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French Financial Market Authority : ICO Consultation

Response to the French Financial Market Authority consultation on the applicable regulation to “Initial Coin Offerings”

 Since 2015, Crypto4all has put all its energy into the democratization of the Blockchain Technology and naturally answer to the call from the French Financial Market Authority (Autorité des Marchés Financiers).

The Crypto4all team has been mobilized to respond to the consultation launched by the AMF on the regulations applicable to “Initial Coin Offerings”. In addition, we answered to the previous public consultation from the French Treasury in May 2017 regarding the completion of unlisted financial securities transactions through the use of Blockchain technology.

Our response based on the expertise of legal and financial professionals, developers and engineers.

We welcome the proactive approach of the AMF, which demonstrates its willingness to involve stakeholders, professionals and potential investors in the construction of regulations adapted to this new form of financing.

Here is a summary of our opinion

  • Legal qualification of “Tokens”

The introduction of regulations inevitably involves the need to determine the legal status of the “Tokens”. Legal analysis may lead to attaching “Tokens” to existing legal categories or to the creation of a new legal category.

We agree with the AMF’s position that “Tokens” cannot be qualified as financial securities within the meaning of Article L.211-1 of the French Monetary and Financial Code. Indeed, the nature of “Tokens” may vary significantly from one ICO to another: they may confer financial, political, property ownership or use of a service. Thus, some “Tokens” may have characteristics similar to those of financial securities (shares, bonds, units of UCI, etc …) but the fact remains that they do not confer similar rights and are not based on similar mechanisms.

  • Applicable Regulation of ICOs

We promote the establishment of a code of good practice that would include the following elements:

  • Identification of the key actors of the ICO;
  • Provision of a white paper by including a language as comprehensible as possible (plain language);
  • Clear, accurate and not misleading information;
  • Establishment of an escrow service (multisig wallet) to ensure the release of funds under predefined conditions and with the agreement of several parties (three minimum);
  • Transparency on the evolution of the amount of funds collected at the ICO and at its closure;
  • Realization of a security audit of the smart contract;
  • Inform investors about how to resell or keep “tokens”;

Regarding the relevance of setting up a system for the prevention of money laundering and terrorist financing in the framework of the ICO, we agree in principle. Nonetheless, we believe that the KYC and AML processes would be more effective if they are performed at the level of the players that allow the acquisition of cryptocurrency with conventional currencies (Euro, USD, GBP, etc …) such as trading platforms and distributors bitcoins. Indeed, the participation of an investor in an ICO implies that it already has cryptocurrency (BTC, ETH).

The establishment of a lighter system of identification and verification of investors would be an important first step and would make it possible for the initiators of the project not to be burdened with cumbersome procedures. In addition, the entry into force on 25 May 2018 of the European regulation n ° 2016/679, known as “GDPR”, will have the consequence of confirming an important responsibility of the initiators.

We also wish to highlight the fact that ICOs should not be systematically designated as the new main vector of money laundering and terrorist financing. In the same way as the postal money order, the purchase of cryptocurrencies and “Tokens” can be one of many means to achieve this.

Concerning the choice of the regulations applicable to the “Initial Coin Offerings”, we recommend the introduction of a dedicated regulation which take into account technical characteristics and the purpose of the ICOs. We believe that a declarative system would be more appropriate than a system based on prior approval by the AMF insofar as it would make the initiators accountable and retain the main advantages of this new means of financing: speed, flexibility, flexibility & competitive cost.

The AMF will be able to become aware of the existence of this kind of operation and to carry out checks during or at the end of the ICO or even to stop and impose sanctions. In other words, this is about reconciling innovation with investor protection purpose.

The applicable regime could include the following obligations:

  • Declaration of the existence of this transaction with the AMF within 1 month of the first public communication;
  • Identification of the initiator of the project;
  • Writing information documentation in accordance with the “white paper standard”;
  • Respect of the rules enacted in the code of good conduct;
  • Mandatory solicitation for binding opinion of professionals;

In addition, the standardization of the white paper would help to improve understanding and comparability with other ICOs. Also, the analysis and validation of the documentation (ie white paper, terms & conditions, privacy policy) by experts on the basis of an approach similar to that of the independent expertise required in the context of specific financial operations could be appropriate (capital increase with high discount, listed company targeted by a public offer – AMF Recommendation 2006-15). In addition, we also recommend creation of a Code of Ethics for professionals and ecosystem experts.

