Machines learn language better by using a deep understanding of words

Computer systems are getting quite good at understanding what people say, but they also have some major weak spots. Among them is the fact that they have trouble with words that have multiple or complex meanings. A new system called ELMo adds this critical context to words, producing better understanding across the board.

To illustrate the problem, think of the word “queen.” When you and I are talking and I say that word, you know from context whether I’m talking about Queen Elizabeth, or the chess piece, or the matriarch of a hive, or RuPaul’s Drag Race.

This ability of words to have multiple meanings is called polysemy. And really, it’s the rule rather than the exception. Which meaning it is can usually be reliably determined by the phrasing — “God save the queen!” versus “I saved my queen!” — and of course all this informs the topic, the structure of the sentence, whether you’re expected to respond, and so on.

Machine learning systems, however, don’t really have that level of flexibility. The way they tend to represent words is much simpler: it looks at all those different definitions of the word and comes up with a sort of average — a complex representation, to be sure, but not reflective of its true complexity. When it’s critical that the correct meaning of a word gets through, they can’t be relied on.

ELMo (“Embeddings from Language Models”), however, lets the system handle polysemy with ease; as evidence of its utility, it was awarded best paper honors at NAACL last week. At its heart it uses its training data (a huge collection of text) to determine whether a word has multiple meanings and how those different meanings are signaled in language.

For instance, you could probably tell in my example “queen” sentences above, despite their being very similar, that one was about royalty and the other about a game. That’s because the way they are written contain clues to your own context-detection engine to tell you which queen is which.

Informing a system of these differences can be done by manually annotating the text corpus from which it learns — but who wants to go through millions of words making a note on which queen is which?

“We were looking for a method that would significantly reduce the need for human annotation,” explained Mathew Peters, lead author of the paper. “The goal was to learn as much as we can from unlabeled data.”

In addition, he said, traditional language learning systems “compress all that meaning for a single word into a single vector. So we started by questioning the basic assumption: let’s not learn a single vector, let’s have an infinite number of vectors. Because the meaning is highly dependent on the context.”

ELMo learns this information by ingesting the full sentence in which the word appears; it would learn that when a king is mentioned alongside a queen, it’s likely royalty or a game, but never a beehive. When it sees pawn, it knows that it’s chess; jack implies cards; and so on.

An ELMo-equipped language engine won’t be nearly as good as a human with years of experience parsing language, but even working knowledge of polysemy is hugely helpful in understanding a language.

Not only that, but taking the whole sentence into account in the meaning of a word also allows the structure of that sentence to be mapped more easily, automatically labeling clauses and parts of speech.

Systems using the ELMo method had immediate benefits, improving on even the latest natural language algorithms by as much as 25 percent — a huge gain for this field. And because it is a better, more context-aware style of learning, but not a fundamentally different one, it can be integrated easily even into existing commercial systems.

In fact, Microsoft is reportedly already using it with Bing. After all, it’s crucial in search to determine intention, which of course requires an accurate reading of the query. ELMo is open source, too, like all the work from the Allen Institute for AI, so any company with natural language processing needs should probably check this out.

The paper lays down the groundwork of using ELMo for English language systems, but because its power is derived by essentially a close reading of the data that it’s fed, there’s no theoretical reason why it shouldn’t be applicable not just for other languages, but in other domains. In other words, if you feed it a bunch of neuroscience texts, it should be able to tell the difference between temporal as it relates to time and as it relates to that region of the brain.

This is just one example of how machine learning and language are rapidly developing around each other; although it’s already quite good enough for basic translation, speech to text and so on, there’s quite a lot more that computers could do via natural language interfaces — if they only know how.


Source: Tech Crunch

Apple and Oprah sign a multi-year partnership on original content

Apple announced today a multi-year content partnership with Oprah Winfrey to produce programs for the tech company’s upcoming video streaming service. Apple didn’t provide any specific details as to what sort of projects Winfrey would be involved in, but there will be more than one it seems.

Apple shared the news of its deal with Winfrey in a brief statement on its website, which read:

Apple today announced a unique, multi-year content partnership with Oprah Winfrey, the esteemed producer, actress, talk show host, philanthropist and CEO of OWN.

Together, Winfrey and Apple will create original programs that embrace her incomparable ability to connect with audiences around the world.

