Blockchain technology can offer the opportunity for those writing the music and lyrics to be better rewarded for their talents. The rise in number of people streaming music has been immense but this has, in effect, also intermediated fans and performers. Blockchain technology enables a more direct relationship between fans and performers in a peer-to- peer manner, without any intermediaries. An example of this is OPUS. OPUS is a Blockchain-powered music-streaming platform allowing listeners to stream music as well as distributing royalties to performers, both by using its own cryptocurrency token. With the Blockchain technology OPUS tracks and records the history of what has been listened to and, hence, is able to make streaming payments to performers in real-time. The OPUS whitepaper states, “Like Spotify users, Opus users are able to listen to new music releases, with each play count generating a small amount of revenue for the artist. Opus aims to address the lack of transparency and lengthy time delays in the current royalty reporting process. Opus pays artists between 97 and 99% of the total revenue generated, with the remaining 1-3% going towards operational costs.”

In 2020, conclusions from a Digital Music study commissioned by OPUS included:

• musicians should be empowered by the transition of royalty payments into Blockchain for the music industry and;

• there is a potential for growth in Blockchain in the digital music streaming services market.

It is not only OPUS, but other firms also using Blockchain technology are active in the music industry including Ujo, Madiachain, eMusic, Music Life. Indeed, in an article from builtin.com, seventeen firms using Blockchain technology are identified as to be disrupting the music industry.

The ability for new independent performers to have a closer/more direct relationship with their fans is indeed another key advantage that Blockchain-powered platforms offer. A new company launching in June 2020 is ANote Music, a firm which is creating, in effect, a ‘stock exchange’ for music royalties thus offering writers access to an alternative source of funding. Investors have the ability to access an alternative high-income asset class in the form of royalties, previously uncorrelated with the traditional equity and bond markets. By creating a music exchange, it is hoped that this will improve the liquidity and, therefore, trading of royalties. Publishers, record labels and artists will be able to sell some or all of their music rights. In simplistic terms, ANote Music introduces a new scheme of financing to sellers and to investors, new investment and diversification opportunities.

However, parallel to this, it is not only the music industry being ‘shaken up’ by Blockchain technology. Listeners are also being impacted, with firms such as Viberate (which claims to have 450,000 artists) incentivising listeners by paying them ‘VIB tokens’ for contributing to its database of artists, venues and events.

Equally, an interesting company (which has its roots in the London punk rock scene from the 1970’s) is FileProtected. Now based in LA in California, the founder, Andy Rosen, has developed a Blockchain-powered platform designed to protect the rights of artists and writers. Having spent a career in the music industry Rosen knows only too well the ‘dark side’ of this industry hence establishing FileProtected, which is designed to allow the creators of digital content music, images etc to be logged cheaply and securely on the Bitcoin Blockchain. So, in the event of a dispute as to whom is the owner and original creator of content, there is now a proven database which can be accessed globally and be relied upon.

Source: FileProtected.com

WhatsApp was based on a set of very simple principles, “No ads! No games! No gimmicks!” . The founders, Brian Acton and Jan Koum, setting up WhatsApp Inc. in California in February, 2009 (having both left Yahoo and applying to work at Facebook, only to be rejected!) WhatsApp was launched on the App iPhone store in November 2009, and its unique selling point (USP) was that one could make calls and message, even internationally, for free. In February 2011, with 200 million users, WhatsApp was valued at $1.5 billion and then along came Google who tried to acquire WhatsApp for $10 billion only to be rejected as WhatsApp accepted Facebook’s $14billion offer! In 2018, WhatsApp, as an app, was ranked first in the social networking category in Apple’s App Store. The messaging app took the top spot with 11.58 million downloads during July of that year, while Facebook’s Messenger had only 9.62 million downloads in the same month.

All well and good, but what benefits and advantages does it deliver? In short, with a global reach across 180 countries,WhatsApp offers Facebook, in conjunction with Libra, the distribution many banks would ‘die for’. It possibly threatens to undermine governments in different countries as there is the potential of people migrating to use WhatsApp (as opposed to traditional currencies), particularly as WhatsApp and Facebook have been focusing more and more in businesses.

WhatsApp for Business API enables businesses to integrate the WhatsApp API with their own, providing a customer-friendly experience and allowing companies to message customers on WhatsApp automatically. Other features include, making it possible for banks to message confirmations of purchases and event promotors to confirm ticket booking applications securely through WhatsApp, in almost real time. This has proved extremely popular and there are now over 3 million business already registered on WhatsApp’s platform and growing. Subsequently, these firms could be offered incentives by Facebook to process transactions using a new Libra Digital Currency. Indeed some global corporations of sufficient size, could even have their own digital currency created and managed by Libra on a white label basis as discussed in previous editions of Digital Bytes.

