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Texas Regulator Is The Crypto Sheriff Now or Why The Cloud Mining Company Got Banned

08 November 2018 15:46, UTC
Texas Regulator Is The Crypto Sheriff Now or Why The Cloud Mining Company Got Banned
By Oleg Koldayev

The digital Wild West is coming to an end. The irony is that legality is triumphing in the very Wild West, where, a hundred and fifty years ago, reckless adventurists from around the world were looking for happiness and prosperity, resolving numerous disputes with the help of a weighty argument of caliber 0.45. So, the Texas State Securities Board (TSSB) issued an emergency circular prohibiting the work of the Australian company AWS Mining and the wallet MyCoinDeal, which provided everyone interested with services of a cloud-based method of mining virtual currencies, their subsequent storage, and transactions.

The state authorities accuse digital companies of unauthorized underestimation of the investment profits of clients and the failure to notify them of additional costs and risks. The regulators’ statement said: “Although potential investors were captivated, being promised 200% of the profits from investments in mining contracts, after signing the deal, AWS Mining rejected the guarantees of profitability provided earlier and informed customers about possible risks.”

In addition, for each transfer of digital coins to fiat money, the MyCoinDeal exchanger charged an undeclared 2% of the transaction amount and from 0.5 to 1% for the same actions with virtual assets, which investors were also not informed about. Moreover, firms were not registered as securities dealers, and their contracts were not properly confirmed.

For the totality of claims, the FSSB suspected Australian operators of causing damage to corporate clients and the Texas budget, as well as of fraud. What is surprising is that the question of suspiciousness of cloud mining has come up to the regulators only now, although there are a great many organizations that offer to join such projects, and they had been active and assertive for a long time. However, not always this way of attracting investment was considered to be a scam as open as the day.

In previous years, on the wave of the repeated leaps in the value of digital assets, cloud mining technology worked at the very least, but mathematical algorithms became more complicated with each new coin and, consequently, costs for the production process increased. And with the collapse of the market, cloud mining did lose its profitability completely, but the trendy, hype concept remained, and all sorts of scammers started to use it actively.

Here, in some way, the story of the production of slate oil has repeated: it is difficult and expensive to extract it from the interior of the earth and to process it, but high oil prices provided some profitability for such a business. After the collapse in the value of black gold on the world market, many deposits ceased being profitable, even despite the bare-faced protectionism of the White House. Investors still continue to invest in the well-drilling, although since 2010, they have spent $265 billion more than they have received. Simply put, technologies, no matter how advanced they are, are good only when they are economically viable.

Today, the phrase “cloud mining” has become an unmistakable sign that a digital startup, in the description of which it appears, is most likely a financial pyramid.

By the way, Texas has long been a safe haven and a market for traditional financial pyramids. It may be recalled that one of the biggest frauds in history was originally from there: a famous entrepreneur, a Texas billionaire Allen STANFORD, for 15 years, managed to sell securities without any backing to clients. During this time, he received about $7 billion. In 2009, the fraud was revealed, and the businessman was sentenced to 20 years of imprisonment for his actions.

Returning to the digital market, we can say one thing: every month, if not every day, it is being cleared. The collapse in the value of virtual assets and the simultaneous decrease in their volatility did a power of good to the industry, if only because the market structure is changing. Beautiful but impracticable, and therefore, empty ideas are leaving; there is a tendency to reduce scam projects as open as the day. Institutional investors are appearing to replace numerous crypto-enthusiasts who are not very interested in digital coins as in an economic Wunderwaffe against the elite: they want to win the competition against the same players and get real profits. And financial pyramids have existed and will exist, but they will not determine the appearance of the digital market tomorrow. The Wild West is interesting only in spaghetti-westerns.

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