Winfrey’s projects will be released as part of a lineup of original content from Apple.

The deal is a significant high-profile win for Apple which has been busy filing out its lineup with an array of talent in recent months.

The streaming service will also include a reboot of Steven Spielberg’s Amazing Storiesa Reese Witherspoon- and Jennifer Anniston-starring series set in the world of morning TVan adaptation of Isaac Asimov’s Foundation books, a thriller starring Octavia Spencer, a Kristen Wiig-led comedy, a Kevin Durant-inspired scripted basketball show, a series from “La La Land’s” director and several other shows.

Winfrey, however, is not just another showrunner or producer. She’s a media giant who has worked across film, network and cable TV, print, and more as an actress, talk show host, creator, and producer.

She’s also a notable philanthropist, having contributed more than $100 million to provide education to academically gifted girls from disadvantaged backgrounds, and is continually discussed as a potential presidential candidate, though she said that’s not for her.

On television, Winfrey’s Harpo Productions developed daytime TV shows like “Dr. Phil,” “The Dr. Oz Show” and “Rachael Ray.” Harpo Films produced several Academy Award-winning movies including “Selma,” which featured Winfrey in a starring role. She’s also acted in a variety of productions over the years, like “The Color Purple,” which scored her an Oscar nom,  “Lee Daniels’ The Butler,” “The Immortal Life of Henrietta Lacks” and Disney’s “A Wrinkle in Time.”

Winfrey also founded the cable network OWN in 2011 in partnership with Discovery Communications, and has exec produced series including “Queen Sugar,” “Oprah’s Master Class,” and the Emmy-winning “Super Soul Sunday.

The latter has a connection with Apple as it debuted as podcast called “Oprah’s SuperSoul Conversations” and became a #1 program on Apple Podcasts.

Winfrey recently extended her contract with OWN through 2025, so it’s unclear how much time she’ll devote specifically towards her Apple projects.

Apple also didn’t say if Winfrey will star or guest in any of the programs themselves, but that’s always an option on the table with a deal like this. CNN, however, is reporting that Winfrey “is expected to have an on-screen role as a host and interviewer.”

 

 

 


Source: Tech Crunch

Kustomer gets $26M to take on Zendesk with an omnichannel approach to customer support

The CRM industry is now estimated to be worth some $4 billion annually, and today a startup has announced a round of funding that it hopes will help it take on one aspect of that lucrative pie, customer support. Kustomer, a startup out of New York that integrates a number of sources to give support staff a complete picture of a customer when he or she contacts the company, has raised $26 million.

The funding, a series B, was led by Redpoint Ventures (notably, an early investor in Zendesk, which Kustomer cites as a key competitor), with existing investors Canaan Partners, Boldstart Ventures, and Social Leverage also participating.

Cisco Investments was also a part of this round as a strategic investor: Cisco (along with Avaya) is one of the world’s biggest PBX equipment vendors, and customer support is one of the biggest users of this equipment, but the segment is also under pressure as more companies move these services to the cloud (and consider alternative options). Potentially, you could see how Cisco might want to partner with Kustomer to provide more services on top of its existing equipment, and potentially as a standalone service — although for now the two have yet to announce any actual partnerships.

Given that Kustomer has been approached already for potential acquisitions, you could see how the Ciscos of the world might be one possible category of buyers.

Kustomer is not discussing valuation but it has raised a total of $38.5 million. Kustomer’s customers include brands in fashion, e-commerce and other sectors that provide customer support on products on a regular basis, such as Ring, Modsy, Glossier, Smug Mug and more.

When we last wrote about Kustomer, when it raised $12.5 million in 2016, the company’s mission was to effectively turn anyone at a company into a customer service rep — the idea being that some issues are better answered by specific people, and a CRM platform for all employees to engage could help them fill that need.

Today, Brad Birnbaum, the co-founder and CEO, says that this concept has evolved. He said that “half of its business model still involves the idea of everyone being on the platform.” For example, an internal sales rep can collaborate with someone in a company’s shipping department — “but the only person who can communicate with the customer is the full-fledged agent,” he said. “That is what the customers wanted so that they could better control the messaging.”