The global remittance market and the revenue generated

Source: Save on Send analysis.com

Added to this, a further reason that WhatsApp payments will prove popular is the global remittance market is massive and is expected to continue growing. Therefore, whilst the cost of forwarding money is undoubtedly declining, a Digital Currency ought to be able to undercut the traditional money-transfer providers. Were it to be assumed that WhatsApp charged only 2% to transfer cash and succeeded in capturing 10% of the current $650 billion global remittances, this would generate over $1.2 billion p.a. of revenue for the mighty Facebook empire! On the basis that Facebook has a current price to earnings ratio (PE) of 31 were we to assume a net profit margin of 50% for WhatsApp, this could mean that the $600 million of additional profit would increase Facebook’s value by $600m x 31 i.e. $18.6 billion. Another way of looking at this is would be that it would only take 9 months (3/4 of a year) for Facebook to recoup the $14 billion it paid for WhatsApp! 

The ICO Visa falls under the French PACTE law, which has changed the legislation for foreign investments in France, enabling French authorities to sanction or preclude different investments as they deem appropriate. In February 2020, the first new-style ICO to be approved by AMF was launched to ‘French ICO’, a platform enabling businesses to issue these new-style and more regulated ICOs raising capital from both the public and institutional investors. However, the French regulator will also require cryptocurrency exchanges, as well as custodian providers, to be regulated. i.e. all those parties that are involved will need AMF approval.

Alongside this, the latest ICO being launched under the ICO Visa initiative is for a company called WPO (a renewable energy firm established in 2008 and currently running projects in 10 different countries). WPO has created Green Tokens (GTK) using the Ethereum Blockchain, with these GKT tokens due to start trading on 1st Dec, 2020 on a French Crypto exchange called SAVITAR, based in Paris.

WPO is looking to raise €1.5 million to €10 million, with investors being able to participate for as little as €100, buying each GKT for €95/each. The offer starts 8th September, 2020, although people are able to register their interest now. Jerome Souter, a partner at CMS in Paris, is a fan of properly structured ICOs and has recently said, “ WPO’s ICO is one of the first real interesting ICOs I have seen on the French market as it is a true ICO (and not an STO) launched by an existing and successful company which aims to change its business model relying on the blockchain. Yes, I do believe that it Is a new way to raise funds and, I would think that other serious players could rely on it”.

Source: WPO.eu

Interestingly, a UK-based platform has been working with a firm in the USA to issue a SEC- approved ICO. Although negotiations have taken a while, sources close to this project are confident that the SEC will give the ‘thumbs up’ before the end of 2020. This demonstrates that the SEC is not totally against ICOs, despite it forcing yet another ICO to return $25+million to investors as recently as the end of May 2020.

In the UK, a consortium has also been established to enable existing, not start-ups, to issue EquiBonds (a hybrid between an equity and a bond).The intention is to build on the success of crowdfunding thereby creating an instrument that would have a lighter regulatory touch than a security, but could be traded on a secondary, ideally digital, market 24/7. 

Subsequently, companies may well start to use these more structured and regulated methods of raising capital. Who knows, this may breathe life back into the crypto market and thus help realise the ambitions of some who say ICOs have created a new class of asset that potentially are not correlated with many existing asset classes. In any event, given the dire outlook for the economies in Europe and USA, any way to help raise capital for SMEs surely is to be welcomed.

• demographic changes - what are future urban populations likely to be?

• construction and urbanisation - what kind of city structures will be inhabited?

• work and income - how will people work and earn their living?

• services - what kind of public services and private service providers will be utilised?

• leisure and social interaction - how will citizens spend time and what will they value?

• transportation - how will people move around in the urban environment?

• security and safety – what will be different in terms of safety and security compared to the urban environments of today?

Smart cities of the future are likely to be even more reliant on information and data in order to enable greater automation and robotics. Subsequently, this will no doubt potentially lead to an increasing use of technologies such as Blockchain, AI, IoT, self-driving cars, additive manufacturing (as manufacturing ‘on-shores’- returning to the countries in which the products are consumed). It has been argued that ‘data will be like oil’  for our economies going forward. If this is the case, and more value is to be accredited to data, it will mean that the data itself becomes more valuable and needed (potentially by more parties). This, is turn, offers an opportunity to ‘package’ and monetise data and thereby trade the data in a similar way that historically other assets, such as equities and bonds, have been traded.  

A few years ago, people were proclaiming, “Yes, happy to buy books on-line, but not clothes” as they preferred to go to a shop, try on clothes, see different designs, let alone buy food. “Surely it is better to look and inspect the food, rather than buy on-line?” How wrong this has proved to be? Significantly, with office workers globally now having worked from home for several months due to Covid-19, will these same employees of the future really need to be located in an office building? Responses to this question are likely to depend on one’s own personal circumstances, such as type of job, age and industry sector. For example, a younger, single people are most likely to regard a city as an exciting place where they can socialise, eat and drink, network and enjoy the culture on offer. Conversely, an individual with a young family would potentially place more importance on access to open spaces, less congestion and the need for a larger home/garden for a growing family. It is interesting to observe not only how quickly people have embraced remote working (and, with it, conference calls etc) but also how quickly companies and employees have adjusted to it. Parallel to this, there are the added environmental benefits of less pollution and the saving of time as a result of not being able to commute into the office. The ‘challenges’ of raising a family whilst working from home has been shown to be a viable option.

