Sunday 22 April 2018

Backroom battle threatens €196m cryptocurrency project

Anna Irrera, Steve Stecklow and Brenna Hughes Neghaiwi

Three months ago, a tech project called Tezos raised $232m (€196m) online in a wildly successful "initial coin offering", in which new digital currency is parcelled out to buyers.

At the time, it was the most money ever raised from the public in the white-hot cryptocurrency sector.

But the venture is now in danger of falling apart because of a battle for control playing out behind the scenes, Reuters has learned.

The acrimonious dispute pits Tezos' two young founders - Arthur and Kathleen Breitman - against Johann Gevers, the president of a Swiss foundation the couple helped establish to handle the coin offering and promote and develop the Tezos computer network.

Under Swiss law, the foundation is supposed to be independent. It holds all of the funds raised, which have mushroomed to more than $400m in value because the contributions were made in two cryptocurrencies - bitcoin and ether - that have appreciated sharply.

But the Breitmans, who still control the Tezos source code through a Delaware company, are seeking to oust the head of the foundation.

An attorney for the Breitmans sent a 46-page letter on Sunday to the two other members of the foundation's three-person board, calling for Gevers' prompt removal and seeking to give the couple a "substantial role" in a new structure that would limit the foundation's responsibilities. The document accuses Gevers of "self-dealing, self-promotion and conflicts of interest". According to Gevers, the two board members later suggested via email that he step aside for a month while they investigate.

Gevers told Reuters he is not stepping down. "As Arthur has done to others before me," Gevers said, "this is attempted character assassination. It's a long laundry list of misleading statements and outright lies." He said the other two board members "are attempting an illegal coup".

The tale of how two young entrepreneurs raised a fortune for a project barely out of the starting blocks highlights the risks inherent in the current frenzy for ICOs, in which tech startups issue new cryptocurrencies to raise capital.

So called cryptocurrency exchanges - where virtual currencies are bought, sold and stored - have become magnets for fraud and deception. More than 980,000 bitcoins - the most popular virtual currency - have been stolen since 2011. Today they would be worth about $5bn.

Similar large sums are pouring into initial coin offerings (ICOs), which can be a way for tech projects to raise money online to finance the development of new, open-source computer networks that aren't necessarily looking to make a profit.

But the recent flurry of ICOs has attracted some dubious business propositions and outright scams, as well as speculators looking to trade the coins for swift gains. Authorities in the United States, Switzerland, China, Singapore and other nations have begun scrutinising the sector closely for potentially tougher regulation.

"Most ICOs are bought by people looking to 'flip' their tokens to a greater fool for a quick profit," said Alistair Milne, a co-founder of the London-based Altana Digital Currency Fund, which so far has avoided ICOs. More than "90pc will fall to have a near-zero value in time", he predicted. (Reuters)

Irish Independent

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