Regulated spot and futures crypto exchange Kraken has completed a $13.5 million round of financing on Bnk To The Future (BF), an online investment platform.

With 2,263 participants, at press time, the campaign also represents BF’s most successful funding round by individual donors.

The exchange sought the capital as a way to push its valuation past the $4 billion mark and fund new acquisitions, according to Simon Dixon, co-founder of BF.

The firm previously acquired CryptoWatch, a US-based market data and trading platform, as well as Crypto Facilities, based in London, which provides a platform for derivatives and futures trading.

One of the busiest exchanges with more than $85 billion in trade volume in 2018 – from 4 million clients spread across nearly 200 countries – Kraken envisions itself expanding into and providing additional financial services and products for the crypto industry.

BF created a Special Purpose Vehicle for Kraken to receive equity indirectly from more than 2,200 investors – in what is known as an illiquid investment. The SPV then pools all the individual funders and acts as a single capital investor. This technique allows Kraken to bypass the SEC requirement that force it register as a public company under the 1934 Securities and Exchange Act.

These investors are therefore not shareholders of Kraken, and will only realize a return if Kraken floats its shares through an IPO, is purchased through another organization, or if the exchange undergoes a Management Buy-Out.

“This is a high risk high returns platform – please understand this before investing,” wrote BF representatives in a chatroom dedicated to the equity grab. Though speculative, Kraken noted that this was also a preferred share class with liquidation preference, which minimizes some risk.

The company’s original ask of $10.2 million was extended due to market interest after four days. The company did not reach its second goal of $15.45 million. Dixon said they are waiting for around 250 bank wires to clear for the final total. He suspects a final tabulation around $14 million.

To make an omelet you have to Kraken a few eggs

Dixon said the average investor put in around $100,000 dollars, nearly ten times the average investment from BF’s 120 previous funding rounds.

He also said that 60 percent chose to stake fiat, with the remaining 40 percent putting up some assemblage of crypto. This is another anomaly of this funding round, as BF usually sees a 70/30 split between crypto and fiat. “People may have wanted to keep hold of crypto because of rising prices,” he suggested. He also said the unusual interest in this project may be due to the perks Kraken offered.

According to an email investors received staking capital in Kraken came with ancillary benefits, including:

“CryptoWatch Premium membership, the ability to leverage shares for margin collateral, priority service from our client support team, invitation to Kraken’s exclusive investor chat room, subscription to Kraken’s Daily Hash newsletter and OTC Daily report, bi-annual Kraken investor update, beta access to new Kraken products and features, limited edition Kraken swag, [and] 5% investment rebate in KFEE.”

Despite the swag, one incredulous BF client crunched the numbers and found:

“Your $1k investment bought you about 48 future shares (from 201.612.210 in total). If Kraken is really worth $4bn in the end you own 0,00002380808% of this pie. And that’s about the sum that you invested. But as you are in the “preferred share class” you get your investment back even if Kraken sells only for $112 million. Only if Kraken sells for more than 4bn we will make money.”

In the investment deck, Kraken noted that it is a high growth company, with a higher compound annual growth rate than traditional firms. They see most of their value coming from future cash flow potential.

The company supports trading in 24 crypto assets and 74 trading pairs, with plans of offering more. Additionally, Kraken earns margins of up to 5 percent on transactions, and up to 50 percent on futures trading, according to the company.

“Kraken is already leading in terms of delivery of must-have trader services and tools, and our product road-map is packed with new features aimed at growing our revenues and increasing market share,” a company representative wrote in the chatroom.

Release the valuation

Dixon alleged that investors had to sign a nondisclosure agreement to view a document that broke down how Kraken valued itself around $4 billion.

CoinDesk previously reported that the company was looking to tap a small number of clients for a fundraising round, not open to the public, which would push the firm towards a $4 billion market capitalization.

Dixon also alluded to a coterminous round of private equity funding.

“The main thing is, they are allowing investors to diversify in a niche industry against a wide pool,” said Dixon. “I think it’s a great alignment of interest to take traders on their exchange and make them shareholders.”

To register for the BF platform all investors must either prove they have incomes over $200,000 for the past two years, a combined income with a partner of $300,000 over the past two years, or have a net worth of over $1 million. They must also comply with local KYC regulations.