These smart cities of tomorrow are going to be able to unlock the value of waste and those no longer required materials by using Blockchain technology. After all, it has been said, 'Waste is just material without information’. Blockchain technology offers an efficient way of collecting information required which will ensure construction materials used in modern cities avoid becoming unwanted waste. This would surely add value to those previously regarded waste materials were they to be resold at something close to their ‘as-new’ value rather than at salvage or scrap prices.

Alongside this, we are also witnessing a growing awareness and interest in the ‘circular economy’, where materials are manufactured with the mindset that they are to be reused recycled in the future. Indeed, it is often argued there is no such thing as waste  - in theory, every residual stream can be used to make a new product. According to the Ella MacArther Foundation, producers are able to take back their products after use and repair them for a new useful life, adding, “It is therefore not only important that materials are recycled properly, but also that products, components and raw materials remain of high quality in these cycles”. 

The arguments for a closed economy are potentially highly attractive not just in terms of helping to protect the environment, but also in terms of job creation, having more sustainability and ultimately saving money.

The estimated benefits of a closed economy for the Netherlands

Source: The Ella MacArther Foundation

Again, Blockchain technology can help by offering the ability to track and trace materials as they are used and then re-used. Cities of the future are likely to rely more and more on renewable energy from micro-energy generation, which will be fostered by encouraging increased ‘p2p’ trading. Blockchain technology will be able to track where and for whom the electricity has been generated and used, thus encouraging greater investment in micro- generation.

In Nevada, USA, there are plans to build a 68,000-acre town which would be of a similar size to Reno (which was famous for silver mining during the height of the California gold rush 

in the 19th century) with Blockchain technology at its core. Plans for this new city were announced in 2018 with Jeffrey Berns, the CEO of this project and a crypto currency millionaire, stating, “The site is roughly the size of Reno” and describing the proposal as “a series of projects to highlight the power of public blockchain”. The homes, banks, shops and schools will all include the use of Blockchain.

Cities are ever evolving as our needs for them alter, increasingly relying on progressive technology as they become smarter and more automated. The use of Blockchain technology, Artificial Intelligence (AI), Internet of Things (IoT) additive manufacturing (3-D printing) will all, no doubt, play a role. The Covid-19 pandemic has increased the focus on trends such as recycling, working from home, onshoring manufacturing and p2p energy trading that had, themselves, already been developing for a while.

Many of the companies involved in offering greater transparency over their food supply chains are using a combination of technologies such as Artificial Intelligence (AI), Blockchain and Internet of Things (IoT). The information collected and stored by these technologies are then often accessible on mobile devices, including cell phones by using Quick Response (QR) codes. This enables various parties (along often complex supply chains which can in some cases span the world) to track and trace the journey of the goods  - how they are being transported, where they have come from, the temperature conditions in which they have been stored under, even the details of the trawler on which they were caught or the fields they were grown in.

Almost five years ago, in November 2015, a white paper (business proposition) was released by a company called Provenance, stating that, “Provenance enables every physical product to come with a digital ‘passport’ that proves authenticity (Is this product what it claims to be?) and origin (Where does this product come from?), creating an auditable record of the journey behind all physical products.” Provenance went on to quote Marc Andreessen who, in 1993, invented the first internet browser, Mosaic, and when talking about it, said, “Blockchain technology changes everything. The practical consequence […is…] for the first time, a way for one Internet user to transfer a unique piece of digital property to another Internet user, such that the transfer is guaranteed to be safe and secure, everyone knows that the transfer has taken place, and nobody can challenge the legitimacy of the transfer. The consequences of this breakthrough are hard to overstate”. 

There are many other examples of different organisations using Blockchain-powered platforms to track and trace various food products, which include:

Albert Heijn – the Dutch supermarket is now able to give customers the ability to trace and trace were their oranges were grown. It is planning to be able to offer provenance of all its produce by 2025;

Agriledger – working with the World Bank, this company is helping to increase farmers’ income by 2 to 3-fold, according to a report from the Said Business School at the University of Oxford (which grow mangos and avocados in Haiti);

Bumble Bee tuna - is using Multichain, running on the SAP cloud platform , to track and trace yellowfin tuna from the time it is caught to the moment it arrives on the shelves in a shop;

California Giant Berry farm - one of the USA’s biggest berry farmers is using the IBM Food Trust blockchain for its berry supply chains in order to give customers access to the provenance details and product tracking of its berries;

Farmers Hen House - with a QR code printed on each egg, this enables consumers to know form which poultry farm an egg was produced;

Starbucks - is working with Microsoft to give Starbucks a digital traceability of its products and also to support its sustainability strategy.

