Ridecoin An incentivized, blockchain-based peer-to-peer transportation platform. February 2018 Abstract Ridecoin is a blockchain based peer-to-peer transportation marketplace that supports network growth through cryptocurrency rewards. Ridecoin combines concepts from the rideshare industry with the technological benefits of a blockchain. Ridecoin is one of the first cryptocurrencies to seek registration with the SEC to provide a new level of security to cryptocurrency investment through a dual token design. Ridecoin is one of the only cryptocurrencies with a primary purpose to fulfill the needs of users in physical space. Table of Contents Abstract Introduction Transaction Specialization Fair Ride Company Price Negotiation Advantages to Drivers Advantages to Passengers Advantages to Investors Ridecoin Tokens Securities Law Implications Ridecoin Incentives Rate Limiting Timeline Proof of Stake Investigation Coin Sale Terms Risks Conclusion Introduction Collectively the ridesharing market has exploded into an industry valued over $60 billion dollars 1 in less than ten years since its inception. Ridesharing has brought convenience to passengers, offering speedy pickup times through the ease of mobile applications. Conventional taxis cannot compete and are rapidly losing market share as riders prefer the access and convenience offered by rideshare companies such as Uber and Lyft. Uber and Lyft also benefit from tight government regulation on conventional taxi companies which reduce their ability to adapt, giving rideshare companies a stranglehold on the ride-for-hire market as a true disruptor. Ridecoin is the next disruptive step in the ride-for-hire industry through its use of the technological advantages of blockchain to create a peer-to-peer rideshare marketplace. Ridecoin provides a decentralized marketplace for riders and passengers to connect and transact, eliminating the reliance on a middleman to control the transaction and set prices. Today, passengers looking to book rides must connect to a centralized company who will then provide a driver and set a price for the trip. Similarly, drivers are not able to select passengers directly but must instead rely on a centralized corporation to find and assign passengers to them. Whenever a gatekeeper has the authority to set prices on a transaction, the middleman has enormous power. This is a significant inefficiency in the marketplace. Ridecoin eliminates this middleman and lets riders and drivers interact directly, and opens up price negotiation to the market participants to ensure fair rates while transferring data ownership from the middleman to users. Ridecoin eliminates one size fits all pricing by opening up the price negotiation directly to market participants. Drivers wanting to work in a particular part of town or drive towards their homes at the end of their shift might be willing to take a slightly lower fare. Riders who need to get somewhere as fast as possible might be willing to pay more to get picked up faster. Ridecoin allows each market participant to set the price that makes the most sense for them and negotiate where necessary. Additionally, Ridecoin gives ownership of data to its users. Current rideshare companies own and control all user data. This centralized control of data is vulnerable to hack and often monetized against the wishes of users. Ridecoin flips this model around by using the blockchain to give ownership and control of all data to end users. Ridecoin provides the following services to its community of users: 1 Rideshareapps, January 2017 https://rideshareapps.com/2015-rideshare-infographic/ 1. An open and fair rideshare marketplace with no middleman fee. 2. End user ownership and control of private data. 3. Jobs providing rideshare services. 4. Direct control of one’s employment for the above jobs. 5. Distributed ownership of a rideshare marketplace. Ridecoin’s design includes economic incentives for all of its necessary participants. These incentives will help to drive growth and allow Ridecoin to scale rapidly in local markets and new transportation verticals. These economic incentives will be controlled by the owners of the network who will have voting rights and the ability to modify/distribute the incentives as necessary to achieve scaling objectives. Transaction Specialization Rideshare is the first killer app for Ridecoin, but the Ridecoin blockchain is designed to eventually host other transportation companies. Built-in incentives create upside for transportation companies to leverage the Ridecoin infrastructure for their users. The emphasis of this whitepaper is on rideshare because it is the first killer app, but the Ridecoin blockchain is designed to accommodate all transportation services. Transportation transactions share common characteristics and building blocks. Four types of users with unique requirements are involved in any transportation business: vehicle owners, drivers, passengers (cargo), and service professionals. Transportation transactions also require physical location data to be included in addition to time data. The Ridecoin blockchain is architected to support these common characteristics making it the only blockchain designed specifically for the transportation industry. By catering to a specific type of transaction, the design of Ridecoin is able to protect stakeholder interests through strict rules for participation and data sharing. While these rules are strict, they are designed to be flexible enough to support multiple types of transportation services. Each of Ridecoin’s four user groups will have a unique metadata profile. When users join the Ridecoin network they will be identified and registered into their appropriate cohort(s), and their metadata profile will be created to conform to requirements specific to those groups. With attention to the unique requirements of transportation transactions, Ridecoin allows myriad types of services to be performed on its network. Conventional ridesharing, long-haul ridesharing, cargo transport, auto repair, car drop-off, public transportation and more rely on combinations of these four groups of users. As a result, each of those services can potentially be built onto the Ridecoin infrastructure, representing over $4 trillion annually. 