Entrepreneurs entering the crypto currency world will do so via an initial coin offering (ICO). ICOs in general have a community of users that participate in building a perceived value of the token or coin by using it as a medium of exchange for a given marketplace of goods or services provided by the ICO network—or trading the token or coin on a crypto currency exchange. Designing a system of governance for the community is the burden of entrepreneurs who dare to take on such an endeavor to ensure their fate is not the same as that of Ross Ulbricht. Participant management was not a topic of high interest for the original designers of digital currencies or Bitcoin. The works of the cypherpunks, the group associated with creating a body of works that became the foundation and inspiration for Bitcoin, do little to address the issue of participant management. In their search and quest for creating a payment system that was completely removed from any central banking system or authority, the task of verifying and managing the original identity authenticity of individuals was not the purpose of the technology. To perform such task would appear to go against the privacy ideals of the original founders of the technology. The issues, of primary focus for the original contributors, were solving how to maintain privacy and anonymity through encryption, proving authenticity of identity with the use of private and public keys, and eliminating double counting or counterfeiting. Other pressing issues for launching a decentralized payment system were having a mechanism that performed the service of a digital notary for proof of transaction and having an immutable and distributed database on a decentralized peer-to-peer network that acted as the official books of records.
The original contributors were able to accomplish this monumental task of a decentralized payment system with the remarkable collections of works of cryptographers, mathematicians, and software engineers. This relatively small population of individuals of exceptional intelligence, and some with altruistic ideals of changing society, laid the foundation and created the tools to play the digital currency game. Bitcoin was the first crypto currency that became most popular and accepted by the general public, although there were other digital currency games before Bitcoin. Referring to crypto currency in the context of a game allows for the introduction of the concept of participant management, and creates a framework for an individual of non-technical background to understand the fundamental concept of digital currency in general.
Identifying the fundamental inner game within digital currencies or Bitcoin that is played continuously is the first step to understanding the essence of crypto currencies. It is very important to realize that miners race to solve a very difficult problem called the hash function. Twelve new Bitcoins are minted to the miner that solves the hash function. The miner can be an individual or a group of individuals that acts as a single entity. Twelve new Bitcoins will only be assigned to one wallet for the winner of the hash function. The general public would discover that playing the game is not as easy as it appears. The common question everyone would ask in the beginning period of Bitcoin, before Mt. Gox, the first exchange to come online to trade Bitcoin or crypto currencies, was “How do you get bitcoin?” Bitcoin was always present but not easily accessible for the general public with no computer training.
The original contributors who created the technologies that comprise the foundation of the Bitcoin.org network were focused on building rock-solid tools of the game and focused on who would play the game.
The task of becoming a legitimate currency is challenging for any crypto currency. To satisfy the fundamental requirements of being a medium of exchange and a store of value is not trivial. It is not obvious to the general public how any of the fundamental requirements are satisfied.
Early Days of Bitcoin
Let’s look at the early days of Bitcoin to understand how a transaction was performed. Transactions were conducted through a command prompt. Using a command prompt to perform everyday transactions such as in store supermarket payments, paying for gas, or paying for a cup of coffee would be sheer torture. Therefore, getting enough traction by the general public to honestly want to use Bitcoin as a medium of exchange was unfathomable during those incubation years. However, there was very high interest among the contributors as they remained focused on the tools of the game, the cryptology, Merkle Trees for the distributed database, and the methods to reach a consensus. During this period of making digital technology a currency there was little or no mention of implementing a framework to manage the conduct of and impose limits on the users of the tools.
There were not many participants playing the game outside of the software enthusiasts demonstrating the virtues of the technology and a relatively small number of speculators betting that a marketplace would come and bring in a wave of new participants.