The collaboration, meanwhile, has taken an interesting turn: it’s not just related to employees communicating better to develop a more complete picture of a customer and his/her history with the company; but it’s about a company’s systems integrating better to give a more complete view to the reps. Integrations include data from e-commerce platforms like Shopify and Magento; voice and messaging platforms like Twilio, TalkDesk, Twitter and Facebook Messenger; feedback tools like Nicereply; analytics services like Looker, Snowflake, Jira and Redshift; and Slack.

Birnbaum previously founded and sold Assistly to Salesforce, which turned it into Desk.com — (his co-founder in Kustomer, Jeremy Suriel, was Assistly’s chief architect), and between that and Kustomer he also had a go at building out Airtime, Sean Parker’s social startup. Kustomer, he says, is not only competing against Salesforce but perhaps even more specifically Zendesk, in offering a new take on customer support.

Zendesk, he said, had really figured out how to make customer support ticketing work efficiently, “but they don’t understand the customer at all.”

“We are a much more modern solution in how we see the world,” he continued. “No one does omni-channel customer service properly, where you can see a single threaded conversation speaking to all of a customer’s points.”

Going forward, Kustomer will be using the funding to expand its platform with more capabilities, and some of its own automations and insights (rather than those provided by way of integrations). This will also see the company expand into other kinds of services adjacent to taking inbound customer requests, such as reaching out to the customers, potentially to seel to them. “We plan to go broadly with engagement as an example,” Birnbaum said. “We already know everything about you so if we see you on a website, we can proactively reach out to you and engage you.”

“It is time for disruption in customer support industry, and Kustomer is leading the way,” said Tomasz Tunguz, partner at Redpoint Ventures, in a statement. “Kustomer has had impressive traction to date, and we are confident the world’s best B2C and B2B companies will be able to utilize the platform in order to develop meaningful relationships, experiences, and lifetime value for their customers. This is an exciting and forward-thinking platform for companies as well as their customers.”


Source: Tech Crunch

With its new in-car operating system, BMW slowly breaks with tradition

When you spend time with a lot of BMW folks, as I did during a trip to Germany earlier this month, you’ll regularly hear the word “heritage.” Maybe that’s no surprise, given that the company is now well over 100 years old. But in a time of rapid transformation that’s hitting every car manufacturer, engineers and designers have to strike a balance between honoring that history and looking forward. With the latest version of its BMW OS in-car operating system and its accompanying design language, BMW is breaking with some traditions to allow it to look into the future while also sticking to its core principles.

If you’ve driven a recent luxury car, then the instrument cluster in front of you was likely one large screen. But at least in even the most recent BMWs, you’ll still see the standard round gauges that have adorned cars since their invention. That’s what drivers expect and that’s what the company gave them, down to the point where it essentially glued a few plastic strips on the large screen that now makes up the dashboard to give drivers an even more traditional view of their Autobahn speeds.

With BMW OS 7.0, which I got some hands-on time with in the latest BMW 8-series model that’s making its official debut today (and where the OS update will also make its first appearance), the company stops pretending that the screen is a standard set of gauges. Sure, some of the colors remain the same, but users looking for the classic look of a BMW cockpit are in for a surprise.

“We first broke up the classic round instruments back in 2015 so we could add more digital content to the middle, including advanced driving assistance systems,” one of BMW’s designers told me. “And that was the first break [with tradition]. Now in 2018, we looked at the interior and exterior design of our cars — and took all of those forms — and integrated them into the digital user interface of our cars.”

The overall idea behind the design is to highlight relevant information when it’s needed but to let it fade back when it’s not, allowing the driver to focus on the task at hand (which, at least for the next few years, is mostly driving).

So when you enter the car, you’ll get the standard BMW welcome screen, which is now integrated with your digital BMW Connected profile in the cloud. When you start driving, the new design comes to life, with all of the critical information you need for driving on the left side of the dashboard, as well as data about the state of your driving assistance systems. That’s a set of digital gauges that remains on the screen at all times. On the right side of the screen, though, you’ll see all of the widgets that can be personalized. There are six of those, and they range from G meters for when you’re at a track day to a music player that uses the space to show album art.

The middle of the screen focuses on navigation. But as the BMW team told me, the idea here isn’t to just copy the map that’s traditionally on the tablet-like screen in the middle of the dashboard. What you’ll see here is a stripped-down map view that only shows you the navigational data you need at any given time.