2 2 Plunkett Research, Jan 2018 https://www.plunkettresearch.com/statistics/Industry-Statistics-Transportation-Industry-Statistics-and-Market-Size-Overview/ Transportation related transactions occur in physical space and have more requirements than conventional blockchain transactions. To enable these services the participation of trusted third parties is necessary. Corporations will build services for end users of the Ridecoin blockchain, 3 enabling users to receive the benefits of blockchain technology without sacrificing physical security or acting outside of the bounds of local regulation. To illustrate the necessity of corporate facilitators, consider a driver’s background check in a rideshare application. Customers of rideshare services trust that they can hop in the car of a stranger because that driver has been properly vetted. Whether or not rideshare happens on a blockchain or centralized architecture, users will desire security and will want to ensure the driver’s background check has been performed. A trusted third party can perform this check and authenticate the driver. The background check is just one example of a third party requirement which is a natural result of a blockchain working in physical space. Any other blockchain application that seeks to integrate the digital layer of the blockchain with physical limitations and requirements will have to solve this problem. Winding Tree is a blockchain service provider for the travel/hospitality 4 industry, and a case study of the difficulties of integrating blockchain into business models operating in physical space. Decentralized applications like Ridecoin necessarily go through two phases of product market fit: 1) creating the decentralized platform itself, including necessary incentives, and 2) building and deploying the application(s) necessary for end user adoption . The Ridecoin project will 5 achieve both of these goals through one corporate entity. For Ridecoin, the responsibilities of building the blockchain and providing the initial user facing services are shared by one entity, the Fair Ride Company. However, once the Ridecoin blockchain has been created, any company will be able to develop and release transportation applications that function on the Ridecoin blockchain utilizing the Ridecoin tokens. Fair Ride Fair Ride is a United States corporation founded to build the Ridecoin blockchain and then facilitate peer-to-peer rideshare transactions on it. The necessity of having an entity create the Ridecoin blockchain is self-evident, but to understand why it is necessary to have corporate facilitation of rideshare transactions it is necessary to go through some of the “hidden” components of those transactions. 3 Ridesharing on the Blockchain, hrishioa, Jan 2016 http://hrishioa.github.io/ethereum-and-uber-building-a-decentralized-ride-sharing-platform-on-the-blockchain/ 4 Winding Tree, Blockchain Company https://windingtree.com/ 5 Why Decentralization Matters, Chris Dixon, Feb 2018 https://medium.com/@cdixon/why-decentralization-matters-5e3f79f7638e As an example of hidden components, consider the following data provided by Ride Austin, a local rideshare company in Austin Texas. For any individual trip on their network, Ride Austin lists all of the following as itemized fees: ● Adjustments/refunds ● City fees ● Airport fees ● Collection and dispute resolution fees ● Mileage insurance ● Payment processing fees ● Call masking fees ● Map API calls 6 Additionally, creating and maintaining a mobile application that allows riders and drivers to find each other quickly and easily is another requirement, along with the background check example described previously. All of the above requirements necessitate trusted facilitators to ensure that the Ridecoin blockchain can operate effectively in physical space. Fair Ride will operate to meet the needs stated above, but the Ridecoin blockchain itself will manage and store user account information and all transactions. This setup will ensure that passengers and drivers will have full control of their data and transactions, while Fair Ride will only facilitate transactions. Additionally, this design ensures that Ridecoin users will easily be able to maneuver across multiple service providers on the Ridecoin ecosystem. By storing user account information on the platform layer, Ridecoin ensures that no individual company will ever be able to own and control user access or data. This architecture greatly diminishes the risk of corporate rent-seeking behavior. 