Historical and forecasted number of Bitcoins in circulation
Establishing a Baseline Value for Bitcoin
Three events occurred within 18 months of the first transaction between Satoshi Nakamoto and Hal Finney that began the acceptance of the idea of Bitcoin becoming a feasible consumer currency. On October 5, 2009, New Liberty Standard assigns a value to Bitcoin based upon the cost of electricity used to generate or mine Bitcoin. They open a service to buy and sell Bitcoin for an exchange rate of 1309.03 BTC for $1. New Liberty Standard, at a minimum, created a baseline to establish the value of Bitcoin. The next event was a business-to-business fiat to Bitcoin transaction that occurred when New Liberty Standard bought 5050 BTC from Sirius for 5.02 using PayPal. The third event was a business-to-consumer transaction that occurred when a pizza was bought using jercos for 10,000 BTC valued at $25. This established the first concrete value of Bitcoin at $0.0025 per coin. Before those events the transactions were confined to the cult community of cypherpunks, software enthusiasts, and speculators who anticipated a new world blossoming out of the digital domains.
These events were necessary to create a pathway for Bitcoin to become recognized as legitimate currency by the public in general. The number of participants using the coin and playing the game was still rather low between 2009 and 2010 and the participants were confined mainly to software enthusiasts, special libertarian groups, and special interest groups such as the March on Wall Street crowd.
The need to incorporate a participant management system was very low because the number of individuals playing the game was relatively small. The central governments of the world have many more larger issues of concern than trying to put a governmental oversight over what would appear to be cult-like software enthusiasts wanting to make seemingly fictitious payments to one another. Who uses the coin and for what was of no interest to the originators of Bitcoin. Their concern was to make an instrument that could uniquely transfer value and be recorded across a decentralized network, ensuring that the tools of the game work as advertised.
Silk Road
The participation level can grow organically at a slow or fast rate with no expected time frame. However, Ross Ulbricht spikes the participant levels and has the network drinking from a firehose with Silk Road coming online. He brings the uncontrolled, unmanaged world of an open marketplace with no oversight to an intrinsically vetted marketplace of computer specialists and trading speculators.
Participation levels grew beyond organic growth with the e-commerce site of Silk Road being launched in February 2011 and bringing in a pool of participants that elevated the Bitcoin experiment from a game to an enterprise. By the time Gawker released their article about the infamous site, Bitcoin had spiked from a value of 0.97 just under a dollar to 9.21. That elevation in price corresponding with the current volume of Bitcoin in circulation at that time of 5.8 million equates to a market size of $53,481,000. Those levels of participants and market size most certainly drew the attention of the enforcement community and government authorities.
During the incubation year when Bitcoin was perceived by the legal community as an overambitious game played among a niche group for pennies, even as the circulation size grew with mining, the incentive value was still low with the monetary reward value of 50 Bitcoins valued under a penny each. The number of Bitcoins rewarded halves as Bitcoin circulation levels reach certain values. Currently Bitcoin is minted at 12.5 per transaction. The mining reward value incentives are much higher now than during the incubation period. Even during the time of the launch of Silk Road the reward mining incentive values was significant at approximately $50 per transaction. The number of Bitcoins rewarded halves approximately every four years; that is why the current number issued is 12.5 having gone through two rounds of halving from the initial 50. However, the price of a Bitcoin has spiked dramatically, having a monetary reward value over $100,000.00 per transaction.
Creating a Store of Value
During this period of Bitcoin the idea of it being a legitimate coin was a stretch when trying to determine how it was a store of value. The creators of the tools of Bitcoin came up with a mechanism to transfer value and a decentralized system to accurately record the historical transfer value. Determining what the value is, which is a very important issue in regard to being a store of value, is not the responsibility of those who created the tools. That responsibility became the task of speculators who began to use Bitcoin in the very early days after the original first transaction. The challenge is getting the masses to play the game. At this point although it may appear to be rather insignificant to institute a participant management framework, it is important to zero in on who is playing the game and lay out the components of the game.