And because the digital user interface isn’t meant to be a copy of its analog counterpart from yesteryear, the team also decided that it could play with more colors. That means that as you move from sport to eco mode, for example, the UI’s primary color changes from red to blue.

The instrument cluster is only part of the company’s redesign. It also took a look at what it calls the “Control Display” in the center console. That’s traditionally where the company has displayed everything from your music player to its built-in GPS maps (and Apple CarPlay, if that’s your thing). Here, BMW has simplified the menu structure by making it much flatter and also made some tweaks to the overall design. What you’ll see is that it also went for a design language here that’s still occasionally playful but that does away with many of the 3D effects, and instead opted for something that’s more akin to Google’s Material Design or Microsoft’s Fluent Design System. This is a subtle change, but the team told me that it very deliberately tried to go with a more modern and flatter look.

This display now also offers more tools for personalization, with the ability to change the layout to show more widgets, if the driver doesn’t mind a more cluttered display, for example.

Thanks to its integration with BMW Connect, the company’s cloud-based tools and services for saving and syncing data, managing in-car apps and more, the updated operating system also lays the foundation for the company’s upcoming e-commerce play. Dieter May, BMW’s VP for digital products and services, has talked about this quite a bit in the past, and the updated software and fully digital cockpit is what will enable the company’s next moves in this direction. Because the new operating system puts a new emphasis on the user’s digital account, which is encoded in your key fob, the car becomes part of the overall BMW ecosystem, which includes other mobility services like ReachNow, for example (though you obviously don’t need to have a BMW Connect account just to drive the car).

Unsurprisingly, the new operating system will launch with a couple of the company’s more high-end vehicles like the 8-series car that is launching today, but it will slowly trickle down to other models, as well.


Source: Tech Crunch

3,000 journalists covering Kim-Trump this week is WTF is wrong with media

Media businesses are in the dumper. Every week, we hear of new layoffs, budget cuts, diminished editorial quality, and more, way more. And yet, somehow, miraculously, more than 3,000 journalists managed to find the funds to travel to Singapore to cover the Kim-Trump Summit Extraordinaire this week.

How many journalists got to see the summit activity? From Politico: “Most notably, the number of American journalists allowed to witness the meeting between Trump and Kim was limited to seven — a smaller group than would usually be present for such a summit, and one that excluded representatives from the major wire services” (emphasis added).

It’s a huge news story, a major historical moment in the relations between the DPRK and the United States, and one that portends massive changes in that relationship going forward. The event should be fervently covered by the global press. Yet, 3,000 seems a stupendous number of people to cover an event so scripted and managed. Journalists watched from a warehouse and even got so bored, they started interviewing each other rather than, I don’t know, a source.

I notice this same dynamic watching the keynote videos of any of the top tech companies — there are hundreds if not thousands of journalists covering these events from the audience. Exactly how you build a unique story sitting there, beats me.

In media, one of the most critical qualities of a great story is salience — how important a story is to a particular audience. Tech readers want to know everything happening at an Apple keynote, just as much as the whole world is curious about what shakes down in Singapore. It makes sense to have a density of journalists to cover these events.

The problem in my mind is the sheer duplication of work, when the increasingly precious time of journalists could be spent on finding more differentiated or unique stories that are under-reported. In Singapore, how many English-language journalists needed to be there? How many Chinese-speaking or Korean-speaking journalists? I’m not suggesting the answer in aggregate is one each, but certainly the number should be fractions of 3,000.

Journalists taking pictures of a TV screen of Kim and Trump. How is this journalism?

I have given a lot of thought to subscription models in media the past few weeks, arguing that consumers are increasingly facing a “subscription hell” and fighting against the notion that paying for content should only be the preserve of the top 1%.

Yet, if we want readers to pay for our content, it has to be a differentiated product. This makes complete sense to every participant in industries like music, or movies, or books. Musicians may cover other artists, but they almost invariably try to perform original music on their own. Ultimately, without your own sound, you have no voice and no fanbase.

Nonetheless, I feel journalists and particularly editors have to be reminded of this on a regular basis. Journalists still cling to the generalist model of our forebears, rather than becoming specialists on a beat where they can offer deeper insights and original reporting. Everyone can’t cover everything.

