Published on November 18, 2018 |
by Michael Barnard
November 18, 2018 of Michael Barnard
Along with our normal daily coverage for clean technology news, CleanTechnica it also produces in-depth reports on various aspects of clean energy and clean transport. One of the emerging technologies we cover is not directly a clean technological innovation is blockchain, which promises to be a catalyst for innovation in the green economy in the near future. Blockchain is probably best known to the public as "having something to do with cryptocurrency and Bitcoin, right?", Which is partially correct, but the technology itself has a wide range of applications, some of which will be crucial in the fields of distributed renewable energy , network management and energy storage, and smart contracts, among others.
The full report Blockchain: an enabling innovator for clean technology, which was published in July, is a deep immersion in the blockchain and its potential, and we will publish further extracts from the report in the coming weeks. (Read the last episode here.)
This article will analyze how the first offers of coins and other financing models linked to the blockchain can be used for cleantech companies. Foreshadowing: while originally dealing with an unregulated space, security agencies are increasingly applying regulatory frameworks and tax agencies are increasingly looking for their cut.
Initial coin offerings (ICO)
These were the IPOs of 2017 and, like the IPOs with dot-coms from 2000, they were collecting money incredibly fast and often based on the subtlest of the premises of future revenue. It is a highly speculative area.
But it's an area where cleantech has garnered significant money.
- Power Ledger is building a peer-to-peer blockchain energy exchange system. He raised $ 34 million AUD in an ICO in 2016.
- Grid +, which is building an app and an electrical appliance that expose the costs of electricity, helps to reduce the use and arbitration of the cheaper use of local renewables, storage and 39. Electricity of the network sold 39 million worth of coins with a value of 32 million dollars in its ICO in 2017.
- WePower, which is building a blockchain platform to allow renewable projects to obtain financing. has raised $ 3 million in its public pre-ICO with the formal and full ICO arriving in February 2018.
- Solar Bankers, another micro-grid startup with an interesting solar film technology, has moved to Singapore from Arizona and runs an ICO with the goal of raising $ 300 million. History suggests that it will get less than this, but has sold over 25 million of its SunCoins to over 1,600 contributors so far, over 25% of its hardcap.
Already more than $ 60 million are already coming to cleantech offers with more news.
This is all money flowing in the form of cryptocurrencies, and the value fluctuates so rapidly and so much that anchoring a specific amount to it is challenging. Bitcoin is the most famous example of this, with its value against the US dollar ranging from about $ 3,600 three months ago to a maximum of over $ 19,000 before falling in the last week to around $ 14,000. Ethereum rose from around $ 280 to a maximum of about $ 850 before falling to around $ 650 in a similar period.
It raises the question of whether fundraising firms have kept the proceeds in cryptocurrency or hedged by moving a large part of them into fiat currencies.
Execution of an ICO
When collecting money through an offer of coins, most groups do not create their own version of bitcoin or Ethereum. Instead, they typically take advantage of the Ethereum blockchain and the intelligent contract programming language to create something to refer to as a token. A token is like a sharing. Ethereum is not the only blockchain platform in circulation, but it is the most used. The solar bankers, except, use the new SkyLedger blockchain platform.
A key initial part of an ICO is a whitepaper that articulates exactly what the new currency should do, what the money will be and how the ICO will be executed. The smartest translate the whitepaper into multiple languages, as Power Ledger did.
ICOs are open for periods of one week to a month and individuals "invest" by buying tokens. There are a handful of models to recover the investment, but the first two are the increases in the market value of the tokens and the approaches to dividends that return a fraction of the profit from the commercial enterprise to the token holders.
There are various guides to ICOs, but remember that this is a new space, there are no certifications or education that apply particularly and there are many self-appointed experts, including me.
Taxes and regulations
Until recently, ICOs were considered a form of crowdfunding, a specialized form of Kickstarter or Patreon. This allowed the groups that manage ICOs to avoid the heavy regulatory burden associated with securities. However, there have been moves by the US SEC and equivalent organizations from other countries to start characterizing ICOs as securities sales.
This has advantages and disadvantages for the people who run them. If an ICO is a sale of securities, the proceeds are considered debt or principal and therefore not taxable in most jurisdictions. If revenues are expected to start flowing in future years, they will have capital to run their business plan without tax burdens. On the contrary, if they are securities, they fall within the framework of fairly restrictive and certainly complex security rules, intended to protect investors and prevent fraud.
