Risk Disclaimer

Legal Risks

According to the “Development of China’s Blockchain Technology and Applications Whitepaper” published on 18 October 2016 by the Ministry of Industry and Information Technology of the People’s Republic of China, blockchains are used as an integrated application for distributed data storage, point-to-point transmission, blockchain confirmation mechanism, encryption mechanism and other technologies. In recent years, it has become a hot topic of research and discussion by international organizations like the United Nations (UN), the International Monetary Fund (IMF), and many countries. The industry has also increased investments. Currently, the application of blockchain has been extended to many Internet of Things (IoT), Supply Chain Management and digital asset trading, amongst others. It will also bring new opportunities for the development of next-generation information technologies such as Cloud Computing, Big Data, and Mobile Internet. It has the ability to trigger a new round of technological innovation and industrial change.

The blockchain is currently starting its transition to individual application development. Some typical applications have been presented, and the financial and commodity industries also show broad application prospects. The scope of the applications can be roughly divided into three parts of transaction – before, during, and after transaction. Pre-transaction includes the understanding of customers, anti-money laundering, information disclosure, etc.; transaction itself includes stocks, bonds, debt collection tools, and issuance and transfer of derivatives; post-transaction includes registration, custody, liquidation, settlement, data sharing, splitting of shares, voting of shareholders, dividend payment, collateral management, and crowdfunding management. At present, there are differences in the attitude and regulation of blockchain technology among countries.

On 5 December 2013, the People’s Bank of China, Ministry of Industry and Information Technology, China Banking Regulatory Commission, China Securities Regulatory Commission, and the China Insurance Regulatory Commission jointly issued “Notice on Prevention of Bitcoin Risks” (Yinfa [2013] No. 289). The main content of the “Notice” is on clear Bitcoin attributes. It is believed that Bitcoin does not have any monetary attributes such as legality and mandatory compensatory currency attributes, and that it is not a real currency. In terms of the nature, Bitcoin is a specific virtual commodity that does not have the same legal status as currency and should not be used as a currency for circulation in the market. Financial institutions and payment agencies are also prohibited from developing Bitcoin related businesses. Financial institutions and payment agencies are not allowed to price their products or services with Bitcoin currency. They are also not to buy or sell Bitcoin, or be a central counterparty that buys or sells Bitcoin. They also are not to underwrite insurance services related to Bitcoin, or to include Bitcoin in insurance coverage, or to serve customers with Bitcoin e.g., providing Bitcoin registration, transaction, clearing, settlement and other services to customers. They are not to accept or use Bitcoin as a payment settlement tool. Other restrictions include, Bitcoin-RMB-foreign currency exchange services, Bitcoin storage, custody, mortgage and other businesses, the distribution of Bitcoin-related financial products, Bitcoin as a trust, funds and other investment targets. With that, there is a request to enhance the management of Bitcoin internet sites. Internet sites that provide services such as Bitcoin registration and trading services must be filed with the tele-communication regulatory agencies in accordance with the relevant provisions of the “Telecommunications Regulations of the People’s Republic of China” and the “Administrative Measures for Internet Information Services”. There is also the requirement to strengthen the prevention of bitcoin money laundering risks. Firstly, all branches of the People’s Bank of China are required to pay close attention to the trends of Bitcoin and other similar virtual goods which have the features of anonymity and cross-border circulation convenience. They have to consider the risk of money laundering, and study to formulate preventive measures. Each branch should incorporate into the anti-money laundering regulation the institutions that are legally established in the jurisdiction, provide services such as bitcoin registration and transactions, and urge them to strengthen anti-money laundering monitoring. Second, Internet sites that require the provision of services such as bitcoin registration and transaction services should effectively fulfil their anti-money laundering obligations by identifying user identities through requiring users to use their real names, ID numbers and other information when registering. Thirdly, all financial institutions, payment institutions, and internet stations that provide services such as Bitcoin registration and transaction services should immediately report to the China Anti-Money Laundering Monitoring and Analysis Center and cooperate with the People’s Bank of China if any suspicious transactions related to Bitcoin and other virtual goods are found. For the discovery of the use of bitcoin for fraud, gambling, money-laundering and other criminal activity clues, it should promptly report the case to the public safety agencies. In March 2014, the People’s Bank of China once again issued the “Notice on Further Strengthening Bitcoin Risk Prevention Work”, requesting all banks and third-party payment agencies to close all trading accounts of all bitcoin platforms in China by 15 April. This means that it is illegal for financial institutions to open accounts for the trading accounts of the Bitcoin website platforms. However, the “Notice” mentioned above does not prohibit Bitcoin transactions. As a result, Bitcoin transactions are still active in the market as a commodity trading activity on the Internet, and are also sought after by some capitals. It is required to educate and strengthen the investment risk awareness of the public’s currency knowledge. The “Notice” requires the correct understanding of currency, proper viewing of virtual goods and virtual currency, rational investment, reasonable control of investment risks, and maintenance of own property safety be incorporated into the contents of financial knowledge dissemination activities, in order to guide the public to establish a correct currency and investment mindsets.