That’s one reason why people like Ben Thompson at Stratechery and Bill Bishop at Sinocism have grown to be so popular — they do one thing well, and don’t try to offer a bundle of content in the same old way. Instead, they have staked their brands and reputations on their deep focus. Readers can then add and subtract these subscriptions as their interests shift.

The biggest block to improving this duplication is the lack of cooperation among media companies. Syndication of content happens occasionally, such as a recent deal between Politico and the South China Morning Post to provide more China-focused coverage to the U.S.-dominated readership of Politico . Those deals though tend to take months to hash out, and are often not ephemeral enough to match the news cycle.

Imagine instead a world where specialists are covering focused beats. Kim-Trump could have been covered by people who specialize in Singaporean foreign affairs (as hosts, they had the most knowledge of what was going on), as well as North Korea watchers and U.S.-Asia foreign policy junkies. Clearinghouses for syndication (blockchain or no blockchain) could have ensured that the content from these specialists was distributed to all who had an interest in adding coverage. No generalists need apply.

This isn’t an efficiency argument for further newsroom cutbacks, but rather an argument to use the talent and time of existing journalists to trailblaze unique paths and coverage. Until the media learns that not everyone can become a North Korea or Google expert overnight, we are going to continue to see warehouses and ballrooms filled to the brim with preening writers and camera teams, while the stories that most need telling remain overlooked.


Source: Tech Crunch

Reflections on E3 2018

After taking a year off, I returned to E3 this week. It’s always a fun show, in spite of the fact that the show floor has come to rival Comic-Con in terms of the mass of people the show’s organizers are able to cram into the aisles of the convention center floor.

We’ve been filing stories all week, but here is a very much incomplete collection of my thoughts on this year’s show.

Zombies are still very much a thing

I’d have thought we’d have hit peak zombie years ago, but here we are, zombies everywhere. That includes the LA Convention Center lobby, which was swarming with actors decked out as the undead. There’s something fundamentally disturbing about watching gamers get pictures taken with fake, bloody corpses. Or maybe it’s just the perfect allegory for our time.

Nintendo’s back

A slight adjustment in approach certainly played a role, as the company has embraced mobile gaming. But the key to Nintendo’s return was a refocus on what it does best: offering an innovative experience with familiar IP. Oh, and the GameCube controller Smash Bros. compatibility was a brilliant bit of fan service, even by Nintendo’s standards.

Quantity versus quality?

Microsoft’s event was a sort of video game blitzkrieg. The company showed off 50 titles, a list that included 15 exclusives. Sony, on the other hand, stuck to a handful, but presented them in much greater depth. Ultimately, I have to say I preferred the latter. Real game play footage feels like an extremely finite resource at these events.

Ultra violence in ultra high-def

Certainly not a new trend in gaming, but there’s something about watching someone bite off someone else’s face on the big screen that’s extra upsetting. Sony’s press conference was a strange sort of poetry, with some of the week’s most stunning imagery knee-deep in blood and gore.

Reedus ’n fetus

We saw more footage and somehow we understand the game less?

Checkmate

Indiecade is always a favorite destination at E3. It’s a nice respite from the big three’s packed booths. Interestingly, there were a lot more desktop games than I remember. You know, the real kind with physical pieces and no screens.

Death of a Tomb Raider

I played Shadow of the Tomb Raider on a PC in NVIDIA’s meeting space. It’s good, but I’m not good at it. I killed poor Lara A LOT. I can deal with that sort of thing when my character is in full Master Chief regalia or whatever, but those close-up shots of her face when I drowned her for the fifth time kind of bummed me out. Can video games help foster empathy or are we all just destined to desensitize ourselves because we have tombs to raid, damn it?

I saw the light

NVIDIA also promised me that its ray-tracing tech would be the most impressive demo I saw at E3 that day. I think they were probably right, so take that, Sonic Racing. The tech, which was first demoed at GDC, “brings real-time, cinematic-quality rendering to content creators and game developers.”

VR’s still waiting in the wings

At E3 two years ago, gaming felt like an industry on the cusp of a VR breakthrough. In 2018, however, it doesn’t feel any closer. There were a handful of compelling new VR experiences at the event, but it felt like many of the peripheral and other experiences were sitting on the fringes of the event — both literally and metaphorically — waiting for a crack at the big show.