We encourage the French government to put in place EU-wide regulations to avoid legal dumping practice and promote innovation for the improvement of the EU market.

 

FOR FURTHER : Please find our complete answer here and of course in French 😉

[1] Consultation publique de l’AMF sur les Initial Coin Offerings (ICOs)
[2] « Consultation publique sur l’ordonnance “Blockchain” applicable à certains titres financiers »

CREDITS: The new generation of Blockchain & DLT

The phenomenal increase in the price of cryptocurrency, + 1000% on average since the beginning of the year (source: cryptocompare.com) is attracting more and more interest from the general public, companies and authorities. Capitalization of the cryptocurrency market is evaluated today to more than 340 billion dollars and it is not intended to stop as the appetite of investors as individuals and professionals is growing.

The technology that has allowed the emergence of this new market is undoubtedly the Blockchain which brings a real innovation by the disintermediation of exchanges. Indeed, the distributed character of the Blockchain is based on a peer-to-peer network allowing secure transactions to be carried out without the intervention of a trusted third party, thanks to Bitcoin the mother of this new digital economy.

What are the technological limitations of blockchain public protocols?

This evolving technology is faced at the current stage to some technical limits. One of the main problems is the number of transactions executed per second which remains very low, less than a hundred for a large majority of Blockchain protocols, does not allow at the moment to compete with the giants of payment such as Visa and Mastercard who are able to execute thousands of transactions per seconds. Added to this, it is the distributed nature of the network ensuring that the validation of transactions is performed by node/miner of the network. This distributed transaction validation structure has the undesirable effect to accumulate an important number of transactions waiting to be confirmed by the network, resulting in a proportional way of an increase in transaction costs.

In addition, the storage size of the Bitcoin ledger is greater than 170 GB which can be considered as marginal for a universal payment system but not be neglected in order to guarantee the decentralization of the entire system. The owner of a “full node” storing all the transactions in their computer memory have to download the entire ledger state and when he loses the connection he must also wait a lot of time to be resynchronize with the network.

Also, the use of the consensus POW (Proof of Work), to solve a probabilistic mathematical formula for the creation of a new block of transactions by CPU power allocation is always debated within community. The use of POW is certainly energy consuming but it is supposedly to be a security cost to ensure the robustness of the system ? The energy consumption of all computers in the Bitcoin network is equal to Slovakia (27.89 TWh).

How to solve these problems?

Take the example of a Citroën 2cv whose speed is limited to 70 km / h with high fuel consumption. Would it suffice to replace only the engine with a Tesla motor to be competitive and more economical? The answer is obviously not because the performance in competitions also depends on the modification of other elements such as transmission, grip and braking.

Finally, would not the simplest solution be for engineers to create the next generation by rethinking the entire system? It is in this sense that the CREDITS team has developed the first prototype of this “Tesla Blockchain” whose characteristics are very impressive and can be close to the unreal (scam?):

The technology developed by CREDITS allows a significant increase in the speed of transactions (1M transactions per second) by using a hybrid algorithm dPos and mBFT to overcome all computing power while making it possible to achieve cheapest micropayment fees.

This innovation will notably allow certain use cases of financial sector such as high frequency trading  to be realized directly on a blockchain & DLT network.

In addition, it will be possible to create smart contracts that is a self-execution by the computers of the network of a set of conditions in the form of a computer program, thus allowing to offer a multitude decentralized services and applications.

What does it hide behind the technical features of CREDITS:

    1. Transaction rate per second 1,000,000 tx / sec whose confirmation of the transaction depends on the generation of the block having an interval of 3 seconds instead of 13 seconds on Ethereum.
    2. Securing the enhanced network by using homomorphic encryption to perform arbitrary calculations on encrypted data without having to decrypt them (WTF?).
    3. A single model of consensus based on the principle of federal node voting as a means of verifying the validity of the transaction and minimizing the likelihood of illegitimate transactions.
    4. Information compression up to 90% to reduce the data loading time and drastically reduce the memory used for ledger storage.
    5. Possibility to create “smart contract” using the Java programming language widely used in information systems and thus facilitating interoperability.
    6. The application scope is very broad and limited only by the imagination of the developers: from the financial sector to the Internet of Things (IoT) through energy.
    7. Ability to configure hybrid network (private / public) for businesses to develop and use their applications according to their own needs.