The alternative, which many ICOs try to do with a careful choice of language, is to have revenues characterized as income or corporate income. This avoids the regulatory burden, but the downside is that most countries want taxes from that money, and these taxes are due for the fiscal year in which ICO occurs. Some sources suggest that performing an ICO at the beginning of the fiscal year is advantageous, presumably because the organization has used the money for potentially more than a year before having to pay taxes. In the rapid growth plans that start up early, this can be practicable.
To avoid regulatory and tax burdens, many ICOs choose their country as carefully as they choose their blockchain base. Since cryptocurrencies are inherently devoid of country and each regulatory experience is new, this is more reasonable than IPOs, where both the currency and the IPO experience in a particular country matter most.
According to the people who pay attention, Singapore and Switzerland are both good places to base ICOs, with these small countries in the first 4 countries that see the ICOs together with the United States and Canada. This makes sense as they focus on being international banking hubs that provide security and privacy to people who use their services.
Having spent two years in Singapore, I can say that he has a strong focus on maximizing entrepreneurship and innovation. It has a tax treaty with the United States, but it is, like Ireland, an international place with very low corporate taxes. This is important given the potential to be taxed based on the income from your ICO. But Singapore also has challenges. At least ten ICO-based companies have seen banks close their bank accounts. Here is a breakdown of the current state of regulation in countries around the world regarding ICOs to help start thinking.
The US IRS takes its cut regardless of where the money is made, and this also applies to businesses. There are a bunch of tax laws on US individuals and companies with foreign interests, regardless of where the business exists.
Canada has established a regulatory sandbox through the Canadian Revenue Agency (CRA) to support fintech innovation and is used by ICO-related entrepreneurs. However, there is not even a bed of roses. One of the first ICO Canadian to apply was given a series of conditions that would allow him to give discretionary relief to be considered a "distribution" that requires reliance on an exemption or the presentation of an exemption.
If you are thinking of doing the ICO dive, this seems to be a solid set of questions to ask about the regulations and statutes of a country.
ICOs are not the only game in town for cleantech entrepreneurs and investors. Other models deserve attention.
The first is the already mentioned WePower, which is building a blockchain platform to allow renewable projects to obtain financing. It started in Europe but has recently expanded in Australia. The premise is that you can raise capital using your platform by pre-selling commitments to produce electricity. Currently, its model is a commitment of 1 KWH and is represented by the WPR token. This allows a common hub similar to Kickstarter or GoFundMe but with a clear revenue model and focus on renewable projects. It is easier to find investors if investors are on a single platform. WePower's first customer was a 1 GW Spanish solar plant, guaranteed in July 2017. Note that it is explicit not to allow US residents to participate at this time due to regulatory uncertainty.
The second is The Sun Exchange. Rather than being an ICO model or raising capital, it allows investors to buy solar panels with bitcoin or fiat coins and lease them to schools and companies in sunny Africa. This circumvents most regulatory burdens and allows small investors to contribute to decarbonisation, engage with cryptocurrencies and profit from them.
In 2018, ICOs are beginning to lose favor. Blockchain and cryptocurrencies are moving from the Innovators category to Early Adopters.
The regulations are becoming clear. Institutional sellers are starting to enter the market. Pension funds such as OMERS in Canada are co-creating Ethereum investment funds.
Cryptocurrency startups like Chia are explicitly avoiding an ICO in favor of initial venture capitalist funding followed by a standard IPO.
Lessons for cleantech entrepreneurs
This is far from a complete list, but it is a reasonable starting list. ICOs are not successful schemes that succeed in a weekend. They take work, they think and plan.
- Consider one of the alternative models, but do not forget that they may be subject to taxation and regulation.
- Incorporate before ICO. Among other things, this means that people associated with the venture will not pay taxes until they receive the proceeds from it, either as capital gains or income.
- If you are a US company, consider a corporate structure that is arguably foreign with some US stakeholders, not a US entity in a foreign country with predominantly US stakeholders.
- Spend some time thinking about the jurisdiction on which to base the ICO.
- You can disintermediate venture capitalists with an ICO, but you can not get rid of lawyers and accountants with them.
- Right now, ICOs are the wild west, more like a penny stock with much larger numbers, and there's a lot of space fraud. Regulators are moving to protect investors.
- While cryptocurrencies are post-national, non-fiat currencies, nations are trying to take their cut.
- The cryptocurrencies are great, but most people working in the real world need fiat coins as payment, so the banks that allow the proceeds of cryptocurrencies are crucial. Having millions is useless if the banks refuse to process it.
- Just like an effort leading to an IPO, you have to create a team, invest in intellectual capital, make credible projections of results, establish a plan, create a tone and then launch the search for capital.
Stay tuned for more excerpts from Blockchain: an enabling innovator for clean technologyor view the summary and request a complete report at https://products.cleantechnica.com/reports/