The exchange received $1.5 million in a seed round investment in 2011, $5 million in a 2012 Series A, and $100,000 in a second Series A in 2016. Dixon also said his company staked $100,000 in an earlier funding round.

Additionally, the exchange has forged relationships with seven established bank and payments partners.

BF charges a 5 percent fee – paid up front in the share price – and can expect another 5 percent when investors cash out, a 5 percent charge on any future dividends, and a 2.5 percent fee to sell their stock on Kraken’s secondary market.

Kraken logo via CoinDesk archives

Several exploitative websites launched over the weekend aiming to separate credulous Libra investors from their cash.

Though Libra has not seen its public debut, the media buzz around it has piqued some would-be investor’s attention. While the majority of searches around buying Libra are focused on how to exchange it for BTC, according to Google Trends and Reddit, some nefarious scammers are hoping to ensnare the hapless trader in a supposed Libra pre-sale.

One site, calìbra.com, (note the ì) is a mirror image of Facebook’s legitimate website, calibra.com.

The artifice begins by switching the normal English i for a a grave accent ì. Those unfamiliar with Alcozauca Mixtec, Italian, Sardinian, Taos, Vietnamese, Welsh, Scottish Gaelic or the constructed language Na’vi, may have the unicode character – that at least one reporter confused for a bit of dust.

Like the URL, the customer-facing scam website has some slight differences when compared side-by-side to the legitimate site. Both websites have the same marketing materials, wording, fonts, color schemes, interactive displays, and slogans – although the fraudulent one looks askew.

Additionally, in the top right corner is a button that says “Pre-Sale Libra Currency,” instead of the social media giant’s welcoming induction to “Get Started.”

Clicking the button opens another webpage that claims to offer a 25 percent bonus for trading Libra. Better act now, as the pre-sale is 93 percent complete, the scammers allege.

Traders are offered the option to swap 600 LBR (Libra) for 2 ethereum, or 8,000 LBR for 20 ethereum, which is approximately the same one to one Libra to dollar conversion Facebook was intending.

While this particular scam – hosted in Russia, no less – is an obvious ploy to capitalize on the general incoherence of Facebook’s plan, some of the chicanery put online is of a more derisive sort.

Zuckbucks.cash offers visitors the option to swap ethereum for ZBUX, “an ERC20 token which can be used to do absolutely nothing.”

“Want to buy a cup of coffee with your ZBUX? Too bad! Need to pay your bills? Better use another currency! Want to pile on to Mark Zuckerberg’s already incredibly overinflated bank account? Now we’re getting somewhere!,” according to the website.

Indeed, if Facebook is behind zuckbucks, it surely would be the quickest and most convenient way to “feed Mark Zuckerberg’s insatiable greed.”

The masterminds behind zuckbucks promise to spend the funds they collect on gas and kick the remaining balance up to the dev-team. They write, “Just like LIBRA, Zuckbucks offers no inherent benefit besides putting your money directly into the pocket of the developers.”

Of the 1.5 million ZBUX available, 961,845 are currently in circulation.

Mark Zuckerberg photo via Shutterstock

The U.S. House Financial Services Committee will host a hearing on Facebook’s libra cryptocurrency next month, one day after the Senate Banking Committee holds its previously announced hearing.

Maxine Waters, chair of the powerful House committee, announced the hearing Monday, The Hill reported, after calling on Facebook to suspend development of the project multiple times last week. The hearing is scheduled for July 17, and no witness list has yet been released.

She told CNBC on Thursday that “It’s very important for them to stop right now what they’re doing so that we can get a handle on this,” adding:

“We’ve got to protect our consumers. We just can’t allow them to go to Switzerland with all of its associates and begin to compete with the dollar.”

The Senate Banking Committee announced on Wednesday that it would hold its own hearing on July 16, intending to ask Facebook’s team about the project.

The committee had already sent Facebook a letter last month outlining a number of questions revolving around Facebook’s privacy and consumer data storage practices.

Facebook unveiled libra last week, outlining an ambitious plan to form a governing council and use two tokens to form a nation-independent financial ecosystem.

