and can predict how much money will be in your bank account as far as three years down the road.

Not only does having a better sense of your finances make it easier for you to prepare for your future, but Kualto says it can also help prevent overdraft fees. 

Lifetime access to Kualto is normally valued at around $240, but it’s currently on sale for $39.99. See? You’re saving money already.

More than half of crypto news sites are pay-for-play

In a clever bit of sleuthing by Corin Faife at Breaker, we find that over half of the most popular crypto blogs offer pay-for-play posts including “CEO interviews” that are not labelled as sponsored. Further, many sites offer premium services in which blog writers will repost PR content without a sponsored tag.

As I noted a few weeks ago, the crypto industry is awash with money and “journalists” are taking advantage of the naivety and dishonesty of the marketers tasked with pushing another me-too crypto product in front of an unreceptive audience. Faife received multiple emails like this one asking him to accept payment for placing articles at the places he worked, including Motherboard and Coindesk:

“I know that I would never take money for coverage, nor would any serious journalist. But covering the cryptocurrency industry, I read content on a daily basis that comes from a large number of outlets that I can’t vouch for. If these offers of pay-for-post are out there, can we rely on all of the journalists and editors to turn them down? Can we believe in the objectivity of the coverage we see every day, or has it simply been paid for by a company flush with cash?” he wrote. “The more I thought about it, the more it seemed like there was a simple way to find out. As a BREAKER investigation, we’d ask to pay for coverage of an ICO, and see who said yes.”

Faife reached out to 28 cryptocurrency news sites and received 22 definitive responses. Posing as a Russian PR professional, Faife first asked for rates for posting information on the site. When he received a response, he asked if the posts would have a “sponsored” tag, a traditional signal that a post wasn’t explicitly written by the news organization’s reporters.

Of the 22 replies, he received 14 agreeable responses including an offer to remove the sponsored tag for $4,500. This helpful graph shows how quickly sites will abandon journalistic ethics to grab a little cash:

One site, NewsBTC, responded to Faife when pressed about payola:

Contacted about the story, Samuel Rae, CEO of NewsBTC, responded:

“It’s come to my attention that one of our sales team has mistakenly suggested that we could publish content without disclosure that it has been paid for (i.e. a sponsored article) to one of your undercover reporters posing as a PR agent. This is not our policy. The sales executive offering this has been removed from our company active immediately and won’t be dealing with/offering our advertising (or otherwise) services again, be it to a PR company, a reseller or anyone else.”

Pressed to offer evidence that the staff member had been removed, and to explain a second source quoting NewsBTC’s willingness to publish sponsored content without disclosure, Rae declined to give further comment.

The important thing to note here are the sums of money that many of these crypto and ICO organizations will raise thanks to a small investment in media. A solid blog post can move untrained “investors” to buy or sell crypto and tokens in an instant, creating situations ripe for pump and dump schemes where the actual level of interest in a company is clouded by payola. Most sane, mature news organizations see this problem and address it by refusing to accept paid content. That said, times are changing and the lines are blurring between paid and unpaid content. Ultimately, however, the behavior Faife uncovered is implicitly wrong.

There’s an old saying: fools and their money are soon parted. Uneducated and uninformed crypto investors are fools, but they visit crypto sites for a proper education. When news organizations create so-called fake news in order to drum up a little advertising cash, everyone loses.

SpankChain spanked

SpankChain, a cryptocurrency aimed at decentralized sex cams, has announced that a hacker stole about $38,000 from their payment channel thanks to a broken smart contract. They wrote:

At 6pm PST Saturday, an unknown attacker drained 165.38 ETH (~$38,000) from our payment channel smart contract which also resulted in $4,000 worth of BOOTY on the contract becoming immobilized. Of the stolen/immobilized ETH/BOOTY, 34.99 ETH (~$8,000) and 1271.88 BOOTY belongs to users (~$9,300 total), and the rest belonged to SpankChain.

Our immediate priority has been to provide complete reimbursements to all users who lost funds. We are preparing an ETH airdrop to cover all $9,300 worth of ETH and BOOTY that belonged to users. Funds will be sent directly to users’ SpankPay accounts, and will be available as soon as we reboot Spank.Live.

The hacker used a ‘reentrancy’ bug in which the user calls the same transfer multiple times, draining a little Ethereum each time. The bug is the same one that previously affected the DAO.

The company pointed out that a security audit on their smart contract would have cost $50,000, a bit more than the amount lost. “As we move forward and grow, we will be stepping up our security practices, and making sure to get multiple internal audits for any smart contract code we publish, as well as at least one professional external audit,” they wrote.

I’ve reached out to the company for clarification but in short it seems the spanker has become the spankee.