First there is the Bitcoin network. Bitcoin.org houses the incredible technology that issues a new Bitcoin or mints a new coin through mining. The Bitcoin game is played by miners attempting to solve a very difficult problem called a hash function that is solved by finding the next node in the Merkle Tree by using the encrypted information of the previous node. Whoever solves the problem is awarded 12.5 new Bitcoins and the next transaction block. These miners act as the notary in the digital game. Let’s take an inventory of who is playing the game at this point. They can safely be called the contributors of the game or creators of the game, the owners or administrators of bitcoin.org. That would be one group. The other group are the speculators. The last group are the miners.
During this time, it was still a niche game played only by a small community relative to the global population. There is an implied vetting process at this point of the game. Only individuals with the wherewithal and patience to actually build a Bitcoin client and use a command prompt to execute a series of commands that connected a digital wallet to a transaction and assigned a value to the number of units of currency they desired to buy or sell could play the game. This is a very sophisticated process to perform manually. The likelihood of the everyday consumer of goods and services using this as a medium of exchange is extremely low. The threat of digital currencies or Bitcoin challenging fiat currencies or the current monetary system is laughable. How would the masses accept transacting through a command prompt and determining their current balance by executing a series of commands through an archaic terminal. During the period of 2008 through 2010 the buzz created around Bitcoin among the niche groups playing the game for any central government would appear to be a waste of resources to put any effort to govern these small niche groups.
Even as the technology matured and the formal exchange of Mt. Gox came online to facilitate transactions in Bitcoin, the groups playing the game were still small relative to the global mass population. Speculators who were driving the price of and market for Bitcoin at that point had the price at around 0.01; with the pool of Bitcoin capping out at 21 million Bitcoins, the total market value of which at that time would have been $210,000.00. What incentive is there to participate in that game betting on a future marketplace that could potentially drive the price up to make it a legitimate store of value.
The Market Awakens
As crypto currencies gain traction to become an accepted medium of exchange for day-to-day transactions, entrepreneurs who are creating the business to drive these marketplaces are faced with the challenge of how to manage the onboarding of individuals into the marketplace that satisfies regulators and government officials, besides maintaining privacy concerns of participants that use the marketplace. It is evident from the lesson learned from Silk Road that marketplaces which incorporate a network exchange and digital payment system are the platform in which any digital currencies will become accepted as crypto currencies. From the fundamental basis of a currency being a medium of exchange and a store of value, it is not clear whether Bitcoin alone or any other crypto currency without the marketplace is a currency. It is not obvious that the currency is a store of value.
It is true that digital currencies are a payment and accounting system. The digital technology can transfer a unit value from one wallet to another and ensure that double counting and counterfeiting are not taking place. Satoshi Nakamoto’s transferring 10 Bitcoins to Hal Finney as the first Bitcoin transaction demonstrated the success of a decentralized payment system and a primitive marketplace of the Bitcoin network. The obvious question to ask is what is the value of 10 Bitcoins. The accounting technology of the network is legitimate, but not the value system. Colonists used land as collateral to set the value of fiat currencies. This practice set a reference point or benchmark for the value of fiat currencies. And the benchmark evolved to the gold standard to the measure of creditworthiness of the country to which the fiat currency is assigned.
The values of Bitcoins and digital currency are not easy to determine based on a benchmark. Initially the benchmark was based upon speculation of a perceived marketplace coming up in which patrons would use the digital instrument of value as the medium of exchange for the marketplace. In the early days cult-like enthusiasts would perform the same task as Satoshi and use a command prompt on a computer after building a Bitcoin client to buy Bitcoins at an extremely low value. This assigning of value based upon speculation created a synthetic store of value for Bitcoin. In that sense it became a perceived currency due to the assigned speculative value and it was a proper means of exchange. From that scenario a primitive currency was created. Participant management at that stage of development of the currency was an overkill because only technology-driven cultish enthusiasts would use the currency. The general public was not going to carry their computer with them to the supermarket and use a command prompt to execute a Bitcoin transaction to buy a loaf of bread. At that stage of the evolution of digital currency there was no utility due to lack of mass acceptance. It was a challenge faced by crypto currency entrepreneurs to move the acceptance of digital currency from cult acceptance to mass appeal to becoming an icon-like fiat currency. The global markets understand the value and symbol of British pound, US dollar, French franc, and many other currencies that make up the G20.