CREDITS brings major technological innovations making the use of Blockchain and DLT technology more efficient in many way. These outstanding performances make CREDITS the new generation of distributed system which you will find more information on the website and with which we signed a technological partnership (https://credits.com).

Initial Coin Offering (ICO) : new crowdfunding model

ICO - Initial Coin Offering
Initial Coin offering (ICO) also called “token crowdsale” is currently a hot topic in the blockchain community.

What is an Initial Coin Offering (ICO) ?

Basically, it’s a new form of « crowdgiving » popular in the blockchain community to finance the development of projects.
Initially ICO appeared before a specific Blockchain network deployment, the step consists for the team in charge of project to pre-mine/pre-create a fixed number of tokens to finance the development of the project.

Today the mechanism for creating tokens is completely different and the process is done on existing Blockchain protocols, the best known for that is Ethereum. Indeed, the team in charge of the project creates an amount of tokens which will then be distributed to earlier investors by a preferential conversion rate. To participate supporters send an amount of participations mainly in Bitcoin and Ethereum.

In contrast to traditional funding methods such as share issuance by acompany which concede a part of its control and dividends, Initial Coin Offering enables the company issues tokens and redistribute them tothe investors in exchange of the invested cryptocurrencies such as Bitcoins or Ethers.

What is the use of tokens?

The ICO tokens may represents various digital assets with attached financial, political or product based rights, that the community has on the project.
In case of the raised amount does not meet the minimum funds required by the company, the fund raised is returned to the investors and the ICO is deemed to be unsuccessful. However, if the funds requirements are met within the predetermined timeframe, the fund raised will be used to build the project as disclosed in the ICO documentation .

Golem Network project was one of the first biggest successes. Build on Ethereum, the project raised $8.6 million in just 29 minutes end of 2016. Golem Network is a peer-to-peer network with no central server that allows both application owners and individual users to rent the resources of other users’ machines and be paid in cryptocurrency (GNT).
More recently Tezos Protocol raised over $230 million within two days.

The main benefit is the fact that the process doesn’t necessary makes the project holders to give up their equity.

In these cases, the platforms achieved mad bet to take up this crowdsale by establishing trust and opening up the roadmap, whitepaper and team information.
This form of P2P funding is possible thanks to the technical driven innovation of the blockchain vehicle.

All in all, it’s a far cry from frauds and scams happened in some projects.
Thereon, the platform smith&crown compiled information relative to ICOs. You can take a look if you wish to go deeper into the matter. However, naturally, keep in mind that the token crowdsale have its various levels of risk and requires technical skills to understand the project.

With token crowdsale, the project holders can directly address the Blockchain supporting community and the community can given them the expected hand up so they could make the project possible.

What are the precautions?

Indeed, it’s first necessary to ascertain that the project suits the ICO process. What blockchain related projects are eligible for an ICO?
How to position your project? What is the adequate ICO for your project, appropriate business and technical architecture? What blockchain to choose, to build one? What is my cap target?
It’s also a number of strategic decisions. What counterparty rights will you offer to the supporting community? Voting rights on the project, venal value, a product, a service, a discount?

The project holders and start-ups are subject to the due diligence procedure and are mentored, guided and supported in realisation of the relevant documentation such as white paper and roadmap because only the illegible projects audited on the objective and vérifiable criteria are supported.

The reason? The blockchain community confidence, it’s build with time and experience and every acquired token represents a capital trust for on-boarded participants.

Is Bitcoin vulnerable after SHA-1 encryption break?

SHA1 BITCOIN VULNERABLE

Security researchers from CWI and Google have achieved the first real-world collision attack against the SHA1 hash function, producing two different PDF files with the same SHA1 signature. It demonstrates this algorithm used for security-sensitive functions is vulnerable and has to be replaced as soon as possible.

According to Google, it was one of the largest computations ever completed:
– Nine quintillion (9,223,372,036,854,775,808) SHA1 computations in total,
– 6,500 years of CPU computation to complete the attack first phase,
– 110 years of GPU computation to complete the second phase.

After the news publication on the Shattered.it website, the 2.49 BTC reward of the collision challenge initiated by Peter Todd a cryptographer and bitcoin core developer has been claimed by a winner. The amount is more symbolic than incentive.
The same challenge exists on bitcointalk forum for SHA256 and perhaps some of you wish participating to increase the current reward by sending some bitcoins to the following bitcoin public key “35Snmmy3uhaer2gTboc81ayCip4m9DT4ko”.