The social media giant intends to help 1.7 billion unbanked individuals access financial services, as well as streamline payments through its Messenger and WhatsApp platforms.

Facebook image via Shutterstock

Scott A. Shay is co-founder and chairman of Signature Bank of New York and the author of In Good Faith: Questioning Religion and Atheism (Post Hill Press, 2018).

Allowing Facebook to mint its own coin, the Libra, would turn it into the greatest anti-competitive trust case in history. It would make the early 20th century Morgans or Rockefellers seem downright competitive.

Even before it unveiled its vision for a global cryptocurrency this month, Facebook was already a near-monopoly in social media, and part of a duopoly in its main markets. Together with Google, it controls 82% of the digital advertising market. 

In the past, Facebook has purchased any company that threatened it, e.g. Instagram and WhatsApp. And, when it spots a company that won’t sell itself or would be difficult to purchase, it uses the “embrace, enhance and extinguish” technique.  

Facebook saw Snap Inc. (maker of Snapchat) contesting a small part of its franchise, so it embraced Snap’s best features and integrated them into its app. Now, Facebook is hoping to extinguish Snap as a competitor. Compare the stock performance of Snap and Facebook, and you will probably place your bet on Facebook. 

But it is not simply Facebook’s business practices that are of concern.  

Neither Facebook nor Google charges for their consumer products, obscuring the fact that all-encompassing consumer tracking is their real product. In many cases, their data is better than what the KGB or CIA could have gathered 20 years ago. And their data is certainly a lot cheaper, since it is voluntarily provided and easily accessible.

We would not want our government agencies to have this sort of power, nor should we want it to be in the hands of corporations. 

Facebook and Google have already shown their political muscle. With their duopoly on digital marketing advertising, these companies have transformed the nature of news.  Only a few news sites, such as The Wall Street Journal and The New York Times, can resist their gravitational pull and still attract direct advertisers as well as subscribers.  

Most other publications must use Google ads, which provide far less revenue to the outlet, slice and dice their readership, and force newspapers to write clickbait. Ads to readers are so well-placed because of the mountain of information that can be inputted into their algorithms. The same holds true for news content viewed on Facebook.

Now, with the Libra project, Facebook wants to exponentially increase its monopolistic power by accessing unparalleled information about our consumer purchasing habits. If allowed to proceed with Libra, a company that knows your every mood and virtually controls the news you see will also have access to the deepest insights into your spending patterns. 

Privacy threat

Of course, Facebook will speak piously about privacy controls and its concern for the consumer, yet it will still figure out a way to sell the data or others who buy the data will figure it out for them.

Furthermore, with the richness of the social media data Facebook consistently garners, even anonymized data can be recalibrated to distill specific individual-related information and preferences. Facebook, along with its other monopolist rent-seeking cohorts, such as eBay, Uber and Mastercard, all say they won’t do that. 

Quite frankly, there is zero reason to believe such promises. Their culture is based strictly on brand concerns and access to personal data. Additionally, hacks of social media are now so common that we are inured to them.

Consumers can have the benefit of a digital payment mechanism without allowing Facebook to gain more power. In the financial services sector, my institution, Signature Bank, was the first to introduce a 24/7 blockchain-enabled payment system. As one would expect, others, such as JPMorgan, are trying to follow suit and will no doubt be competitors someday.

Banks and financial institutions are limited in their access to, and transmission of, information, and for good reason. If Facebook, on the other hand, establishes Libra, no other competitor will have equal access to its data, and therefore, a chance at the consumer payment market.

In this way, Libra is in keeping with Facebook’s monopolistic business style.

Further, the information monopoly Facebook would possess will be similar to what the Chinese government possesses but needs the Great Firewall to execute. Monopolistic forces will produce the same result through different means.

Call to action

Action needs to be taken quickly to stop Libra and break up Big Tech, not only for the welfare of consumers but for the good of the nation.

The first step is to force Facebook to divest or spin off Instagram, WhatsApp, Instagram and Chainspace, the blockchain startup it acqui-hired early this year.

Facebook also must be mandated to offer a parallel, ad-free, “no collection of information” site supported by fee-based subscriptions. Over time, this would provide some transparency as to the value of the consumer information currently being gifted to Facebook.