Those countries that comprise the G20 have currencies that govern the marketplace of their countries that took decades to prove their creditworthiness and formalize their currency into a global symbol of value. How do digital currencies go through that same process to get that near-rock-solid perception of value that fiat currencies have achieved. One clear way as demonstrated by Silk Road is by creating a marketplace to drive transaction activity beyond the levels of cult user of the digital coin—create a marketplace that is inviting and design a user experience that is easy for the everyday user in terms of transaction Satisfying these two requirements creates a pathway for the coin to grow in value and helps in establishing a benchmark for the goods and services within the marketplace with a more concrete or defined metric as the object of value.
With the increase in the number of transactions and different types of users participating in the marketplace driving the value of the currency, there is the demand to institute a management system that governs the many types of users and how transactions are conducted. Even though the marketplace is not governed by a central authority, it does not mean the marketplace should go unregulated by a marketplace authority that brings the value-added services of delivering the platform.
As witnessed by the severe prosecution of Ross Ulbricht, owners of the marketplace will be held to standards of central bodies and associated legal repercussions. Does anyone get into business knowing they will go to jail? Not instituting a governance or participant management framework almost guarantees that outcome. The Silk Road case is an example that one needs to take heed of.
At the least a framework that is transparent as to how individuals or groups are onboarded into the network and also how they are categorized once inside the network is imperative.
With the increased pressure from law enforcement agencies backed by politicians to enforce anti-money laundering (AML) and know your customer (KYC) laws, it is imperative that any entrepreneur thinking of creating a business based upon digital currencies take heed of the precedent set by the judges’ sentencing and ruling of the Silk Road case. Silk Road is a case study that highlights the importance of undertaking great caution when building a governance framework in the early stages of embarking on a crypto currency enterprise. The adoption of crypto currency, Silk Road has shown, will be through marketplace portals offering goods and services that drive user transaction activity.
The trading of the currency itself is a direct consequence of the transaction activity through the portal. As is evident from the details of the investigation done by the FBI in the case the owners of the marketplace are the direct target of the investigation. It is clear for anyone with a technology background that any viable digital currency enterprise is made up of three tightly integrated but separate networks which we will detail. However, the legal investigation only targets the owner of the marketplace hub. Investigating the details of the Silk Road scandal, which cast a very dark shadow over crypto and digital currencies, alludes to that fact. It is evident that Ross Ulbricht built a user-friendly marketplace utilizing the web where vendors of many different industries were able to post anything their imaginations could conceive of and patrons could buy goods and services of almost anything their minds could imagine. This ease and feasibility led to Mr. Ulbricht’s downfall, given the lack of oversight or a mechanism of control to curb certain activities from taking place through the portal. The prosecutors and the judge targeted the owner of the site to the full extent of the law, with RICO-style legal frameworks to enforce maximum penalties.
This hardline stance by law enforcement was fueled by the cries of politicians such as Charles Schumer after an article published by Gawker in June 2011 brought greater awareness about the site. The egregious misuses of the site for illicit activity was too much for anyone to overlook as individuals involved in narcotic trafficking frequently used the site to coordinate drug deals.
The Silk Road website, which had a customer-friendly electronic storefront that displayed bricks of cocaine as deftly as Amazon displays books, was the cyber underworld’s largest black market, with $1.2 billion in sales and nearly a million customers. This client experience may have led its participants to assume that the site could be a haven for illicit activity. Beyond illegal drugs, the site served as a bazar for fake passports, drivers’ licenses, and other documents as well as a site for illegal service providers such as hit men, forgers, and computer hackers.