Is Bitcoin SHA256 vulnerable?

Bitcoin protocol uses the SHA256 algorithm, which is stronger than SHA1 by conception. The illustration of the difference in output size between SHA1 vs SHA256 can be seen below:

  • SHA1 – da39a3ee5e6b4b0d3255bfef95601890afd80709
  • SHA256 – e3b0c44298fc1c149afbf4c8996fb92427ae41e4649b934ca495991b7852b855

According to a post on bitcointalk by Satoshi the creator of Bitcoin “SHA-256 is very strong. It’s not like the incremental step from MD5 to SHA1. It can last several decades unless there’s some massive breakthrough attack.”

Bitcoin would be considered unsecure if the same scenario occurs for SHA256. Indeed, all transactions could be compromised and the entire system would be affected before the execution of a fork to upgrade the protocol algorithm.

Satoshi conclude:
If SHA-256 became completely broken, I think we could come to some agreement about what the honest block chain was before the trouble started, lock that in and continue from there with a new hash function.

If the hash breakdown came gradually, we could transition to a new hash in an orderly way. The software would be programmed to start using a new hash after a certain block number. Everyone would have to upgrade by that time. The software could save the new hash of all the old blocks to make sure a different block with the same old hash can’t be used.

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How to secure and protect your bitcoins ?

how secure your bitcoins

Secure your bitcoin in 2017

In 2017, the price of the bitcoin unit reached the symbolic bar of 1000 dollars. The bitcoins’ and other cryptocurrencies’ owners should adopt some essential reflexes to ensure the security of their bitcoins.

1- Cold storage in case of an investment

If you store your bitcoins as an investment product and its value is or becomes significant, we strongly recommend you to choose one of the following two protection options:

You can use a USB hardware wallet like “Ledger Wallet” offered by the French start up named Ledger. It’s price largely worth the security of your assets.

Another method is called « bitcoin paper wallet », it’s free and consists in printing the Bitcoin addresses and private keys on a piece of paper. It is preferable to carry out the generation and printing of your paper wallet within a different computer that you used to acquire your bitcoins. While using this method, make sure that the environment of your computer is secured (without viruses, malware, etc…). You can afterwards import this paper wallet into the electronic wallet to realise your transactions at any time.

Finally, be aware that leaving your assets on an exchange platform is not advised due to the risks of bankruptcy and cyber attacks as we previously witnessed with MtGox, Bitfinex and others.

2 – Electronic wallet application for the regular use

For practical reasons, it’s more convenient to use an application that allows transfering or receiving your bitcoins in a few seconds. However, some precautionary steps are necessary to protect your bitcoins.

First, you should write down, preferably on paper, the recovery password of your electronic wallet. In case of loss of your device, this password will be required to recover your bitcoins. In addition, you could save it in the application such as 1Password, LastPass or KeePass (open source) to store and secure your passwords.

Secondly, we advise you to hold an amount of bitcoin that doesn’t exceed few hundreds of dollars if you frequently use your bitcoins to make purchases or short-term trading orders.
Furthermore, a number of applications allow two-factor authentication to reinforce the sign in process. The first factor is your existing password and the second is an algorithm that randomly generates a series of valid numbers during few seconds. These numbers are sent on your device as a text message or can be directly accessible via free application such as Authy or Google Authenticator.

Whatever your option is, do not skimp on protecting your bitcoins! You can check out the benefits of using bitcoins here 😉

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Bitcoin mainstream adoption in 2017 ?

Bitcoin mainstream adoption in 2017 ?

2016 was a great year for Bitcoin

The public opinion evolved positively in 2016. A better understanding of the technology associated with Bitcoin (Blockchain / Distributed Ledger Technology) has contributed significantly to blurring the image of an anonymous currency of the Darknet.

A multitude of POC (Proof Of Concept) studies have been launched in various industries such as finance, energy and IoT. Moreover, the strong attractiveness of Ethereum perfectly illustrates the awareness of the industrial and institutional stakeholders of the technological potential and the risks. On the other hand, the emergence of cryptocurrenices guaranteeing the total anonymity of exchanges, such as Zcash, have also contributed to improve the understanding of the nature of Bitcoin and by the way changed the negative image often mistakenly relayed by the media.

