What is OilCoin? The new US cryptocurrency explained
2018 will see a new cryptocurrency literally powered by a barrel of oil.
In 2018, a new cryptocurrency called OilCoin will launch, which aims to be a safe, regulated digital currency intrinsically linked to a barrel of crude oil.
OilCoin aims to set itself apart from other cryptocurrencies in the market by anchoring each of its coins to a physical product. In this case, one OilCoin will equal the price of one barrel of oil, bridging the digital-physical divide. By linking itself to a physical, globally-traded product, the founders of OilCoin claim their digital currency will be safer and less volatile than other options in the market.
To further back the claim of being “safest,” OilCoin’s founders have worked with regulatory bodies in the USA to ensure it’s the world’s first legally compliant cryptocurrency.
The seven-person team leading the project consists of a number of high profile individuals. It includes Jonathan Levine (former head of global technology and infrastructure for Rakuten), Michael Pahlke (global technology head for private banking wealth management at Credit Suisse), Bart Chilton (former commissioner of the US Commodity Futures Trading Commission) and Joe Cisewski (former chief of staff for the commission).
The last two are the most intriguing as their previous roles give them great insight (and contacts) within the US government’s regulatory divisions. Chilton in particular has been a vocal supporter of greater regulation in the cryptocurrency space, which has seen several clashes between cryptocurrency exchanges and more conventional finance providers.
"I think what you are seeing in OilCoin is a truly original and innovative endeavour focused on institutionalising and professionalising digital currency in a way that has never been done before," Chilton said. "The OilCoin team is fully committed to setting and adhering to new standards for design and regulatory compliance of digital currencies. Once we get going, we envision holders of OilCoin will be able to participate in ordinary consumer transactions around the world. I've been saying for a long time that in order to gain greater acceptance in everyday commerce, something like what we plan for OilCoin is needed. Digital currencies will get there and OilCoin is well positioned to be the first."
There is little doubt that Chilton and Cisewski have been key facilitators in making OilCoin the first cryptocurrency compliant with US securities and commodities laws. As a result of their work, the US government is backing the OilCoin.
What does compliant cryptocurrency mean?
Claiming to be the world’s first of anything is worth some level of scepticism, so how does OilCoin justify its claims? In the USA, to operate as a Money Service Business (MSB) and transfer or convert funds, you need to abide by key rules and laws. These include complying with Bank Secrecy Act laws, following "Know Your Customer" rules and adhering to anti-money laundering (AML) requirements.
Cryptocurrency exchanges are considered as MSBs, but the decentralised, digital nature of the traded coins means that they aren’t regulated in the same way as traditional dollars. OilCoin, from the outset, will be regulated in the traditional sense, driven by the fact its price is linked to a physical, existing, traded product in oil.
"As a commodity-backed digital currency, OilCoin will be a reliable store of value and medium of exchange," OilCoin co-founder Darius Brooks said. "As an oil-denominated currency, it will also be free from the inflationary pressures and cross-currency volatility experienced by fiat currencies. Moreover, we believe the after-tax return profile for US OilCoin holders will be superior to oil ETF's for sophisticated, commodity-focused investors. Due to its relative price stability compared to other digital currencies, OilCoin is likely to be a favoured digital currency to facilitate a wide range of global financial transactions."
One of the big benefits for OilCoin in being compliant is that it’s the first cryptocurrency that counters the biggest argument put forward by detractors in the financial and trading sectors: the lack of regulation.
"The creation of an intrinsically valuable digital currency coupled with strict compliance with US securities and commodities laws positions OilCoin to set a new standard for the structure, issuance, transparency and global use of peer-to-peer transferable tokenised value," said Daniel Eisner, a corporate attorney at DLA Piper and a member of the OilCoin leadership team. "OilCoin addresses the fundamental criticisms of cryptocurrencies by leading figures in finance, commerce and government regulation."
How will OilCoin work?
OilCoin is seeking to bring traders in cryptocurrency into the existing oil trading space. The price of OilCoin will, as closely as possible, follow that of a barrel of crude oil. If traders buy OilCoin and push its price beyond that of a barrel of oil, that money will be used to purchase more reserves of oil – pushing its price up – therefore maintaining the parity as much as possible. At a commercial level, it is expected that companies purchasing oil will use OilCoin when buying oil across borders in order to reduce the risks associated with changes in real-world dollar values.
For general consumers – in the USA at least – there will be an OilCoin debit card program. The OilCoin debit card will allow an individual to purchase any goods or services, with the transaction debited from their OilCoin reserve. This is an interesting, even pioneering, approach as it allows you to make an instant, real-world transaction with a cryptocurrency anywhere and on anything.
When will OilCoin be available and what will be the market cap?
The initial coin offering (ICO) for OilCoin is expected in January 2018. Transactions in the global oil market reach US$1.7 trillion per year. At the time of writing, a barrel of crude oil is valued at US$66.62, a high point for the year. At its lowest, it dropped down under the US$45 mark around June.
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