The lack of oversight and the ability to facilitate payments with very low fees made the Silk Road attractive and the promised land for many different types of entrepreneurs. This was not only used upstanding citizen, it also became a conduit for individuals who had criminal intent. This activity more than likely was not the intended purpose of Ross Ulbricht launching the site. However, with no governance for those who participated in the site he was found culpable.
The FBI and prosecutors were going to make Ross Ulbricht the fall guy. The case was tried in the Federal Court in Manhattan; although Ulbricht operated in San Francisco, he was not tried in California. The trial, which began on January 13, 2015, sent a strong message to the crypto world as it was tried in the financial capital of America and not in the jurisdiction where the alleged crime was committed. Establishing the identity of the owner of the site was key for prosecuting the case, in which law enforcement identified the owner as Ross Ulbricht. Ulbricht admitted to founding the Silk Road website, but claimed to have transferred control of the site to other people soon after he founded it. Ulbricht’s lawyers contended that Dread Pirate Roberts was really Mark Karpelès, and that Karpelès set up Ulbricht as a fall guy. The presiding judge, Judge Katherine B. Forrest, did not permit any information that was speculative in nature from being entered into the case regarding whether Karpelès or anyone else ran Silk Road. With Judge Forrest’s hardline stance, Ulbricht’s attorneys faced an insurmountable legal challenge which was further exacerbated by FBI Agent Christopher Tarbell of the FBI’s cyber-crime unit in New York calling Silk Road “the most sophisticated and extensive criminal marketplace on the Internet today.” Mr. Ulbricht’s fate appeared to be sealed as there was enormous pressure from all sides—the outcry of politicians, the judge’s hardline stance, and investigative work done by FBI and former IRS agents, which doomed Ulbricht. Ultimately, Ulbricht was convicted on eight charges related to the Silk Road case. He was handed a draconian sentence of life in prison without the possibility of parole.
Legal authorities were casting a wide net to nab entrepreneurs of crypto currencies during that time, which may have been due to the negative attention brought on by the public and political outcry. Another champion for advancing virtual currency and the crypto industry was Charlie Shrem, Co-founder and CEO of Bitinstant. Charlie is also noted as being one of the original members of the Bitcoin foundation, a non-profit organization founded on the tenets to promote, standardize, and protect the use of Bitcoin cryptographic money for the advancement and benefit of users globally. Another member of this foundation that took a serious negative publicity hit with the hack of the Bitcoin exchange of Mt. Gox was CEO Mark Karpelès.
However, with such negative and sensationalized press, the market of crypto currencies experienced a flash crash with the price of Bitcoin falling to $110.0. However, the price recovered peaking to $200 only several weeks later. This trend showed that although illicit activity appeared to dominate the media coverage surrounding crypto currencies and Bitcoin, it was not the main driver. And with the FBI auctioning off 144,336 Bitcoins for a total value of around $48 million, it legitimized Bitcoin as an actual alternative medium of exchange and an actual currency for Silicon Valley and venture capitalists.
The cases against the founders of crypto markets during the period between 2012 and 2015 with many receiving prison sentences serves as a warning to any entrepreneur brave enough to build a business around crypto currency to put a governance framework in place or face the possibility of prosecution. Who opens a business to go to jail?
As we investigate Silk Road and crypto currencies in general, it is clearly evident that Mr. Ulbricht discovered the secret sauce for widespread adoption of crypto currencies. Up until that time crypto currencies had more of a cult than mass appeal. The pathway for mass adoption had not been forged yet.
Building a Bitcoin environment similar to that of Satoshi Nakamoto or Hal Finney requires a considerable level of computer training and expertise. The probability of a mass population of common computer users, without any training on how to build a Bitcoin client, download the open-source software, build, compile, and successfully run the client without pulling out every strand of hair, is very low.