Remote Control

Sony’s Control trailer was the highest ratio of excitement to actual information I experienced. Maybe it’s Inception the video game or the second coming of Quantum Break. I dunno, looks fun.

AR’s a thing, but not, like, an E3 thing

We saw a few interesting examples of this, including the weirdly wonderful TendAR, which requires you to make a bunch of faces so a fake fish doesn’t die. It’s kind of like version of Seaman that feeds on your own psychic energy. At the end of the day, though, E3 isn’t a mobile show.

Cross-platform

Having said that, there are some interesting examples of cross-platform potential popping up here and there. The $50 Poké Ball Plus for the Switch is a good example I’m surprised hasn’t been talked about more. Along with controlling the new Switch titles, it can be used to capture Pokémon via Pokémon GO. There’s some good brand synergy right there. And then, of course, there’s Fortnite, which is also on the Switch. The game’s battle royale mode is a great example of how cross-platform play can lead to massive success. Though by all accounts, Sony doesn’t really want to play ball.

V-Bucks

Oh, Epic Games has more money than God now.

Moebius strip

Video games are art. You knew that already, blah, blah, blah. But Sable looks like a freaking Moebius comic come to life. I worry that it will be about as playable as Dragon’s Lair, but even that trailer is a remarkable thing.


Source: Tech Crunch

Samsung announces a push for renewable energy

Samsung has announced that it will use 100 percent renewable energy for all its factories and offices in the U.S., Europe and China. This is the first time Samsung has announced a public commitment for renewable energy.

Greenpeace and environmental activists have been calling out Samsung for months as many tech companies have already started switching to renewable energy.

Samsung is starting by the parts of its organization that it can control more easily — its own buildings, factories and offices. According to Greenpeace’s press release, 17 of its 38 buildings are based in the U.S., Europe and China.

“Samsung Electronics is the first electronics manufacturing company in Asia to set a renewable energy target. This commitment could have an enormous impact in reducing the company’s massive global manufacturing footprint, and shows how critical industry participation is in reducing emissions and accelerating the transition to renewable energy. More companies should follow suit and set renewable energy targets, and governments should promote policies that enable companies to procure renewable energy easily,” Greenpeace campaigner Insung Lee said in the press release.

It won’t happen overnight. But these buildings will run on renewable energy by 2020. Samsung says that it could increase its use of renewable energy in other countries. In addition to that, Samsung is going to install solar panels in Gyeonggi province in South Korea.

Like many tech companies, Samsung also works with thousands of suppliers. So it’s not enough to use renewable energy for your own facilities. Samsung is starting small on this front and partnering with the Carbon Disclosure Project Supply Chain Program.

First, the company wants to identify the energy needs of its top 100 suppliers and help them move to renewable energy. This is a multi-year project, and it’s going to be important to regularly track Samsung’s progress on this front.

But it’s also good to see one of the biggest consumer electronics company in the world making strong commitments.


Source: Tech Crunch

Get your ticket to the TechCrunch Summer Party at August Capital

We’re sentimental softies when it comes to tradition, and one of our favorites is the TechCrunch Summer Party at August Capital. This marks the thirteenth year of this Silicon Valley soiree, and we’d love to see you there. Tickets are released in batches, and the first round is available now on a first-come, first-served basis. They always sell out quickly, so buy your ticket today.

The Summer Party is a wonderful opportunity to enjoy an evening of cocktails and conversation — and to celebrate the spirit of entrepreneurship with your peers on the patio and grounds of August Capital in Menlo Park. Of course, every TechCrunch party holds the potential for networking magic. You never know when you might meet the perfect future investor, acquirer, partner or co-founder.

One legendary example: Our founder, Michael Arrington, used to hold these TechCrunch parties in his Atherton backyard, and it’s where Box founders Aaron Levie and Dylan Smith met one of their first investors, DFJ. Who knows? Come to the party and you just might start your own legend.

Here are the pertinent Summer Party details:

  • July 27, 5:30 p.m. – 9:00 p.m.
  • August Capital in Menlo Park
  • Ticket price: $95

Are you an early-stage startup?
Get a Summer Party demo table and showcase your early-stage startup at this legendary event. Each demo table comes with four (4) attendee tickets. Learn more about demo tables here.