7 To illustrate this distinction, consider going into a 7-11 to purchase a snack with a credit card. The consumer can walk through the store freely and choose the desired snack, and the store independently sets the price for it. At checkout, the credit card provider facilitates the transaction without having any input into the price of the snack or the purchaser’s selection. In the same way Fair Ride will only be able to behave as a transaction facilitator, relinquishing control of transactions to the blockchain and its users. To build and operate a peer-to-peer rideshare application, Fair Ride will charge a facilitator fee on all transactions. This fee will cover all of the expenses listed above which are borne by rideshare providers. However, Fair Ride will not apply any additional take to the transaction. Fair 6 Austin Startups, Andy Tryba, February 2017 https://austinstartups.com/top-5-things-we-learned-from-our-first-million-rideaustin-rideshare-trips-1fe9f77cea63 7 Rent-Seeking, Investopedia, February 2018 https://www.investopedia.com/terms/r/rentseeking.asp Ride pledges to not operate its rideshare services at a profit, instead benefitting principally from the appreciation of value of its token holdings. This structure aligns the incentives between users and service provider for maximum long-term benefit. Because Fair Ride benefits from growth of the Ridecoin network, it will design and release open-source algorithms and software that make it easy for local groups to create their own rideshare network under the Fair Ride umbrella. By not extracting any money from a transaction beyond what is required to perform it, the users will see the lowest possible costs. Price Negotiation One key difference between Ridecoin and traditional rideshare offerings is that riders and passengers are able to negotiate directly and set their own prices, and payments from passengers are made directly to drivers. Additionally, the entity providing services to add usability to the network does not own the network itself and does not profit on the transaction. Price negotiation will lead to lower overall prices through an increase in flexibility. Under specific circumstances both riders and drivers are willing to accept lower or higher fares. For example, a driver wanting to head towards his home at the end of a shift would be willing to accept a lower fee. Further, rideshare drivers are often frustrated by long wait times . This frustration compounds 8 when, after waiting fifteen minutes, a ride finally comes that only goes two blocks. Drivers would be willing to accept lower prices on longer rides that ensure that more of their hours spent working are profitable. In the same vein as the above examples are numerous other cases where riders and/or passengers would be willing to modify their preferred price for specific reasons. Typical rideshare services are not able to offer a level of price flexibility to satisfy their users because it would require direct negotiation. Ridecoin is designed to eliminate this market inefficiency and dramatically enhance price flexibility for its participants. Price negotiation is not, however, a requirement to participate with Ridecoin. Passengers and drivers will be able to post desired prices and wait for a taker or they can choose to book the best available price. This is the traditional “market order or limit order ” seen in conventional 9 exchanges. Indeed, it is expected that the majority of Ridecoin users will prefer the ease of market rate transactions over manual negotiations. 8 Business Times, Kenneth Lim, October 2017 http://www.businesstimes.com.sg/transport/uber-to-penalise-riders-who-keep-drivers-waiting 9 Investopedia, March 2017 https://www.investopedia.com/ask/answers/100314/whats-difference-between-market-order-and-limit-order.asp The price for any given ride will be expressed as a function of distance and time. This is to take into account the effect of traffic and is the conventional pricing model used by most taxis and rideshare companies . In practice, a base rate will be established in local markets which will 10 increase ease of use. This base rate will be established by the historical price data established in any particular market. Advantages to Drivers Ridecoin offers numerous advantages to drivers compared to conventional ridesharing networks. Drivers are typically hired as independent contractors while being treated like employees, giving in essence a “worst of both worlds” scenario. As independent contractors, drivers are not given any benefits while being required to pay all gas, maintenance, and depreciation on their vehicles. On top of that drivers are often required to pay self-employment taxes due to their independent contractor status . 11 At the same time, drivers are treated as employees due to the fact that they have no choice over which passengers to pick up. Once drivers “clock in” by turning on their application, they are beholden to the owner of the network and must pick up any passenger who is sent to them. While drivers can technically refuse a pickup, this is heavily penalized in the compensation structure . Before a ride begins drivers do not know where the destination is, removing flexibility 12 from their schedules. In addition, drivers are encouraged to stay with one company and work hours consistent with a full-time employee through bonus offerings. Drivers are required to work a set number of hours to achieve their bonus, and this bonus requires a certain number of hours to be driven at specific times of day, such as rush hour . This incentive structure is designed to get drivers to 13 behave like employees despite their independent contractor status. The top rideshare networks reap the benefits of having employees without providing the typically required benefits as the employees are classed as independent contractors. There have been numerous lawsuits filed on behalf of rideshare drivers over this classification . 