Meanwhile, IBM has commissioned a report, polling nearly 19,000 consumers from 28 countries across range of age groups, in order to understand how individual purchasing decisions are evolving. The study found:

• One-third of all consumers today will stop buying their preferred products if they lose trust in the brand;

• One-third of consumers have already stopped purchasing their historic favourite brands in 2019;

• Consumers are prioritizing those brands and products that are sustainable, transparent and aligned with consumer’s core value;

• Consumers are willing to pay more, and even change their buying habits, for brands that get it right;

• Corporate values now outweigh product costs and convenience; Consumers of all ages and incomes pay much higher premiums for products aligned with their personal beliefs;

• On average, 70% of ‘purpose-driven shoppers’ pay an added premium of 35% more for sustainable purchases, such as recycled or eco-friendly goods;

• 57% of them are even willing to change their purchasing habits to help reduce negative environmental impact; 

• 79% of all consumers today state it is important for brands to provide guaranteed authenticity. Within this group, 71 % are willing to pay an added premium – 37% more – for companies offering full transparency and traceability.

IBM recommended that for retailers to gain a larger market it was necessary to, “Earn consumers' confidence through transparency and traceability…by offering convenient, quicker access to detailed information previously unnecessary, such as how the products are manufactured, quality of ingredients, if it is sustainable or ethically sourced, and under what conditions”. But then to be fair, IBM has spent millions developing and selling its Blockchain technology skills! As with any use of IT and data bases, the accuracy of the information and the reports that can be generated are only as good as the quality of the inputs i.e. ‘garbage in, garbage out.’ 

It is not simply consumer demand and buying habits that is encouraging or, some may argue, forcing new technology to be used in the food supply chains, but legislation is also driving adoption. The World Health Organization estimates that 420,000 people die annually from food contamination. In the USA, the Food Safety and Modernization Act has introduced controls regarding food imports. Meanwhile, the European Union’s Trade Control and Expert System is designed to provide food traceability and risk-management so that traded plants or animal-based products can be tracked and monitored throughout the food supply chain.

Founder of Facebook, Mark Zuckerberg, was interrogated in a Congressional hearing as governments became concerned that, with 2.6 billion active monthly users, this ‘new-fangled’ Libra currency could even threaten the ‘mighty greenback’  - aka the US$. An American Senator committee member was reported in Australian Financial Review having said, “Large payment companies are wise to avoid legitimising Facebook’s private, global currency. Facebook is too big and too powerful, and it is unconscionable for financial companies to aid it in monopolising our economic infrastructure. I trust others will see the wisdom of avoiding this ill-conceived undertaking.”

It was not just the Americans who seemed less than keen to embrace Libra’s proposed digital currency. According to GreenWatch, “The G7 group of nations has vowed to block it unless Facebook can prove it is safe and secure. There are concerns the currency could be used for money laundering, disrupt the global financial system, or give Facebook too much control over user data”.

Source: British Network.com

However, Libra Association vice-chairman Dante Disparte said in an interview, "The journey since the original white paper was released has really provoked an important conversation around the world about, how do we appropriately regulate digital payments and digital currencies?” Given that the Chinese are about to launch their own Central Bank Digital Currency (CBDC) and what with the increasing call for other countries to have their own Digital Currencies as well, there will be a need to respond to Disparte’s question!

It is interesting to see Stuart Levey, who was Under Secretary for Terrorism and Financial Intelligence for the U.S. Treasury for 7 years being appointed CEO of Libra, that Temasek (Singapore’s sovereign wealth fund with an estimated value of $313billion) has joined Libra. Temasek Tweeted , revealing its engagement with Libra by saying, “Looking forward to the potential of this #blockchain-based digital currency, and how it can help create a regulated global network for cost effective retail payments”. Libra’s own press statement regarding Temasek’s involvement announced, “Temasek, a global investment company headquartered in Singapore, brings a differentiated position as an Asia-focused investor. Temasek sees innovative technologies such as blockchain as transformative enablers of growth. Temasek’s efforts to support and advance the use of blockchain technology across a range of use cases, asset classes and sectors, reflects its drive to explore, develop and invest in solutions to bring about a better, smarter, and more sustainable world”. Temasek’s engagement with Libra, once again, demonstrates how Asians are comfortable embracing digitisation.

Another significant appointment for Libra is Robert Werner as its General Counsel. He has worked at HSBC, Goldman Sachs (overseeing Privacy and Regulatory Relations) and Merrill Lynch (leading financial crime compliance). Werner also has in depth experience working with governments, having been a Director of the Financial Crimes Enforcement Network for the United States Department of the Treasury.

As well as continuing to talk about a digital currency backed by a basket of fiat currencies, Libra is also looking to create a portfolio of stablecoins each backed by different fiat currencies suitable for different countries. It would therefore be relatively easy, one assumes, to use Libra’s infrastructure thus allowing a corporation to create its own Digital currencies i.e the Facebook coin, Amazon Coin, Google Coin etc? 

Indeed, second time around, will the ‘Zuck Buck’ (or a variant) receive a warmer welcome as, like a phoenix, it rises from ashes?