Come for the food, come for the drink, come for the magic. Or hey, come for the door prizes, including TechCrunch swag, Amazon Echos and tickets to Disrupt San Francisco 2018.

The first batch of TechCrunch Summer Party at August Capital tickets are available now, and you can buy yours today. We hope to see you there!


Source: Tech Crunch

SEC says Ether isn’t a security, but tokens based on Ether can be

“In cases where there is no… central enterprise being invested in or where the digital asset is sold only to be used to purchase a good or service available through the network on which it was created,” that digital asset is “out of the purview of U.S. securities laws”, according to William Hinman, the director of the division of corporation finance at the U.S. Securities and Exchange Commission.

This (edited) statement from Hinman at the Yahoo Finance All Markets Summit: Crypto will likely be seen as the starting gun on a crypto free-for-all in the United States.

Hinman’s comments were certainly a positive signal to the market. They sent the price of Ether spiking from $469 to $516 over the course of the past hour.

While the markets may view this as an unadulterated victory for cryptocurrencies of all stripes, the Securities and Exchange Commission simply looks to be expanding on the fairly nuanced position it’s established with coin offerings and token sales.

Earlier this month SEC Chair Jay Clayton made a similar statement about Bitcoin and its place in the regulatory firmament.

For the SEC, while cryptocurrencies like bitcoin and ether are not securities, token offerings for stakes in companies that are built off of those blockchains can be, depending on the extent to which third parties are involved in the creation or exchange of value around the assets. 

The key for the SEC is whether the token in question is being used simply for the exchange of a good or service through a distributed ledger platform, or whether the value of the cryptocurrency is dependent on the actions of a third party for it to rise in value.

“Promoters, in order to raise money to develop networks on which digital assets will operate, often sell the tokens or coins rather than sell shares, issue notes or obtain bank financing. But, in many cases, the economic substance is the same as a conventional securities offering. Funds are raised with the expectation that the promoters will build their system and investors can earn a return on the instrument — usually by selling their tokens in the secondary market once the promoters create something of value with the proceeds and the value of the digital enterprise increases,” Hinman said.

This was at the core of a 1946 case which was decided by the Supreme Court and set a standard for the SEC’s authority to oversee certain types of securities issues. That case, SEC v. Howey involved the sale of interests in orange groves to guests of a hotel. The guests could have cultivated their plots of land but instead relied on a service managed by the hotel to create value from the oranges (this is a very rough paraphrase of the facts of the case).

“Just as in the Howey case, tokens and coins are often touted as assets that have a use in their own right, coupled with a promise that the assets will be cultivated in a way that will cause them to grow in value, to be sold later at a profit. And, as in Howey — where interests in the groves were sold to hotel guests, not farmers — tokens and coins typically are sold to a wide audience rather than to persons who are likely to use them on the network,” said Hinman.

Before a network is actually created and as the tokens are marketed to investors rather than users of the token, they’re going to look an awful lot like securities to the SEC.

“The token — or coin or whatever the digital information packet is called — all by itself is not a security, just as the orange groves in Howey were not. Central to determining whether a security is being sold is how it is being sold and the reasonable expectations of purchasers,” Hinman continued.

“The digital asset itself is simply code. But the way it is sold — as part of an investment; to non-users; by promoters to develop the enterprise — can be, and, in that context, most often is, a security — because it evidences an investment contract. And regulating these transactions as securities transactions makes sense.”

Ultimately if the coin offering is successful, and the operations of the network become wholly decentralized, then the SEC will cease to regulate the entity as a security, says Hinman.

“If the network on which the token or coin is to function is sufficiently decentralized — where purchasers would no longer reasonably expect a person or group to carry out essential managerial or entrepreneurial efforts —  the assets may not represent an investment contract. Moreover, when the efforts of the third party are no longer a key factor for determining the enterprise’s success, material information asymmetries recede. As a network becomes truly decentralized, the ability to identify an issuer or promoter to make the requisite disclosures becomes difficult, and less meaningful.”

For Hinman, Bitcoin and Ethereum have both hit that tipping point. Other coin offerings haven’t.

“Promoters and other market participants need to understand whether transactions in a particular digital asset involve the sale of a security. We are happy to help promoters and their counsel work through these issues. We stand prepared to provide more formal interpretive or no-action guidance about the proper characterization of a digital asset in a proposed use,” said Hinman.

