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Why states are now creating their own crowdfunding rules

(Business Finance) While investors and businesses become tired of waiting for the feds to regulate crowdfunding, states are stepping in to set local rules.

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Crowdfunding is changing, how states are keeping up

Crowdfunding is rapidly changing, and on the forefront of that movement is Judd Hollas, Founder and CEO of EquityNet. As investors and businesses become fatigued with waiting on the federal government to set national regulations for the crowd funding industries, the states are stepping in.

In his own words below, Hollas explains why states are creating their own crowdfunding rules:

Over two years ago, President Obama signed the Jumpstart Our Business Startup Act (JOBS Act) into law; however, regulations for equity-based crowdfunding that would allow the average American citizen, who has less than a million dollars in assets, to invest in privately held companies have yet to be finalized. Crowdfunding has been around long enough now for people to see its potential to drive additional capital to small and emerging businesses, and states naturally do not want to wait any longer for their business communities to be able to use it.

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Texas legislators have recently convened to vote on laws that would permit intrastate crowdfunding. These laws would enable Texans classified as non-accredited investors to invest up to $5,000 a year in privately held Texas-based companies. Any company in Texas would be able to raise up to $1 million per year. If this vote passes, Texas will join several states like Georgia, Kansas, Michigan, and Wisconsin in creating programs that would allow their residents to help startups and small companies create jobs and bolster their economies.

In fact Texas based companies have already started to engage in equity based crowdfunding from accredited investors with more than 100 companies each seeking to raise on average $1.2 million in capital on sites like EquityNet. Moreover, one company, Envoy Investments, is well under way to meeting its funding goal of $2 million, demonstrating the impact of equity crowdfunding on funding emerging businesses in Texas.

Small businesses fuel economic growth

Small businesses and startups have long been considered a major cause of economic growth. Not only do they provide job opportunities; they are often innovators of new technologies that lead to enhancements in productivity. Access to human capital and advancements that lead to higher productivity are key inputs to successful economic expansion. Many Texan entrepreneurs and investors are keen on this idea. After all, a company cannot grow without readily available capital.

Title III of the JOBS Act would allow unaccredited investors across the nation to invest in privately held companies, but the Securities and Exchange Commission (SEC) has yet to adopt rules, meaning that the movement that would allow nearly anyone to have an impact on the national economy is stalled for the time being.

The delay is understandable, but…

It’s understandable why the SEC is proceeding with such caution on this matter. Investments in startups and other privately held businesses can be quite risky; but, existing crowdfunding models are leveraging the “wisdom of the crowd,” meaning that potential investors can communicate with others who have invested in companies that crowdfund and aid in due diligence processes in real time. This self-policing mechanism inherent to crowdfunding mitigates risks of fraud and faulty investments.

For non-accredited investors, intrastate crowdfunding will create a whole new asset class that they have never had access to before. It would allow them to potentially increase their total returns from their investment portfolios over time and have a hand in aiding their local economies in the process.

If intrastate crowdfunding comes to Texas it may take a while for the market to adopt it; however, the benefits it could provide for the state’s economy will be evident as more people begin to participate. Time will tell, but it is definitely a step forward to the democratization of capital.

The American Genius is news, insights, tools, and inspiration for business owners and professionals. AG condenses information on technology, business, social media, startups, economics and more, so you don’t have to.

Business Finance

Once and for all – will we ever get Social Security benefits or not?

(FINANCE) Is it possible to settle the age-old question about Social Security benefits drying up before it’s your turn to receive them?

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Will we have them or won’t we have them? That is the age-old question when it comes to Social Security benefits.

If you’re over 65 years old or planning on living to be 65 years old, odds are you’re relying on Social Security as a source of income to supplement your retirement savings or you’re straight up depending on it to live.

However, we’re facing the largest senior population the US has ever seen thanks to the Baby Boom – and Social Security is at serious risk for going bankrupt well before Gen X’ers, Xennials, Millenials and Gen Z’ers need it.

But why?

Social Security is funded by a 12.4% payroll tax that we all pay into, however, we’re facing a surplus of retirees now that the baby boomers have officially aged into retirement.