Blockchain technology, itself, can be a main player in supporting the battle against these pandemics: 

• by tracking those infected -  both Acoer and The Public Health Blockchain Consortium are monitoring the continual and anonymous verification of communities and workplaces that are free from coronavirus COVID-19;

• in the carrying out of research and clinical trials - provides the ability to anonymise data thus keeping personal information confidential (pharmaceutical firms and governments need trends);

• by tracking donations and how funds are spent- e.g. Hyperchain in China;

• by way of tracing and tracking the quality control measures required for medical supplies e.g. Modum.io AG offers access to the temperature records of pharmaceutical products during their transportation in order that necessary compliance temperature requirements can be verified. Also, VeChain tracks the authenticity of medical masks together with the supply/production of them.

However, there are challenges to using Blockchain technology:

• Regulatory – if a public blockchain is used potentially no party is responsible or can be held accountable for the data on the blockchain. Therefore; it would not be possible to delete data thus potentially breaching GDPR regulations and the right to be forgotten; 

• Data privacy - as potentially people’s movements would be tracked to ascertain with whom they have been in contact;

• Patient engagement - safeguarding issues in the case of the young, old or those with limited mental capacity;

• Interoperability of data - there is a lack of standards and regulations between different systems/Blockchains;

• Scalability and speed -this could well prove to be a challenge given the huge amount of data involved.

Guardtime, is a company which uses a blockchain-based platform to secure over 1 million patient records in Estonia and is cited as an example of the use of blockchain for the management of electronic medical records (EMR). Another such example is the MedRec project, a project of MIT Media Lab and Beth Israel Deaconess Medical Center. It is a blockchain system that ‘prioritizes patient agency’, giving a transparent and accessible view of medical history. The Gem Health Network (GHN) is yet another example, which is developed by the US start up, Gem, using the Ethereum blockchain platform. GHN allows different healthcare practitioners to have shared access to the same data. Healthbank, a Swiss digital health company, is similarly working on empowering patients to be in full control of their data using blockchain platform. In a systemic review on blockchain technology in healhcare from 2019 the author includes in his research the Medicalchain project, whose blockchain-based platform will be designed to facilitate the sharing of patients’ medical records across international healthcare institutions, as well as the Healthcoin initiative which aims at constructing a global EMR system. Other players involved in the research paper working on different initiatives and projects based on blockchain-enabled patient-centric EMR included Factom, HealthCombix, Patientory, SimplyVital, IBM’s Watson, BurstIQ, Bowhead, QBRICS and Nuco.

Zoonotic diseases, themselves, are very common, both in Asia and the United States, and around the world. Scientists estimate that more than 6 out of every 10 known infectious diseases in people can be spread from animals. Because of this, the US Centers for Disease Control and Prevention (CDCP) works 24/7 to protect people from zoonotic diseases, not just in the United States, but around the world.

Zoonotic – diseases that spread from animals to humans

Source: https//www.cdc.gov/onehealth/basics/zoonotic-diseases.html

The past two decades have seen three major highly pathogenic zoonotic outbreaks of beta coronaviruses. The first was Severe Acute Respiratory SyndCoronavirus (SARS-CoV) in 2002, which infected over 8,000 people and killed 800. This was followed in 2012 by Middle East Respiratory Syndrome, MERS-CoV in 2012, a difficult to transmit but highly lethal virus, with 2,294 cases as of 2019, and 35% mortality. The third is SARS-CoV-2 (causing the current global pandemic) and resulting in the severe respiratory disease Covid-19. It was first reported in China in late December 2019 and consequently triggered an epidemic that rapidly spread across the globe becoming a pandemic of devastating impact - unparalleled in our lifetime. The European Centre for Disease Prevention and Control (ECDC) and the John Hopkins Coronavirus Resource Center are both institutions providing up to date reporting the on current Covid-19 situation globally, at present with over 4.9 million confirmed cases and over 323,000 deaths.

However, notwithstanding of all this, there is seemingly the potential for a ‘trade-off’ between security and privacy – always a debatable issue when dealing with personal and medical data. The engagement of technology is no doubt increasingly highlighting the need for society to decide how this trade-off is to be reconciled.

Proposed guidelines:

• Companies issuing an EquiBond are required to have at least 1 year’s audited accounts ensuring that a third party has reviewed the company’s financial position. This means that EquiBond investors will also avoid 20% of those businesses which become insolvent within 12 months of being established;

• The maximum that can be raised is €8 million - same as current crowdfunding limits;

• The maximum an investor can invest in a tax year into EquiBonds is £20,000 - same as the annual ISA allowance;

• An EquiBond can be held in an ISA;

• An investor can invest a maximum of £5,000 p.a. into each EquiBond - so not overly exposed to individual issue;

• The income on an EquiBond is tax free;

• Investors will be subject to full KYC and AML checks, which can be carried out by the exchange where the EquiBond is to be traded on;

• 10% of any monies raised from an EquiBond issue is to be paid to the National Lottery - so helping good causes and ensure that there is governance and independency as to the beneficiaries;

• The total costs of issuing an EquiBond cannot exceed 5%. Therefore, including the 10% given to the National Lottery, investors are assured that 85% of the capital raised will be deployed into the company in which they are investing;

• Money raised from an EquiBond is treated as capital so not taxable for the company receiving the capital;

• Initially the EquiBond pays 10% of its revenue to investors above a pre-agreed level of company turnover. Once the initial capital invested is repaid, the share of revenue reduces to no more that 2% of the company’s Earnings Before Interest Tax Depreciation and Amortisation (EBITDA);

• The income generated from a share of a company’s revenue is calculated based on the number of days the investor has owned the EquiBond - and can be paid as frequently as monthly;

• The company wishing to raise capital has to have at least one non-executive director on its board; 

• The directors need to have professional indemnity insurance (PI) in place as this will mean a third party (i.e. the firm offering insurance) has reviewed the company in order to agree to offer PI;

• To issue an EquiBond, a company must produce a mini prospectus with any stated facts and claims fully verified.

Telegram created ‘Grams’ which were claimed to be designed for users to spend on a global instant messaging app, powered by Blockchain technology and called Telegram Open Network (TON).  The intention was that Grams would have a finite supply, thus theoretically rising in value as more people used them on the network and as demand for the currency increased. According to a statement from Telegram, the intention was to offer “significant improvement upon previous platforms in terms of speed, usability and scalability.”

Telegram carried out two fundraisings - the first, in Q1 of 2018, attracted  81 investors putting in minimum of $20 million each and raised $850 million, at an average price of $0.38. In a filing to the Securities and Exchanges Commission (SEC) Telegram reported that it had carried out a second issue later in the year and had raised an additional $850 million from 94 investors, bringing the total amount to $1.7 billion. Telegram also added that it would possibly “pursue one or more subsequent offerings” beyond these first two sales. Of note, investors in the first round could use other Crypto currencies, such as Bitcoin or Ethereum, to buy Grams but in the second round one could subscribe for Gram tokens only in US dollars and Euros, at a price of $1.33. 

There were differences not only in price but also the ‘lock-up’ restrictions between the terms of the Purchase Agreements for investors in Telegram for the two rounds. Those in the first round were not permitted to sell their Grams immediately but had to wait 3 months, and then could only sell their Grams in 25% increments staggered over 18 months. On the other hand, the second set of investors did not have any restrictions and could sell their Grams as soon as they received them. However, in October 2018, the Security Exchange Commission (SEC) in the USA sued Telegram as it believed bank records would prove Telegram illegally sold tokens to resellers who were paid a commission on selling Gram tokens. Furthermore, Telegram had sold tokens after a March 2018 deadline.  

So, what is the value of Telegram? Unfortunately, valuing any cryptocurrency is difficult for main two reasons:

1. Cryptocurrencies are not ‘shares’ in a company but ‘representations’ of the value of assets within a network. Therefore, their viability is not based on generating a cash flow. Instead, it depends on the level of engagement from the community that supports it (e.g. users using the service, miners securing the network and, of course, the developers). It has been proposed that the value of a utility token, such as Gram, could be achieved by looking at the Current Utility Value (CUV) which is more fully explored by Rutam Bostashev in a paper looking at “The Next Step in Crypto asset Valuation” ;

2. Cryptocurrencies are a new and unexplored type of asset, with their application still moderately limited compared to fiat currencies. Almost all cryptocurrencies are in their infancy, with the oldest having been launched in January 2009. This means there are very small number of ‘use cases’ and a limited track record which could explain volatility or key drivers. This was true in 2018 and remains the case.

As with many ICOs it has been almost impossible to assess the real value of Grams. Telegram was mindful of the SEC regulations and its reliance on the Howey test in relation to ICOs, so had made it clear that investors were not actually buying equity in Telegram. However, Aton (one of the oldest investment companies in Russia, founded in 1991) 

has carried out a review of Gram tokens and estimated the value of Gram at between US$2.1 and $8.0 per token.

Essentially, as with any asset it is about how much someone else will pay and, despite not being officially listed on an exchange, an Over the Counter (OTC) market has developed trading Grams therefore giving an indication of what people are prepared to pay. However, those people trading Grams possibly need to be careful as, according to Coindesk, “Investors who bought into Telegram’s $1.7 billion offering in February and March of 2018 are not allowed to sell or pledge their tokens in any way before the launch. The original purchase agreement says that if an investor disposes of his future tokens before Telegram Open Network, or TON, is live, the allocation can be cancelled. In other words, there’s a risk that investors buying these tokens in secondary trades won’t ever get them”.

Furthermore, Telegram issued a statement saying, “Nobody can buy or sell Grams yet… First, it has come to our attention that certain websites appear to be offering Grams to the public. These websites sometimes refer to the offers as “token presales,” and some pretend to be affiliated with Telegram. As we've warned you on numerous occasions, these are NOT official Telegram websites, they have NO affiliation with Telegram, and NO Grams have been issued yet to anyone.” 

This surely raises the question if NO Grams have been issued yet to date, how will futures contracts be able to finally settle? According to BitForex, “All users who hold BitForex Grams futures contracts when they expire will be able to redeem the Grams’ physical assets 1:1 following the launch of the TON mainnet”. So, on one hand Telegram states it has NOT issued any Grams, and yet, “BitForex has entered into strategic cooperation with Telegram Open Network private token sale participants and currently has the right to use 1 million Telegram Open Network GRAM tokens”. To say the least, the rights of those who buy Grams via an OTC transaction is less than clear.

So what is the value of Telegram? Unfortunately valuing any crypto currency is difficult for a variety of reasons:

• A valuation based on its tangible assets, such as Fiat cash and Crypto holdings - after all, it did raise $1.7 billion in cash and Crypto. Presumably, while there have been expenses one would have thought the ‘cash pile’ would have been earning some interest (although as Duvo once said, “If you buy Euros, you do not own the EU”).Therefore, Gram holders, in theory, have no economic interest in Telegram’s assets!

• An alternative way to value Grams could be by looking at its intangible assets. According to SEC filings, Telegram has 300 million members and 200 million active monthly members. As a comparative, Pinterest, had 325 million active users at the end of 2019 and is currently valued at $11.6 billion. Thus, there is an argument that Telegram (if the SEC challenges are resolved) could be worth 2/3rds i.e.$7.65 billion, based the number of Telegram’s monthly users. However, Telegram sold the right to use Telegram Open Network (TON), not equity in Telegram. Simply because one owns Grams it does not mean there is an entitlement to any proceeds in the event of an IPO - should Telegram take this action! 

• The SEC remains in dispute with Telegram as it claims Grams are not a utility token, but they are a security  token. Since Telegram did not follow US security regulations, it is in breach. Until this matter is resolved it must surely reduce the value of Grams, as investors may need to have their money returned to them. It is interesting that a company called Base carried out an ICO which was backed by some very experienced institutional investors but, due to pressure from the SEC, the $130+ million Base raised was handed back to investors.

• A challenge could present itself if investors’ money is ordered be returned since Grams were issued largely as a result of swapping BTC/ETH for Grams. There may be disparity in price of these Cryptos compared to the price investors swapped into Grams initially - granted that Telegram has not sold these holdings! However, if Telegram did cash in its Crypto holdings of ETH and BTC and invest the proceeds into US 10-year Treasury bonds (earning 2.72% p.a.), Telegram would be earning approximately $3.85 million a month which, no doubt, helps pay the lawyers to tackle the SEC!

These two charts show the price of BTC and ETH since Oct 2018

As Telegram states: “Grams do NOT represent:

• Any equity or other ownership interest in Telegram or its affiliates;

• Any rights to dividends or other distribution rights from Telegram or its affiliates;

• Any governance rights in Telegram or its affiliates.”

Also, in the same statement Telegram adds that its “TON Wallet application is expected to be made available solely on a stand-alone basis and will not be integrated with the Telegram Messenger service”. Therefore, can one really value Grams based on Pintrest’s capitalisation. As indeed Grams may now have nothing to do with the Telegram messenger service that currently has 300 million users ?

Meanwhile, the SEC is further actively pursuing a number of ICOs, as can be seen from its site  (which is regularly updated). The SEC has fined Blockone $24 million for running an unregulated security, so it may not be a total disaster for Grams if Telegram is found to have broken SEC security rules! Blockone is the largest ICO to date, raising $4.2 billion from 25/6/2017 to 4/7/2018. Telegram raised $1.7 billion 5/10/2018 to 15/2/2019. However, there are concerns that Telegram is in potential breach of its offer, having reported, itself, that Telegram Open Network (TON) would go online by October 31st, 2019. Telegram had stated that all investors would get their money back, less expenses. This was also confirmed to Telegram community members in a document that Telegram released to “Telegram News”, re-iterating that were investors not able to trade their tokens by 31st, October 2019, their money would be returned. Interestingly, this deadline was extended to 30th, April 2020 and even more recently, Telegram has offered investors their money back. However, Gram tokens were trading on the OTC market $1.9 earlier this week, so why would the initial investors now give up potentially $80m profit each? (i.e. the initial investors that subscribed for $20 million Grams tokens at 38 cents, compared to $1.9 recent price!).

Finally, The Free TON community (an independent group of software developers, validators and users) has launched the “Free TON Blockchain” on 7th May, 2020 and stated that Telegram “can no longer be involved” in the project. No surprises then, that the value of Gram tokens on the OTC market has fallen 12% to $1.78. 

Is this to be SEC’s biggest ICO scalp which leads to the demise of Telegram’s $1.7 billion ICO?

Without doubt, Blockchain technology offers the financial services sector many advantages. It can help reduce costs, improve transparency, give greater data security and has the ability to create new products and services more relevant and appealing to younger clients (who are typically looking for access to real time information from their mobile phone while on the ‘go’). 

Total number of Fintech, Insurtech and Realtech start-ups worldwide by industry, as of October 2019

Source: Statista.com

While change needs to be embraced (and there are a host of Fintech firms globally trying to implement this change), the incumbents are unlikely to alter and jump on what some still see as just the latest ‘techy band wagon’. Let us take, for example, custody services offered by banks worldwide - a market that is dominated by only five players. If you are managing assets on behalf of an investor, in most jurisdictions it is a requirement to have the actual assets ‘looked after’, i.e. in the custody of a third party. However, the majority of traditional custody service providers currently do not offer custody of Digital Assets. Arguably this is one of the reasons why it is difficult for fund managers to buy and own Digital Assets, as their existing custody agents are not able to administer them. It also may explain why fund managers often get exposure to Crypto assets (e.g. Bitcoin) via futures traded on established market, such as the Chicago Board Option Exchange (CBOE), as traditional custody service providers are familiar with ‘looking after’ futures contracts but not Cryptos.