Below are a list of queries that the SEC regulator enumerated to help determine whether an offering is a security or a utility token.

  1. Is there a person or group that has sponsored or promoted the creation and sale of the digital asset, the efforts of whom play a significant role in the development and maintenance of the asset and its potential increase in value?
  2. Has this person or group retained a stake or other interest in the digital asset such that it would be motivated to expend efforts to cause an increase in value in the digital asset? Would purchasers reasonably believe such efforts will be undertaken and may result in a return on their investment in the digital asset?
  3. Has the promoter raised an amount of funds in excess of what may be needed to establish a functional network, and, if so, has it indicated how those funds may be used to support the value of the tokens or to increase the value of the enterprise? Does the promoter continue to expend funds from proceeds or operations to enhance the functionality and/or value of the system within which the tokens operate?
  4. Are purchasers “investing,” that is seeking a return? In that regard, is the instrument marketed and sold to the general public instead of to potential users of the network for a price that reasonably correlates with the market value of the good or service in the network?
  5. Does application of the Securities Act protections make sense? Is there a person or entity others are relying on that plays a key role in the profit-making of the enterprise such that disclosure of their activities and plans would be important to investors? Do informational asymmetries exist between the promoters and potential purchasers/investors in the digital asset?
  6. Do persons or entities other than the promoter exercise governance rights or meaningful influence?

And here’s another set of questions that founders and potential coin offerings should consider?

  1. Is token creation commensurate with meeting the needs of users or, rather, with feeding speculation
  2. Are independent actors setting the price or is the promoter supporting the secondary market for the asset or otherwise influencing trading?
  3. Is it clear that the primary motivation for purchasing the digital asset is for personal use or consumption, as compared to investment? Have purchasers made representations as to their consumptive, as opposed to their investment, intent? Are the tokens available in increments that correlate with a consumptive versus investment intent?
  4. Are the tokens distributed in ways to meet users’ needs? For example, can the tokens be held or transferred only in amounts that correspond to a purchaser’s expected use? Are there built-in incentives that compel using the tokens promptly on the network, such as having the tokens degrade in value over time, or can the tokens be held for extended periods for investment?
  5. Is the asset marketed and distributed to potential users or the general public?
  6. Are the assets dispersed across a diverse user base or concentrated in the hands of a few that can exert influence over the application?
  7. Is the application fully functioning or in early stages of development?


Source: Tech Crunch

Democrats introduce an election security bill that proposes paper trails and mandatory audits

As primaries ramp up in states across the U.S., concerns about election cybersecurity are mounting too. This week, a group of Democratic senators introduced a bill to mitigate some of the well-established risks that the nation’s uneven mix of voting machines and election systems poses.

The new bill, known as the Protecting American Votes and Elections Act, proposes two significant measures. First, because not all digital voting systems produce a paper trail, it would require all state and local elections to ensure that their equipment produces voter-verified paper ballots that can be cross-referenced. Second, for all federal elections regardless of outcome, state and local governments would be required to conduct audits comparing digital ballots to a random selection of paper ballots. The latter policy would cover the 22 states that currently don’t require audits following elections.

“Leaving the fate of America’s democracy up to hackable election machines is like leaving your front door open, unlocked and putting up a sign that says ‘out of town.’ It’s not a question of if bad guys get in, it’s just a question of when,” Oregon Senator Ron Wyden said in a statement accompanying the bill.

Voting integrity is one of Wyden’s pet issues and the senator has pressed for his home state of Oregon’s vote-by-mail system to be adopted nationally.

Wyden is joined by Democratic Senators Kirsten Gillibrand, Ed Markey, Jeff Merkley, Patty Murray and Elizabeth Warren on the legislation. Congressman Earl Blumenauer plans to introduce a corresponding bill in the house.

“We know that Russia hacked into American voter systems to influence our election – and we know they’ll try to do it again,” Sen. Warren said. “Our national security experts have warned us that the country’s election infrastructure is vulnerable – this bill will take important steps to help secure it.”

While the bill isn’t a bipartisan proposal — yet, anyway — these same measures are widely supported by election security experts as well as the Department of Homeland Security and a Senate Intelligence Committee report offering recommendations for securing the vote from earlier this year.

The full text of the bill is embedded below.


Source: Tech Crunch