In fact, by 2030 every Boomer will be over the age of 65, which means the number of people receiving Social Security benefits will exceed the number of people working jobs and paying into the program.

But let’s back up for a minute. What’s our status right now?

Well, we’re currently working with a surplus of Social Security money that had previously been set aside in a trust fund that was able to close the income gap between the program’s earning and spending. However, this year that gap is going to widen and the program won’t be able to make up for lost income.

The super surge of seniors means that by 2034, the trust fund will be entirely wiped out and while this won’t necessarily bankrupt Social Security it will cause the program to make 25% cuts to all recipients’ benefits.

Eek. So, can anything be done?

Well, we’ve been here before. In 1982, Congress stepped in and made changes to alleviate Social Security’s financial woes by increasing payroll taxes, raising the retirement age, and implementing federal income taxes on certain qualifying retiree income.

Will the current Congress step in before it’s too late? While similar changes have been floated on the floor, a bill has yet to be drafted. For shame.

So, will we or won’t we? We don’t know.

However, the times, they are a’changing and if Congress can pass legislation for universal healthcare and tuition reimbursement, then maybe we won’t need it. Of course, that doesn’t make up for the years of low-to-no earnings Millenials faced during the recession, but it might be what can save us from needing to rely solely on Social Security benefits.

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Business Finance

GoFraudMe: How to avoid crowdfunding scams

(TECH NEWS) Crowdfunding has become ripe for scams, don’t be a sucker — here’s how to spot ’em.

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When it comes to your personal life, you don’t want to be on the receiving end of a crowdfunding campaign because if you’re turning to GoFundMe or YouCaring, it means your house has burned down, you have cancer or your dog has died.

We regularly see these campaigns pop up in our social feeds and for the most part, we believe them because they’re our friends, they’re in need and we trust them so, of course, we pitch in.

However, some people use crowdfunding to fleece you. By now, you’ve probably heard of the couple from New Jersey who teamed up with a homeless man to raise over $400,000. The campaign was a scam, the cash was split and now these crooks are facing some serious consequences in court. Ugh.

We shouldn’t need to write this article, but some people suck and they’re out there duping us. Here’s how to spot them.

This should be obvious, but do not give money to people you do not know or do not at least tangentially know. It never hurts to scroll through the donor list to see if you recognize any of your friends or acquaintances there. If you do and have questions, reach out to them before you reach deep into your wallet.

What about victims of natural disasters? Offer your money to emergency funds run by non-profit organizations. Anyone can create a crowdfunding campaign, but in times of crisis many platforms create verified campaigns.

If the objective of the campaign is unclear, do not donate. We’ve all come across campaigns that are strangely worded or lack enough specifics to piece together a plausible story. If it feels like a Nigerian Prince is the campaign administrator, close the tab.

If a campaign’s photo looks fishy, do a reverse image search on Google to help validate that fishy feeling. If the search yields a lot of results for the photo, scammers have stolen it and are using it to tug at your heartstrings.

Most campaigns run for a very short amount of time, typically a couple of weeks and rarely more than a month. While there is generally a final social push to get to an unmet goal, there are rarely open-ended campaigns. Again, if the goal is unclear or out-of-reach, move on.

We’ve all seen campaigns that are truly gut-wrenching – deaths of loved ones, fights with cancer, entire villages wiped out. As with the case of the three jerks from New Jersey, if it feels too good to be true, it probably is. While some sites may be able to reimburse your donation, others won’t and nothing feels worse than falling for a scam AND losing your money.

And so, dear friends, this is why we at The American Genius almost never, ever write about crowdfunded projects. We care about you and we want you to use your money to help your real friends, fund YOUR next project or pay off your student loans.

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Business Finance

How cryptocurrency works – basic vocabulary and concepts

(FINANCE) Cryptocurrency is a concept that dates back a decade, but as it becomes newly mainstream, many are struggling to catch up – knowing the basic concepts can get you up to speed.

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One of the most exciting things to arise out of new technology is the idea of better ways to optimize and improve concepts that we already find in the real world. None of us should be surprised when that includes currency.