14 Ridecoin will continue classifying drivers as independent contractors, but those drivers will have actual independence. Drivers will have the ability to negotiate their own prices, choose the rides they want to take, and work the hours that they choose. Drivers will not have to work a specific 10 Business Insider, Sara Silverstein, October 2014 http://www.businessinsider.com/uber-vs-taxi-pricing-by-city-2014-10 11 Intuit, Jan 2017 https://turbotax.intuit.com/tax-tips/self-employment-taxes/tax-tips-for-uber-lyft-sidecar-and-other-car-sharing-drivers/L3IulMEzp 12 Mashable, Karissa Bell, August 2017 http://mashable.com/2017/08/22/uber-drivers-ride-flexibility/#.9O7Ecl6BPq7 13 Lyft, November 2017 https://help.lyft.com/hc/en-us/articles/214586477-Power-Driver-Bonus#peakrides 14 The Verge, Rich McCormick, April 2016 https://www.theverge.com/2016/4/21/11485424/uber-suit-california-Massachusetts-drivers-employee-contractor number of hours to clear a bonus as they will be able to work as many hours or as few as they desire without affecting their compensation rate. Using the Ridecoin network, drivers will be able to use their local knowledge to their advantage without having to worry about contradictions coming from their employer. For example, a driver can wait in a sports arena parking lot if he knows a game is about to let out, without having to worry about his employer app demanding he take a ride a few miles away, neglecting the reality of parking lot traffic. While all of the above advantages are significant, the removal of the middleman and its margin is the biggest perk for drivers. Drivers are working hard to make a living, and being able to put more money in their pocket at the end of the week is a clear competitive advantage. Their only requirement is that passengers be on the network as well. Advantages to Passengers Like drivers, passengers benefit first and foremost by the removal of the middleman and the subsequent margin. Rideshare passengers are very price sensitive and Ridecoin offers a more 15 competitive price. Price flexibility, the removal of the middleman’s profit, and technological improvements of blockchain technology all contribute to a lower price for passengers. To expand on this point, one aspect of Ridecoin that benefits passengers is that flexible drivers will sometimes prefer a lower priced ride. For example, a driver may prefer a shorter local trip than a more expensive fare that requires a trip outside of town. Another example is a passenger who is willing to wait a bit to find a ride will generally have a lower fare. Flexibility added to the system for riders and passengers creates the opportunity for price advantages. Next, a robust and flexible incentive structure will attract and retain passengers. Most end users of conventional ridesharing services remember fondly their first free rides . Ridecoin will 16 similarly offer signup bonuses for new users. Additionally, Ridecoin has the flexibility to provide economic rewards for long-term users of the network. Ridecoin’s flexible incentives are another effective advantage for passengers and are further detailed below. A flexible peer-to-peer platform design allows for significant additional user control and customization. Rideshare passengers will be able to choose drivers who meet specific criteria, such as child seats, disability access, storage capacity, etc. Additionally, riders and drivers can establish repeat service relationships such as a regular ride to work or a scheduled ride to the airport. 15 Freakonomics, Stephen Dubner, September 2016 http://freakonomics.com/podcast/uber-economists-dream/ 16 Uber, November 2017 https://www.uber.com/promo/ Finally, the cryptographic underpinnings of the blockchain can provide unmatched data security for all users. Current centralized rideshare models store data in singular repositories which are vulnerable to data breach. While this weakness affects many industries, rideshare giant Uber specifically has been the victim of a data breach and alleged perpetrator of a coverup . 17 Blockchain technology allows end users to own, store, control, and potentially even sell their own data while proving its legitimacy through cryptographic signatures. Specific data can be compressed into a hash using a private key held only by an individual user. This user can subsequently generate the same hash and therefore prove that they own the data and that it has not been changed without revealing the data itself. This verification process can work with 18 the cooperation and oversight of Fair Ride and other trusted third parties. Advantages to Investors Investors are holders of the underlying token, Ridecoin certificates. Ridecoin certificates will be an SEC registered security offered under the rules and guidance of the United States Securities and Exchange Commission. As holders of an SEC regulated security, certificate owners will have the protections of the US government meaning the ownership stake cannot be lost or stolen. Through an initial distribution via a public offering, this ownership will be widely distributed and less susceptible to the influence of a few large shareholders such as venture capital firms. Additionally, certificate owners are insulated from the impact of individual “bad actors” of controlling corporations. With decentralized token ownership, there are no Ridecoin executives who can cause scandals which push down the value of the underlying security. In Uber’s case there have been numerous lawsuits over sexual misconduct which had a direct impact on the share value . 19 Certificate owners will also benefit from voting rights which will be exercised to guide the network. Certificate holders will be granted voting rights commensurate with their ownership share which may be executed once per quarter. These votes will guide the network by controlling token inflation rate which will influence the capacity of the network to scale, and by determining where to allocate the newly minted tokens to achieve network goals. Finally, certificate holders will benefit directly from dividends paid in ridecoin tokens. These dividends will be disbursed weekly and will be used to promote the network, increase ownership share, or sell for a windfall. Regular dividends will provide an immediate financial return to users who are willing to commit their capital to the long term growth of the network. 