It is a masochistic process for the untrained computer user to use a command line for the purpose of transacting everyday business. Only a serious computer enthusiast and extremely principle-driven or ideal-driven cult-like groups would find pleasure in conducting daily transactions through a command line user experience.
Ross Ulbricht pioneered the way to onboard the masses by creating a portal that facilitated the widespread adoption of Bitcoin or crypto currencies as the medium of exchange. His innovation serves as a template for the industry to move forward, the ICO being the foundation for crypto operations.
ICOs are the current trend to make a digital currency offering available to the general public. The ICO or marketplace ring fences a targeted industry or business idea. The idea of creating a digital currency for no viable purpose other than trading is not very attractive. However, designing a marketplace that facilitates the use of goods and services through a crypto coin as the instrument that transfers value has become very attractive. The coin, having a perceived floor value within the given marketplace, provides an inherent store of value, and serves as the pathway for the adoption of a crypto coin as legitimate currency.
Silk Road’s three interconnected networks
Silk Road was the portal or network that provided a client experience and drove traffic to facilitate Bitcoin transactions.
It is important to note that the only entrepreneur who received prison sentences was the owner of the portal that facilitated deal making and not the exchange network or the payment network. It would be prudent to incorporate the governance framework before onboarding the first user into the network, even before the deal initiation point of the transactional work flow.
To satisfy minimum requirements of KYC and AML, instituting a registration process for onboarding anyone coming into the network for any purpose is optimal. This registration process may appear to violate the privacy and anonymity ideals of digital network; however, providing a value-added business service is about compromise. It is in the best interest of anyone who takes the responsibility to register a domain that serves as the deal-making interface to a digital exchange or payment network to have a process in place that identifies individuals or entities operating within the network.
When dealing with any consumer personal information, cyber security has to be taken into consideration. As a safeguard, building the network upon a VPN (Virtual Private Network) is a wise choice. A VPN provides a safe passageway for a consumer device and internet server prohibiting eavesdropping during the data exchange even from the internet service provider. Offering this level of privacy protection for a consumer builds the confidence to use the network.
The benefits of preventing phishing and spying along with preventing data theft make building the portal on a VPN a logical choice. It is important to build these extra layers of protection when building these value-added services. It is also important to note that to utilize a crypto currency or to buy digital currencies an individual can open an account on an exchange and trade currencies using their digital wallet. Or download a build from Bitcoin.org and build a Bitcoin client and attempt a Bitcoin transaction. Most consumers will not interface through those mechanisms.
ICOs are value-added services and provide a pathway for stakeholders of the ICOs to implement a registration process for compliance. Trying to manage individuals or entities onboarded into the network at the individual level would be daunting as the network population grows. A more sustainable approach is to create a generalized set of groups to categorize the individuals onboarded into roles. These roles are important when presenting to compliance officers or any other legal official auditing the network. With role management it is possible to create a minimal set of rules engine toward instituting KYC and AML mechanisms.
Portal Administrators—An organization registering the domain and administering the portal
Initial Investors—The group from whom the initial seed funding to build the site and marketplace comes
Dog Breeders—A breeder of pure dog breeds
Canine Authentications service provider
Caning Training service provider
Dog buyer/owner
Roles as such create a comprehensive set of groups that any individual can be placed into while completing the onboarding process.
This publication is intended for a broad audience, to aid the non-technical reader building a working model, and as a backdrop to introduce these governance management concepts and facilitate understanding and act as guiding principles to design a marketplace with the minimal acceptable framework for regulators and government officials.
Participant Management
A social enterprise organization involves many participant individuals and bodies. Participant types are either delivery or receipt of benefits and services. Each participant has their own set of attributes and behaviors that includes information that is common across all the participant types and extra information that is applicable only to certain participant types.