Google should be forced to divest or spin off YouTube, Double Click and other advertising entities, cloud services and Android. Amazon similarly needs a radical breakup as it too poses systemic threats to a transparent market. (Alexa is a prime example of the private data Amazon gathers on users’ lifestyle and personal habits.)

The breakup of these behemoths cannot wait until after the 2020 election.  Such action must be taken on a bipartisan basis as soon as possible.

Even once stripped down, Facebook should remain separated from commerce due to privacy concerns. Congress, which has scheduled hearings on Libra for next month, is right to intervene.

Editor’s note: Have a reaction to the Facebook news? Email This email address is being protected from spambots. You need JavaScript enabled to view it. to pitch your opinion. 

Standard Oil depicted as an Octopus in a 1904 political cartoon, image via Wikimedia Commons.

In what amounts to interesting – and very cannafuturoid – word salad, a Panamanian company called TheraCann has begun to add “DNA tag-based forensic traceability and authenticity with TruTrace’s Industry Blockchain Hub.” In other words they’re sequencing your weed’s DNA and sticking it onto the blockchain.

“The biotrace system provides seed-to-sale traceability for cannabis and hemp and uses Applied DNA’s unique, safe and persistent molecular tag for the identification of any biomass, extraction, isolate, derivative or cannabis packaging,” said CEO Jason Warnock in a release. “Collaborating with TruTrace connects the dots with an information platform linking the provenance of material, testing information and patient data that is so vital to the safety and efficacy of the global market.”

The company has been working to ensure that the weed or oil you take in is legal and traceable and they have a number of products that shows how weed travels via live maps. To that end they have added these DNA tags to TruTrace Technologies blockchain-based StrainSecure database. The company began as BLOCKStrain and is based in Vancouver, British Columbia. It is currently traded over the counter and it does not have a token.

This partnership is, as one would assume, a no-brainer. Connecting DNA tags to the blockchain is one of the interesting ways to track almost any type of consumable – from food to candy to ganja – from farm to bowl. Interestingly, the system also protects a farmer’s intellectual property by ensuring genomes are traced. TheraCann is a division of molecular processing firm Applied DNA Sciences.

The Israeli Police cyber unit arrested two brothers, Eli and Assaf Gigi, for allegedly perpetrating a multi-year phishing scheme and participating in a 2016 hack of Bitfinex. Israeli news outlet Ynet reports the two allegedly stole over $100 million in cryptocurrency.

The infamous Bitfinex theft of 119,756 BTC shocked the crypto market with the largest loss of bitcoins by an exchange since the Mt. Gox breach in early 2014.

Earlier this month, some of the stolen bitcoin were recorded moving from wallets connected with the hack, after three years of lying dormant.

Israeli crime news portal Posta reported that several several cyber units across the globe are cooperating in an effort to retrieve the missing funds. The majority of compromised accounts were from users in the U.S. and E.U. In February, Bitfinex announced that some of the stolen bitcoin – 27.66270285 – were returned after being retrieved by the U.S. government.

The Gigi brothers Eli, 31, and Assaf, 21, also allegedly constructed a phishing scheme that involved luring investors from crypto trading forums, such as Telegram or Reddit, onto websites that mimicked prominent crypto exchanges. They would collect the traders’ login and wallet information and use it to transfer the funds stored on legitimate exchanges to their own accounts.

Police allege they may have used other tactics as well, including dropping links to wallet management software that once downloaded would allow access to the victim’s funds.

During a raid of Eli’s house the Israeli police seized one of his crypto wallets, which contained less than the suspected total of stolen funds. They also found two luxury cars.

Eli is a former computer science expert in the IDF, which one reddit user said “would be Unit 8200, the largest military branch in the Israeli army. It specializes in hacking, spying and creating computer viruses (Stuxnet) – many of them are now employed by Google, Microsoft and Coinbase.”

Eli said in court, as reported by Posta, “I was wrong, I came from a bad place. I’m a good boy, and I’m sorry. I’m willing to cooperate.”

The investigation, which began in 2017, is ongoing.

Fish hook image via Shutterstock