17 NY Times, Mike Isaac, Katie Benner, and Sheera Frenkel, Nov 2017 https://www.nytimes.com/2017/11/21/technology/uber-hack.html 18 Wikipedia, Zero Knowledge Proof https://en.wikipedia.org/wiki/Zero-knowledge_proof 19 Fortune, Jen Wieczner, August 2017 http://fortune.com/2017/08/01/uber-stock-ceo-kalanick/ Ridecoin Tokens The Ridecoin network will utilize two separate and distinct tokens to provide services to its members. The Ridecoin utility token (ridecoin) will be used in all day to day transactions and is not designed to be an investment vehicle. The Ridecoin security token (Ridecoin certificates) is an investment token registered with the SEC which will pay dividends and be used to allocate voting rights. Ridecoin certificates will be created and distributed according to funds raised during the initial coin offering. The genesis block of the blockchain will include the creation and distribution of the certificates to all initial backers. These certificates will provide voting rights for their holders and will automatically earn distributions of ridecoin once per week. The network utility token, ridecoin, will be used in transactions between riders and drivers to post transactions to the blockchain. This token will be subject to significant and regular inflation due to the system’s built-in incentives which require the regular creation of substantial quantities of ridecoin. As a result, this token is not intended as a long term investment and is therefore not a security. To determine whether or not something is a security the SEC and the Canadian Securities Administrators (CSA) use the following guidelines: 1. An investment of money 2. In a common enterprise 3. With the expectation of profit 4. That comes significantly from the efforts of others 20 Analyzing the Ridecoin network and tokens using the above framework leads to the conclusion that Ridecoin certificates are securities but ridecoin are not. The key difference is in guideline #3: ridecoin cannot be purchased with the expectation of profit due to their inflationary nature. With substantial new ridecoin minted every quarter there is no expectation of profit for holders. The regular and significant generation of new ridecoin tokens creates a level of inflation that prevents long term profitability. In the short term it is possible that some event creates a market shock which causes the price of ridecoin utility tokens to increase. This would occur under circumstances that cause the value of the overall Ridecoin network to increase quickly. Despite this possibility, ridecoin tokens still never have long term investment potential. The ridecoin inflation rate will be linked directly to the overall size of the platform. This ensures that if 20 Medium, Howard Marks, September 2017 https://howardmarks.com/breaking-down-a-top-ico-tezos-f1b013fb6719 a short term shock causes the value of ridecoin to increase, the subsequent quarterly token creation event will produce substantially more tokens. This strategy of scaling inflation that is proportional to the platform’s size guarantees that investors who buy Ridecoin certificates will always utperform investors who buy ridecoin utility tokens. This design is in place to ensure that ridecoin tokens pass the Howey test and are not classified as a security . 21 Ridecoins are required for every transaction posted to the blockchain, however it is important to consider their overall usability. End users will often want to use the Ridecoin marketplace simply because it is the cheapest and best rideshare option available. These users do not necessarily care about making a long term investment in the system, they just want to take a ride and use their normal, preferred currency. To ensure that high usability is met, Fair Ride pledges to ensure that end user interfaces will primarily rely on the local market currency rather than ridecoin. Ridecoins will remain a behind-the-scenes requirement and currency conversion will occur automatically to ensure that end users can pay using the currency they prefer. Whether ridecoin are each worth $1 or $100, users will be able to see the cost of the ride expressed in dollars (or their local currency). As a result, users are insulated from short-term token volatility and can reap the benefits of the blockchain marketplace without any knowledge of the underlying technology which creates those benefits. A currency conversion will take place at the time of purchase through a participating exchange. While the SEC protects investors who own securities via its rules and regulations, these regulations can also present hurdles to crypto projects. For example, one requirement for SEC registered securities is that they are predominantly bought and sold through registered transfer agents . These transfer agents follow KYC and AML laws to protect investors, but also present 22 a potential liquidity crisis should the security token be a requirement in a transaction. To achieve the market liquidity required to run transactions on a blockchain it is necessary to have a utility token, ie. not a security token, which can be freely traded and therefore highly liquid. Ridecoin is the first cryptocurrency project to protect investors by registering a security token while maintaining liquidity through a separate utility token. Understanding that ridecoin will have significant, regular inflation to be classified as a utility token, there is a risk of the value of the token approaching $0 over time. To combat this, ridecoin will be convertible to certificates at a dynamic rate. When this conversion is performed 21 Medium, BitTrust, March 2017 https://medium.com/bittrust/passing-the-howey-test-how-to-regulate-blockchain-tokens-d218da93a8b6 22 SEC Transfer Agents https://www.sec.gov/divisions/marketreg/mrtransfer.shtml ridecoin will be destroyed and new certificates will be created, helping to provide some price stability. This one-way conversion will create a floor price for ridecoin via arbitrage trade. The conversion rate will be determined in relation to the inflation rate and both will be dynamically changed over time. The design goal of token conversion is to create a floor price, but steep conversion rates will ensure that certificates will hold their value over time. Securities Law Implications USA securities law exists primarily to protect investors. Since its inception over 80 years ago, the Securities and Exchange Commission (SEC) has consistently monitored new types of investment contracts to minimize the occurrence of fraudulent offerings. Securities laws protect buyers in two principle manners: requiring financial disclosures from the issuer and tracking ownership. Requiring disclosures ensures that the issuer is not presenting any falsehoods. All representations to potential investors are screened for accuracy to ensure that potential buyers are not mislead. This level of scrutiny would protect potential investors from numerous examples of fraudulent ICO projects . 23 Tracking ownership protects the buyers in other ways. First, when the SEC knows a security’s rightful owner it can ensure that no one else can sell it. This is in stark contrast to the current crypto markets where hackers routinely steal funds and are fully able to transfer their ill-gotten gains . Tracking proper ownership decreases incentive for token theft. Additionally, lost or 2425 stolen securities can generally be replaced by contacting the SEC . 26 However, SEC regulations are not principally designed for distributed systems and there are numerous potential consequences which must be considered during design. Most blockchain projects have no built-in mechanisms to track owners, and certainly no way for holders to recover lost tokens. If a bitcoin holder loses access to their private key due to hardware failure or loss of password, those tokens are lost forever . Any SEC complaint token sale will need to 27 allow owners to recover lost tokens. Additionally, the above requirements create strict rules for the transfer of securities, which in most cases must be performed by a transfer agent or registered broker-dealer. These agents 23 Coindesk, Wolfie Zhao, February 2018 https://www.coindesk.com/600-fraud-fake-ico-white-papers-draw-scrutiny-in-china/ 24 Coindesk, Stan Higgins, August 2016 https://www.coindesk.com/bitfinex-bitcoin-hack-know-dont-know/ 25 The Guardian, Maev Kennedy, January 2018 https://www.theguardian.com/uk-news/2018/jan/28/cryptocurrency-trader-forced-at-gunpoint-to-make-bitcoin-transfer 26 Stock Certificates, Lost, Stolen, SEC, Febrary 2018 https://www.sec.gov/fast-answers/answerslostcerthtm.html 27 CNBC, Shawn M. Carter, December 2017 https://www.cnbc.com/2017/12/20/man-lost-127-million-worth-of-bitcoins-and-city-wont-let-him-look.html follow KYC and AML laws and create more of a barrier than contemporary crypto exchange platforms. Again, any SEC compliant token offering will need to create a mechanism for cooperating with broker-dealers while understanding the potential reduction of token liquidity. Typically, securities are held by brokerages on behalf of buyers. The original buyer does not take physical possession of the security and is considered the “beneficial owner ” meaning the 28 equity and rights belong to the buyer while the legal title is assigned to the broker. This relationship can be mirrored in Ridecoin through the use of multisignature and requirements for participation by a transfer agent or broker-dealer. Finally, financial disclosures for distributed protocols is a legal area with no precedent. Traditionally, the issuer of a security is the only entity with the capability to affect the price of the offered security. For example, when the ABC corporation sells stock to put funds into the company’s coffers, buyers are predicting that the stock will go up. The stock will only ncrease in value based on the successful efforts of the ABC company. Distributed projects do not always operate in this manner. Fair Ride is creating the Ridecoin blockchain, but is building it in a manner that invites other developers to participate. Unlike traditional securities, holders of Ridecoin certificates can see the token value increase due to the participation of any number of companies who build on the Ridecoin blockchain. It is theoretically possible that Uber decides to migrate their services to the Ridecoin blockchain, which could harm the long-term viability of Fair Ride’s service. Still, this result would be good for certificate holders as the distributed protocol would be successful. Given the above clarification, identifying disclosure requirements for a distributed protocol is an area of law with no established best practice. Nevertheless, the Ridecoin blockchain has been designed in a good faith effort to adhere to the spirit of the law, protecting investors without sacrificing the decentralized benefits of a blockchain driven, distributed system. Fair Ride’s incentive structure is designed as a good faith effort to adhere to disclosure requirements. Because Fair Ride is the issuer of a regulated security, it follows that Fair Ride would follow strict disclosure rules. Still, these disclosures ought to give investors insight into the financial health of the distributed protocol, not just the financial health of Fair Ride. This is achieved by tying the success of Fair Ride entirely to the issued security. Fair Ride will operate as a fully transparent company which extracts no profit from the transactions it facilitates. Instead, all of the potential profits for Fair Ride are derived from its initial grant of certificates and the corresponding dividends of ridecoin. Besides ensuring a lower priced rideshare transaction, this compensation structure guarantees that any financial disclosures of Fair Ride will be intrinsically linked to the success of the Ridecoin protocol. 28 Wikipedia, February 2018 https://en.wikipedia.org/wiki/Beneficial_owner Ridecoin Incentives Three stakeholder groups will receive participation incentives through the creation and distribution of ridecoin: end users (riders and drivers), investors, and transportation companies. Once per quarter, ridecoin will be created and distributed according to a vote by certificate holders. These ridecoin are financial incentives for participation across the Ridecoin network. Certificate holders will receive some ridecoin as an incentive to participate. Investors are contributing to the overall ecosystem by locking up capital as a long term investment, helping it to grow in value. Providing a built-in incentive for this behavior will encourage investor support. Regular dividends, paid in ridecoin, are the ideal incentive for long term investors. Transportation companies, such as Fair Ride, who build and deploy applications on the Ridecoin blockchain can petition for grants of ridecoin. The overall success of the Ridecoin network depends on transportation companies who build and administer user facing services. Fair Ride is the first such transportation company, however Fair Ride is not the owner of Ridecoin nor the only company with the capability to build on the Ridecoin blockchain or petition certificate holders. Any transportation company who can offer valuable services to the Ridecoin network can petition for grants of ridecoin tokens. Every quarter, ridecoin will be created which are controlled by certificate holders. Certificate holders do not directly own these tokens but they control how the tokens will be distributed. This process is managed through a vote on token assignment. During a voting event, certificate holders will review and analyze petitions submitted by eligible transportation companies. These petitions detail what the would-be recipients intend to do with granted ridecoin. For example, Fair Ride intends to regularly petition for ridecoin grants to pass along to new users, thereby subsidising user acquisition costs. Certificate holders have final authority to approve, reject, or modify petitions to assign the newly minted ridecoin tokens to the transportation company(s) with the best use cases. Certificate holders cannot, however, simply award the newly minted tokens to themselves. The ability to petition certificate holders for token subsidies is a huge incentive for transportation companies to build on the Ridecoin blockchain. These incentives are designed to offer a clear, financial windfall for companies that take the time to create new services, thereby increasing the overall value of Ridecoin. The petition system is designed with flexibility to allow for certificate holders to appropriately weigh the value propositions by different transportation companies and choose to support the most valuable proposals. End users receive token incentives through transportation company intermediaries. As part of any petition for ridecoin, transportation companies must specify exactly how they will use the granted tokens. Understanding that the purpose of these token grants is to grow the Ridecoin network, certificate holders will naturally prioritize petitions that commit to passing ridecoin tokens to new users who join the network. Allowing transportation companies to craft and submit individualized proposals ensures that the token rewards for end users will be flexible. As a rideshare application, Fair Ride will use token grants as incentives for new riders and drivers to join the network. For a more established application, a transportation company would be able to petition for tokens to award as loyalty bonuses for their top users. This subjective design of end user token rewards maximizes flexibility, allowing the Ridecoin blockchain to support a wide range of transportation services. Transportation companies will not be constrained to specific use cases for token grants, instead they are able to petition for the best overall use for their platform. At the same time, if a petitioned use case does not seem to provide overall value, certificate holders can decline that petition and award the tokens to another project with a more valuable proposed use. The quarterly inflation event will be known in advance. Certificate holders as well as transportation companies will know in advance how many ridecoin will be generated and pooled for incentives. This allows companies to petition for a specific amount of ridecoin and provide financial estimates for the value of those tokens. For example, if Fair Ride wishes to expand to a new market it will be able to predict a number of users to target in that new market, and petition the certificate holders for exactly this amount of tokens. Rate Limiting The inclusion of economic incentives for new users has an added benefit of removing the necessity of transaction fees from blockchain transactions. Transaction fees are not a technical requirement of blockchain platforms. Transaction fees are often included because they are a defense against the attack vector of bloating the blockchain with spam transactions. Blockchain systems always have some limitation in terms of bandwidth. Regardless of the size of the platform there will always exist a number of transactions which will overload the network if they are executed in a relatively small time window. A malicious actor could write a script to execute such a large number of transactions to take up all of the network’s bandwidth and render the overall blockchain unable to perform its core function . 29 Transaction fees are the primary way these spam transactions are blocked. If the malicious actor suddenly has to pay a fee for all of their spam transactions then the attack simply becomes too expensive to execute. However, transaction fees also add friction for everyday users who suddenly incur added costs for their expected behaviors. Fortunately, transaction fees are not the only way to prevent this type of attack. 29 Bitcoin Wiki, November 2017 https://en.bitcoin.it/wiki/Transaction_fees Rate limiting is another strategy which has been proven to deter spam transaction attacks on blockchain systems. Rate limiting requires users to possess a small amount of token in their wallets before the transaction takes place in order to complete it. Rate limiting is a dynamic scheme to allow users to make a certain number of transactions based on their balance, adding costs to attackers while not affecting normal use of the system. Having a positive balance before a transaction occurs can add friction to acquiring new users, but Ridecoin’s incentive system counteracts this. Ridecoin’s design allows transportation companies to petition for ridecoin grants to distribute to new users. This structure ensures that new users will have a starting balance, and therefore will not feel effects of rate limiting. The Steem network is a great example of a rate limiting system working within a blockchain community. Steem is a blockchain social network, where users post new content and up/down vote the submissions of other users. Each action on the network is considered a transaction, so transaction fees would be particularly disastrous for a social network with thousands of transactions per minute. Steem uses rate limiting successfully and is a best in class example for Ridecoin . 30 Timeline August 2017 - Ridecoin Born Executing on an idea as substantial as Ridecoin requires a team of experts across multiple fields. Engineers, economists, attorneys and marketers are all required to solve key problems and build the platform. Ridecoin’s core team was established in August 2017 who worked together to plan the project and develop this whitepaper. November 2017 - Public Presentation Ridecoin was unveiled to the public at the ICO 2.0 Summit, a forum for the discussion of SEC guidance for ICO projects. Ridecoin then presented to angel investors in Los Angeles. Through these presentations feedback was received and incorporated to refine the product and vision. April 2018 - Seed Funding Round In April there will be a funding round to raise capital to complete the project’s preliminary objectives. This seed funding round will be capped at $1.745 million. Investment will be used to register Ridecoin Certificates with the SEC as a security, enabling Ridecoin to be one of the first blockchain projects to register with the SEC. Individuals who fund Ridecoin at this stage will receive certificates when the blockchain is created at a rate higher than during the public ICO. 30 Steem Whitepaper, Steem, August 2017 https://steem.io/SteemWhitePaper.pdf Additionally, some of the funds will be used to perform technical evaluations of various smart contract platforms to determine which system is best for Ridecoin. Over the past two years multiple new platforms have been established with varying advantages and weaknesses. The Ridecoin team will need to evaluate the strengths of these platforms to determine the optimal selection. Some have platform funds which can be tapped for additional funding . 31 Trust and reputation systems are a core component of rideshare systems that will need to be incorporated. However, at this point there has been no determination about whether or not the reputation system should be built into the blockchain layer or the service layer. This investigatory period will include a deep dive into the potential risks and benefits of the two options. Voting and chain governance is another problem to be solved in this period. While this paper defines the requirements of the governance system, it will be necessary to establish a defined strategy, including inflation schedule, before creating the platform. The Fair Ride team will look at successful implementations of chain governance in other projects to inform the Ridecoin solution. Fair Ride will also use this time period to build a detailed financial model for its ridesharing application. Selecting initial markets, collecting user data from existing rideshare services, and modeling potential costs and usage totals will help investors understand the timeline for Ridecoin’s initial growth through Fair Ride. More details of how the ridesharing application will function will also be specced out and provided to potential investors. Finally, some of the funds raised will be used to establish a marketing strategy. Once a smart contract platform has been selected, the marketing team will focus on mobilizing that platform’s users as brand advocates. Additionally, Ridecoin will use online and mobile advertising on cryptocurrency websites as well as social forum participation to drive awareness of the upcoming ICO. Q4 2018 - