Tag: Blockchain

The First Ever Cryptocurrency Back By Real Estate

The First Every Cryptocurrency Back By Real Estate, REcoin, is a big scam. At least according to the Securities and Exchange Commission.

Several weeks ago the SEC posted an Investor Bulletin in Initial Coin Offerings. In the bulletin, the SEC raised the issue that an initial coin offering could easily be considered an offering of securities, which would require compliance with the securities laws. The SEC warned that fraudsters had begun using ICOs as fraudulent investment schemes.

It seems easy to paste together some mumbo-jumbo to make it sound like the blockchain could be something useful and disrupt an industry. You can add dash of hope for the conspiracy freaks by noting the ICO is free from government fiat and the Federal Reserve. Add in the lure of big profit. Then rope in the suckers.

You can see all of that in the white paper for REcoin.

  • 100% (less the cost of maintenance) of proceeds from the sale of REcoin are invested in real estate
  • REcoin Trust guarantees 70% of the investors’ market value, against the US Federal Reserve’s 10%

The SEC alleges that REcoin misstated to investors that it had a “team of lawyers, professionals, brokers, and accountants” that would invest REcoin’s ICO proceeds into real estate. In fact none had been hired or even consulted.

REcoin was “backed by secure real estate investments in the world’s most advanced economies” and touted that the asset’s “security is ensured through the use of one of the soundest and most reliable currency backings there is: real estate.” REcoin never purchased any real estate, either before, during, or after the REcoin ICO, with the proceeds of the REcoin ICO or otherwise

REcoin misrepresented that it had raised between $2 million and $4 million from investors when the actual amount is approximately $300,000. Sadly, I suspect it has all been pilfered or misused. Investors who transferred funds to REcoin never received any form of digital asset, token, or coin, and no token or coin for REcoin has ever been developed.

I think there will be some interesting uses for the blockchain technology. None of them involve coins.

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Blockchain for Corporate Records

Jamie Dimon, chief executive of JPMorgan Chase & Co, speaking at a bank investor conference said Bitcoin “is a fraud” and will blow up. Further, that if any JPMorgan traders were trading the crypto-currency, “I would fire them in a second, for two reasons: It is against our rules and they are stupid, and both are dangerous.”

I’ve said it before. I don’t find Bitcoin to be a currency and it’s utility is suspect. But like Tesla stock and Dutch tulip bulbs, people will trade on the item if there is a dollar to be made. I don’t think it’s a fraud. There is value.

The interesting part of Bitcoin is the underlying blockchain technology that traces who holds all of the bitcoins in circulation. Imagine if Bank of America, JP Morgan, US Bank, Wells Fargo and all of the other banks used one ledger to track the movement of cash and each of them had a copy to prevent fraud. That’s blockchain, a distributed ledger.

Blockchain has uses outside of the tracking of money. It can be used to track almost anything.

Delaware and Nevada passed laws this summer allowing Blockchain to be used to track corporate records. It sounds innovative, but I’m skeptical.

The grand theme of Blockchain is trust. Since many people have copies of the distributed ledger, you prevent fraud. Because everyone has direct access information, you cut out intermediaries who would intervene to charge a transaction fee.

Most corporate records don’t fall into that category. There is a single instance and that is all that is needed.

The exception is stock ownership. I see some utility there to track ownership of a firm’s shares. For it to work, all of the shareholders and the firm would need to have the Blockchain ledger. For a small firm, it’s probably overkill. For a large company there may be some economies of scale.

I’m not sure how it works for a public company. Trading in public companies is fraught with issues. The markets do more than just transfer ownership. Their main role is pricing the shares. Blockchain could be used for the record-keeping but not does not lend itself well to the pricing.

For Bitcoin, Blockchain does a great job of tracks who holds the currency. The pricing comes from converting bitcoins into dollars which is outside of Blockchain and done by intermediaries who charge a fee. I assume the same would true if company moved the trading of public company shares onto blockchain.

The other problem is whether one Blockchain instance could address the shares at multiple firms or would there need to be separate instances of Blockchain. That also has some scaling issue.

I think there are tremendous uses for Blockchain to share value and information across firms and eliminate transaction costs. In these early days, it sounds more like people with a hammer thinking everything looks like a nail.

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