Let’s take an example of a dog center called “Lucky Dog Care” run by Mark. Lucky Dog Care has an end-to-end business model right from buying/adopting, training, breeding, grooming, walking, treatments, and so on. Mike has a white Dalmatian called Pepper. Pepper is a two-year-old and Mike wants him to learn certain behaviors. So, Mike engages Penny who works at Metro. Here we have four participants, namely, Mark, Mike, Pepper, and Penny. Each one of them carries a unique profile and is part of the Social Enterprise called Metro. They all share a common set of information such as Name, Age, Address, and so on, but in case of Pepper, there are certain extra attributes such as Breed, Size, and so on.
Metro Dog Training Center
- 1.
Role Management
- 2.
Actions and Entitlements
- 3.
Events and Activities
Role Management
Roles in the dog care marketplace
The main purpose of establishing roles is to provide an easy way to manage access rules for groups of users. The portal provides the ability to create users and then administrators assign the users to roles. Now all the resources in the system can be restricted to permitted users only. Administrators can establish rules that grant and deny access to restricted resources. If someone tries to access a restricted resource, the user sees an error and his or her activity should be logged for audit purposes.
Now coming to the context of blockchain and more specifically crypto currencies, the role of management is extremely important. When we talk about roles in crypto currency, basically the utility tokens which are created to power your business transactions through an alternative mechanism of exchanging the values, it is highly necessary that your enterprise be aware of who has the possession of your tokens and how much is your circulating supply. In order to maintain granular transaction and holding information, the platform requires a comprehensive book of records. The platform can achieve that only by customizing a token that is governed by the foundational principles discussed in the previous section. One of these guiding principles is role management. The payment and accounting sides of crypto currencies are highly secure through consensus management and blockchain, but when it comes to the governance side of participants the picture is very weak. There is no specific regulation in place today that controls the flow of crypto currencies. In other words, values get transferred from one person to another through the electronic platform powered by miners and large computers worldwide but there is very little validation and traceability to display any sort of governance in the business activity. Many utility tokens that exist today are in a highly premature state based on the volume of trades that happen within their ecosystem. Most of it is driven by day traders over various crypto exchanges. In order to explain role management, let’s take our Lucky Dog Center as an example.
Mark is setting up a new Utility token for his business called “LUCKY.” Customers can buy the token from Mark at a certain price based on its usage. Before anyone can buy a token, Mark conducts a KYC process utilizing a registration workflow to identify and verify domain participants. This is the first and foremost step in role management where a person gets tagged to a role. According to the role he or she will gain different set of privileges in Mark’s enterprise. The KYC process is the only way Mark can check the source of funds raised during the token sale by checking each buyer’s identity and residency. This procedure is required not only by governments and regulators but also by the large corporations, banks, and public bodies we are bringing into the data trading market that is the Lucky Dog Center. To go through the registration process onboarding individuals will go through an information gathering portal that records basic identification such as personal information, address verification, electronic wallet address, and primary banking information. After capturing the minimal information for KYC, the next stage of the workflow is verification. The potential participant coming into the network is required to submit or upload documents that would be used as resources by the officials of the network to perform a background and verification check.
DOG token circulation data
Actions and Entitlements
Actions in role
Dog care business process
Both dog owners and service providers go through a proper KYC and role tagging and get listed in the LUCKY platform. Dog owners can search for the service providers and similarly service providers can search for appropriate job offers. Dog owners will need to acquire a certain number of LUCKY tokens before they can request for a service and they can buy tokens through the same platform at a market price based on demand and supply.
Customer membership
Service provider membership
Similar to customer membership, there exists service provider membership. According to entitlements a service provider will be able to engage himself or herself in the system. Again, free membership is for first-time users to try the system and does not require a lot of compliance whereas premium and professional memberships are the group of service providers that are serious about their business and want to grow their business using the LUCKY platform. Mark’s enterprise can arrange for the necessary compliance and regulatory requirements as per the membership level.