In any case, the market capitalisation of the bitcoin increased from $ 6 billion to $ 12 billion (USD) this year. On December 19th, 2015, the price of one unit was approximately $ 435, compared to $ 788 today, representing approximately 81 % annual growth.
The growth of the number of the daily transactions also reflects  this enthusiasm. From an average of 200,000 transactions in December 2015 to nearly 280,000 today, which represents an increase of 40%.

Nevertheless, the whole system has almost reached its limits and will have to evolve quickly in order to absorb a higher transactional load. The improvement proposals subject to the approval of the community as the “Segregated Witness” will allow to do it in the coming months.

Bitcoin, 2017 the year of the regulation?

This new year will undoubtedly be marked by the emergence of the regulation at national, European and / or international level. Indeed, the establishment of a legal framework is necessary to promote investment, education and the use of cryptocurrencies as well as the associated technology.

A very large number of countries have become aware of the disruptive potential of this technology, .The majority adopted a position of attentive observers. Indeed, many have chosen to follow up the evolution of the ecosystem in order to promote the innovation while studying the actions taken by their neighbors.

All economic stakeholders will have to overcome together the numerous challenges of this major innovation in order to the enable the massive adoption.

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Ethereum 4TH Hard Fork within 4 months

ethereum-logo_landscape_black

“Spurious Dragon” the 4TH Ethereum Hard Fork

Ethereum is a public blockchain-based distributed computing platform, featuring smart contract functionality. It provides a decentralized virtual machine (EVM), which executes peer-to-peer contracts using a cryptocurrency called ether.

“Spurious Dragon” is the forth hard fork in the history of Ethereum and the second of the two-round hard fork response to the DoS attacks on the Ethereum network since few months. The previous hard fork “Tangerine Whistle” is meant to address urgent overload for the execution for the execution of the code operations (see “Ethereum Improvement Proposal 150”).

However, the network is still filled with pending transactions which is causing users delays in processing their transactions. The attacker performed a DoS attack by repeatedly calling certain operation codes (opcodes) in their smart contracts that are computationally difficult for clients to process, but very cheap to add to the network.

This hard fork will improve the Ethereum protocol

  • EIP 155: Replay attack protection – prevents transactions from one Ethereum chain from being rebroadcasted on an alternative chain.
  • EIP 160: EXP cost increase – adjusts the price of `EXP` opcode so it balances the price of `EXP` with the computational complexity of the operation, essentially making it more difficult to slow down the network via computationally expensive contract operations.
  • EIP 161: State trie clearing – makes it possible to remove a large number of empty accounts that were put in the state at very low cost as a result of earlier DoS attacks.
  • EIP 170: Contract code size limit – changes the maximum code size that a contract on the blockchain can have.

Our advice

Download the latest version of your Ethereum client
 Latest version of Ethereum Wallet/Mist (v0.8.6)
Latest geth client (v1.4.18)
Latest Parity client (v1.3.8)
Latest ethereumJ client (v1.3.6)

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Zcash, new cryptocurrency launched the 28th October 2016

zcash

What is Zcash ?

Zcash is a decentralized anonymous network using a public blockchain and ZEC coins its associated cryptocurrency.

What are Zcash characteristics ?

Basically, Zcash borrows partly from the Bitcoin blockchain DNA :
• Proof Of Work algorithm that provides the robustness and the security level required for its evolution,
• Same economic model with a 21 million units an emission of of Zcash (ZEC) in total,
• Multisignature transaction function (multisig) that allows electronic signature of a single transaction by multiple parties,

The main evolution present in Zcash is the complete anonymity of transactions based on the zero knowledge proofs.
Unlike Bitcoin, Zcash transactions can be anonymise the sender, recipient, and value of all transactions (excluding multisig) on the blockchain due to zk-SNARK, recent cryptographic method. Only the private key holder can see the content.

Who is Zcash creators ?

A team of cryptographers, developers, engineers and Bitcoin / Ethereum experienced consultants. The majority of these members are part of the Zcash Fundation, which is a non-profit foundation whose objective is to control the maintenance and upgrades of Zcash protocol with the support of their community.

What future for this cryptocurrency ?

In the world of cryptocurrencies, it might be considered as another anonymous token (ZEC coins). However, zk-SNARK is a major cryptographic innovation imported on Blockchain and open source.
We can imagine making this privacy innovation for smart contract on blockchain Ethereum and allow only the parties involved in the transaction to be aware of the whole contractual information exchanged in the Blockchain.

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