With cryptocurrencies such as Bitcoin, Ethereum, Ripple, Litecoin, Dash, NEM, Ethereum Classic, Monero, and Zcash (to name a few), it may be hard for the average consumer not to just keep up, but to know what’s going on in this revolution in our modern day economy. Knowing how crypto works makes you a better consumer, as well as investor in your future. Let’s get started with the basics.

What is a cryptocurrency?

To ask what cryptocurrency is, one should also contemplate what modern day paper or coin currency is. At its most basic, all currencies share this core trait: you can exchange a unit (or units) which has predetermined value for either goods or services. Whether it’s dollars, Yen, the gold standard, or Dogecoin, all of these currencies allow you to complete basic transactions.

Where cryptocurrency is different, is how these transactions are completed and how cryptocurrencies are processed.

How does crypto differ from common currencies?

Cryptocurrency allows you to send money directly peer-to-peer (p2p) electronically instead of operating through third-party systems like banks or governments.

The technology that makes this happen is called Blockchain. Blockchain technology is the primary difference between the dollars in your wallet and the virtual currencies in your crypto wallet. The Litecoin School of Crypto uses a great analogy to explain how blockchains work:

“In its simplest form, blockchain is data. It’s a list of recorded information called “blocks” strung together in a chain. Think of blocks as folders stuffed with information i.e. how much Litecoin was sent, who sent it, and who received it. The great thing about blockchains is that it’s public and anyone in the world can see it.”

How does a normal crypto transaction work?

Here’s an example using the fictional cryptocurrency, bitquarters: Karen owes Jamal 10 bitquarters for her movie ticket, so she’s going to pay him back. Karen first requests the transaction through her digital wallet. Because of the nature of cryptocurrency, she can’t send him bitquarters she doesn’t have (there is no “overdrawn” account status in crypto, like modern banks), so it’s a good thing she just got paid!

When Karen initiates the transaction, she uses her private key to virtually “sign” it. When a transaction is completed, an individual will “sign” their transaction with their private key – the reason why cryptocurrency is called as such is because of encryption, after all. The requested transaction is sent via peer-to-peer (p2p) sharing to a network of computers called nodes. These computers validate Karen’s key and verify the transaction.

After the transaction is verified, it is added to the blockchain, the virtual ledger, that all bitquarter users have access to. After that is finished, in only a matter of seconds, Jamal is paid!

What is this cryptocurrency “mining” thing I’ve been hearing so much about?

Mining is a vital part of the cryptocurrency transaction. Miners are the only individuals in the crypto process that can confirm transactions. Their job is to take a transaction, to verify that it is legitimate, and spread them p2p in the network.

To make it a part of the public ledger (the blockchain) every node has to add it to its database. Because mining takes a computer’s energy and electricity to perform, miners are rewarded with small amounts of cryptocurrency per transaction (like how you pay to pull money from an ATM). However, to prevent fraudulent transactions, a computer must solve an encrypted puzzle in order to add it to the blockchain.

What are other important crypto terms I need to know?

Address: the only piece of information that needs to be used for a transaction, similar to a user name or email address. Each transaction uses a different address.

Block: a unit of data in the blockchain that holds and validates transactions. A blockchain is where all blocks of transactions reside.

Double spend: the action of trying to spend cryptocurrency to two different recipients simultaneously. Mining as well as the blockchain prevent malicious actions such as this from taking place.

Cryptocurrency is held up by some as being the currency of the future, while many others think that due to over-speculation, that it will be a investment bubble with irrevocable consequences for brick and mortar institutions. Regardless of any market forecasters perspective on cryptocurrency, the technology is here to stay and knowing the basic vocabulary can help you understand where things are going.

Don’t be intimidated by all of the language around this concept – if you choose to dive into the crypto waters, you’ll learn as you go along. If you invest in stocks, you know a specific concept and vocabulary list, and crypto functions differently but is just another finance mechanism, both of which can be overwhelming but learning the parts necessary to your goals is all that matters.

PS: If you’re more of a visual person, there’s a short video available that has circulated that explains Bitcoing well, and applies to crypto in general.

This story was first published in February 2018.

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