The US federal government’s main focus on blockchain technology is focused on virtual currency regulation of blockchain technology. Some government agencies have specifically issued guidance documents on blockchain technology and ICO. In 2013, the US Department of the Treasury’s law enforcement agency, FinCEN, included the “exchangeable virtual currency” was included in the “money service business” in the Banking Secrecy Act (BSA). Hence, according to this, in the United States, the virtual currency transaction needs to be registered with the Ministry of Finance and is also involved in the anti-money laundering project. However, the Act and the “Application of Financial Crimes Law Enforcement Network Regulations in Personal Management, Exchange, and Use of Virtual Currencies”, issued by the law enforcement agency, all consider virtual currency “a valuable though unlawful currency” which does not have all the attributes of the actual currency and legal currency status. The Commodity Exchange Act (CEA) of the US Commodity Futures Trading Commission (CFTC) can be applied to virtual currencies since the definition of “goods” is very broad; the definition can include “bonds, stocks, and currencies, etc”. In March 2014, the U.S. Federal Bureau of Taxation issued a circular stating that bitcoin and other virtual currencies are assets, similar to other valuable goods, not currencies, and that bitcoin mining, trading, and use should be applied Tax rules, tax returns. In 3 June 2015, New York State, after approximately one year, from the initial motion of Bitcoin Licensing, to the resumption of the motion, and finally to the legal provisions, the New York State Department of Financial Services released the final the “Bitcoin Licensing Regulation” with the aim to regulate “virtual currency business”. According to the “Bitcoin Licensing Regulations,” “virtual currency” is defined to include decentralized currency based on blockchain technology, where “virtual currency business activities” include: (1) the transmission of virtual currency, (2) the use of virtual money for others, (3) the purchase or sale of virtual currency as a customer business, (4) the provision of transaction services as a customer business, and (5) control, management or issuance of virtual currency. The main contents of the “Bitcoin Licensing Regulations” include: first, safeguarding the assets of consumers; second, after completing any transaction, the trading platform should provide detailed information to customers; third, establish a consumer complaints policy; fourth, have a disclosure of risks for customers; fifth is the establishment of an anti-money laundering mechanism; sixth is the establishment of a cyber security plan; seventh is the establishment of a chief information security officer; eighth is the maintenance of books and records; ninth is a report and financial disclosure; tenth is a funding requirement; eleventh is a Compliance Executive Officer; twelfth is that each licensee should establish business continuity and disaster recovery plans, and so on. It is widely believed that the New York State’s legal rules for the introduction of virtual currency are at least a meaningful exploration and attempt. There will be two short-term results: first, it will increase the spending of participants in the market because of their mandatory procedures – password security, consumer protection, financial reporting and anti-money laundering. Indeed, many companies have opted out of New York because the full cost of complying with the rules and enforcement will be between $50,000 and $100,000. Second, the certainty of the license makes the company’s legal risk in this area lower, so it is very likely that there will be a smoother path for the integration of blockchain business with the already established banking system. In the United States judicial trials, there have been cases concerning blockchain technology, mainly involving money laundering in criminal cases, where the technology used by the defendant for money laundering is blockchain technology. For example, in November 2014, a number of websites in New York State of the United States involved the use of blockchain technology and virtual currency for money laundering transactions. These websites were eventually sentenced to confiscation of property; in April 2015, in the case of US v. Ross Ulbricht, the defendant was involved in a number of charges such as narcotics trading, computer hacking, and money laundering where the technology used by the defendant was blockchain technology.

The EU implemented legal restrictions on blockchain on 5 July 2016 where the European Commission passed a bill to amend the Fourth Anti-Money Laundering Act (4AMLD). The Act explicitly includes the transactions of virtual currencies in the anti-money laundering framework. In August 2013, Germany recognized the legal status of Bitcoin and incorporated it into the national regulatory system, thus becoming the first country in the world to recognize the legal status of Bitcoin. The German government stated that Bitcoin can be used as a private currency and currency unit. Bitcoin is tax-exempt for personal use within one year, but it is taxed for commercial purposes. The German Financial Supervisory Authority believes that Bitcoin is a value token used to exchange real economic goods or services that are circulated in barter clubs, private bazaars or other payment systems. At present, Germany’s policy on Bitcoin is relatively clear. Bitcoin.de, the German Bitcoin trading platform, has also cooperated with Fidor Bank.