A company trying to fill this gap in the market is Custodiex, which has been established by Martin Gymer, an ex-banker who therefore has first-hand experience about what the banks need and currently offer. Gymer recently pronounced, “We know the world is digitising assets like crazy….  Bitcoins and alternative coins, currencies, commodities, documents, property, Intellectual Property, patents, trademarks, customer and business data, paintings, literally everything. At Custodiex we offer a hybrid concrete and cloud solution to look after these digital assets on behave of third parties.”

Custodians by Assets Under Custody

Source: The Asian Banker

The securities industry is certainly one area that is likely to benefit from using Blockchain technology. Enabling trades to be settled faster while providing military grade security helps to explain why possibly JP Morgan has developed Quroum. A Blockchain-powered security would enable dividends to be calculated, based on the number of hours a security had been held, and give real-time access to whom is the beneficial owner of an asset. It would be possible for different types of information to be shared with different parties or different divisions in the same organisation, thus maintaining greater confidentiality and offering enhanced security and privacy (which is impossible using paper-based records requiring masses of documents). At the same time the Blockchain technology would enable regulators to have on-line access to all the data and then, in turn (by using smart contracts), 

run exceptional reports to offer real insight to the internal risks and any systemic macro risks in the financial system:

Greater automation holds the promise of better risk control and more time spent on analysing risks, as opposed to checking documents. KPMG claims, “Clients using its Customer Risk Analytics, have reduced the time, effort, and cost of call transcription and analysis by as much as 80 percent”. Furthermore, Blockchain technology offers the potential to impact the payments sector eliminating may of the current intermediaries. It is possible that transactions between consumers could be approved automatically and digital assets could facilitate faster payments at lower fees. This is what Ripple is currently doing with Azimo which, itself, is targeting the Philippine remittance market (valued at over $34 billion p.a.). 

Blockchain technology can offer help institutions move closer to real-time transactions between financial institutions and each form will be operating of the same ledger which offer the promise of greater trust as assets can be tracked and trace as they move around the system. HSBC has found that by using Blockchain technology it can substantially reduce the cost of dealing in foreign exchange. Digital Assets, backed by traditional securities such as stocks, bonds, commodities, are obvious evolutions. However, the ability to create new alternative and uncorrelated assets could prove to be really interesting for investors. Such uncorrelated assets could be based on the monetisation of data, Intellectual Property, litigation financing, rental income from Real Estate or an asset backed by a sports star’s future earnings. 

Instead of a digital currency that is made up of a basket of fiat currencies, they are now looking at issuing a series of digital currencies pegged to individual fiat currencies, and similar to some of the existing stable coins which currently exist e.g. Tether, US$, Circle etc. Interest in some stablecoins (such as Tether) have seen a substantial increase in their assets recently, as Tether is now worth over $6.35 billion, a rise of $2 billion in just March. It would appear that those at Libra wish to help central banks create their own individual fiat-linked stablecoin and, to start the process, Libra has applied to the Swiss Financial Markets Supervisory Authority (FINMA)s for a payments services license. Facebook’s David Marcus said, “Libra will sport a comprehensive network-level system around anti-money laundering (AML), Combatting the Financing of Terrorism (CFT), and sanctions enforcement" and "building stronger protections into the design of the Libra Reserve to protect consumers, even in the most adverse situations”.

However, the Financial Stability Board (FSB) has announced 10 proposals to central banks, and one of the them is to ban decentralised stablecoins if it is felt they cannot be controlled or regulated. Potentially, if the recommendations proposed by the FSB are enacted then Tether, for example, may need to become authorised in every country in which it wishes to issue its token. As a result, this would substantially increase its compliance infrastructure and costs. Could it be that the FSB proposals a method of simply ‘clearing the way’ so that, in effect, it will only be central bankers who are able to create digital currencies?

Meanwhile, in China, the government is still progressing its plans to launch a national digital currency (DCEP) as local government employees in the city of Suzhou will receive 50% of their May 2020 transportation subsidies in DCEP. The DCEP payments will be made by four state-owned banks - the Agricultural Bank of China, the Industrial and Commercial Bank of China, the Bank of China and the China Construction Bank. It is not just in China we are seeing increasing adoption, as in Malaysia a payments platform (MoneyMatch) has announced it will soon be using Ripple. CEO of MoneyMatch, Adrian Yap, believes that banks make huge profits from FX-operations which are really expensive for the users. He recently stated, “After joining RippleNet, we were suddenly a credible partner for all these financial institutions and payment providers around the world. Working with RippleNet partners allowed us to cut our costs by as much as 40% and instead of transactions taking at least two days, we were completing payments in just a few hours.”