The primary purpose of actions and entitlements in a digital currency paradigm is to implement the proper compliance and regulatory procedures. All the concepts discussed in this section apply to any enterprise trying to establish a digital currency in their business model. Legal authorities are casting a wide net for entrepreneurs of crypto currencies due to the negative attention brought in by the public and political outcry. Serving the public through an ICO or marketplace is the current major trend of the industry. Designing a marketplace that facilitates the use of goods and services through a crypto coin as the instrument that transfers value is invaluable. If the coin has a perceived floor value within the given marketplace that provides an inherent store of value, it serves the pathway for the adoption of a crypto coin as legitimate currency. Wisdom is better served by establishing a compliance framework upfront in the design of the marketplace. As discussed in this section, actions are entitlements that are one of the foundational components for a stable marketplace.
Events and Activities
In creating a governance framework, it is important to detail all the possible scenarios that are in the realm of the platform being generated. There are subtle differences between actions and events that must be pointed out. Actions are performed by users and only initiated by the user performing some action, such as place an order, or validate user, or transfer token to another user. Actions are assigned to roles. Events are platform- or system-generated outcomes that are a result of a user action and state the condition that defines certain tasks to be performed. For example, a user may attempt to place a buy order and the platform checks to see if there is enough account holding to place an order. The platform discovers there is not enough in the account so it throws a system-generated insufficient fund event. As a result of these events the system may perform a group of tasks.
Compliance requirements
The five categories are indicative of requirements enforced by many regulatory bodies. Consumer protection is the main priority of security regulatory bodies to maintain market integrity and consumer confidence. These categories are required by federal and state laws, multiple asset trading rules, banking laws, and many other government agencies that require protection for the consumer and monetary systems. Money service businesses (MSBs) have come to the forefront of regulation. FinCEN (Financial Crimes Enforcement Network) has a fact sheet site that details the application of the Bank Secrecy Act (BSA) in regard to MSBs. Crypto exchanges can be seen as MSBs and are possibly subject to requirements of maintaining daily transaction reporting that is being defined by the Treasury and FinCEN. The regulatory guidelines being framed by these enforcement agencies could be perceived as a threat that undermines the privacy philosophy of the crypto currency community, one of the core tenets of crypto currency. Awareness of regulations targeting fraud protection (from hellion companies and organizations) and prevention of criminal activities involving terrorism and money laundering are always in focus. Thus it is optimal when operating any enterprise that can be categorized as an MSB to have a strong governance framework that lends well to reporting. Crypto currency will remain a hot topic where the major impetus is consumer protection and compliance. Regulators are tasked with creating a working balance between compliance and not impeding the rapid innovation of the technology. Therefore, tracking actions, events, and activities is very important for any enterprise engaged in the business of digital currency.
Monitoring events and activities
The marketplace is designed upfront with a minimum level of governance. First it introduced the security of the environment through a properly secured network to face cybersecurity attacks with the protection of participant information. The data security measures are satisfied first with a VPN and HTTPS secured networks and by implementing best practices of encryption for transporting and storing data.
The marketplace is providing a value-added service so compromise is needed with regard to anonymity with the owners of the network administrators. Having a role-based onboarding process to categorize individuals as users are onboarded into the network places profiles into proper categories based upon the participant types of the network or marketplace. This practice is very appealing to regulators as KYC is satisfied and participants are managed at the group level. Regulators and officials can assign restriction or limitations to groups, making the network much more governable. Architects of such digital currencies enterprises can create rules and engines at the group level, providing regulators a level of oversight for compliance.
The actions, events, and entitlements aid in creating the AML framework. Now that profiles are generated and categorized in the registration process, transactions that occur and may cause a certain breach event can be raised with actions taken based upon the specified event. The escalation process that captures profiles that may attempt to override certain limits based upon the profile or an attempt to perform a transaction that a profile is not entitled to will generate notifications within the network.
Having these safeguards inherently built into the network demonstrates to regulators and compliance officers a system of auditability. Entrepreneurs who take the approach of integrating an auditable system that meets regulatory requirements and best practices have the opportunity to help bring transparency to this marketplace.