In August 2014, the Australian Taxation Office (ATO) issued bitcoin taxation guidelines and formally incorporated Bitcoin and related business practices into the existing tax system. The Australian Taxation Bureau (ATO) does not regard Bitcoin as a currency nor does it clarify the positioning of its financial assets. It treats it as ordinary assets. The main content is as follows: personal use of Bitcoin transactions should not involve any goods tax and income tax; when an enterprise uses Bitcoin to purchase goods or services, the value of the goods purchased must be converted into Australian dollars and recorded as revenue of the company; capital gains, that is, as an asset, involve capital gains tax when the company cleans up bitcoin; Bitcoin can be used to pay wages, and such payments are similar to fringe benefits for businesses where employers may pay a fringe benefit tax for this purpose; mining (production) Bitcoin, and the revenue derived from mining (production) Bitcoin for commercial purposes, will be regarded as taxable income.

With regard to Thailand’s legal regulation on blockchain, senior officials of Thailand’s foreign exchange administration and policy department have stated that the following bitcoin activities are considered illegal in Thailand due to the lack of applicable legal and capital controls and that Bitcoin crosses a variety of financial businesses, such as, Bitcoin trading, buying and selling any goods or services using Bitcoin, or have Bitcoins exchanges with anyone outside of Thailand.

In Singapore, the Monetary Authority of Singapore (MAS) announced on 1 August 2017 that the token must be regulated by the Securities Act of Singapore (No. 289 of the National Assembly Act). The Token Issuance Instruction issued by the MAS on 14 November 2017 states that if a token has a capital market financial product as defined in the Singapore Securities Act, they should be incorporated into the supervision of the Monetary Authority of Singapore. They include securities, futures contracts, leveraged foreign exchange contracts or arrangements. For example, a digital currency has the following properties: (1) shares, including the rights conferred or represented on behalf of the owner of the company or business, represent the owner’s legal obligations; (2) bonds, constituting a token issuer or token holder may lend (3) The Collective Investment Scheme (CIS), which represents the rights and obligations of the investment group or the right to choose an investment plan, shall be subject to the jurisdiction of the MAS.

Risk Disclaimer

This document is intended for use by the 3rd Wave team, only for planning statements for the miner’s platform business and 3rd Wave token functionality. The 3rd Wave team may adjust the planning of the actual business according to the requirements of industry development and related laws, administrative regulations, local regulations and department regulations. This document does not constitute a legal opinion regarding the purchase or sale of 3rd Wave tokens or their associated companies, corporate equity, claims or owners’ equity. Any similar proposal or price will be applied under the applicable securities law and other relevant laws and regulations. The information or analysis in this document does not constitute investment opinion or advice. It does not constitute non-constitution and should not be interpreted as any civil offer, civil promise, civil action or civil contract.

3rd Wave tokens are virtual tokens issued by 3rd Wave platform. 3RD token holders can redeem points on the 3rd Wave platform. The 3rd Wave team may increase or adjust the 3rd Wave token’s service contents according to business development needs. The price of 3rd Wave tokens will be determined through market transactions. Users who purchase and hold 3rd Wave tokens may profit from the price increase of 3rd Wave tokens. However, they may also suffer losses due to falling prices. The 3rd Wave team makes no promises or guarantees regarding the future price of 3rd Wave tokens.

The 3rd Wave team makes it clear that 3rd Wave users should be aware of the risks of the projects invested by 3rd Wave platform. Individual investors or institutional investors participate in the 3rd Wave token investment to understand and accept the risk of the project, and are willing to bear all consequences and risks accordingly. 3rd Wave clearly states that it will not bear any direct or indirect losses caused by 3rd Wave’s investment projects, including loss of economic benefits due to users’ own operations; loss of economic benefits due to user’s own mistakes, negligence, or inaccurate information; loss of economic benefits caused by the user’s transaction of blockchain products; loss of economic benefits due to any failure of the Ethereum blockchain; loss of economic benefits due to force majeure, unforeseen risks; loss of economic benefits due to regulatory blockchain technology laws and regulations.

3rd Wave tokens are not an investment wealth management product. Under certain circumstances, the value of 3rd Wave tokens may decrease. The 3rd Wave team does not guarantee the increase in value of 3rd Wave tokens. 3rd Wave tokens should not be considered as having the nature of ownership, control, or decision-making power of the 3rd Wave platform or its affiliates and companies. 3rd Wave tokens are of commercial nature and do not have the nature of securities. Non-traditional financial products should not be registered as securities in any country or region.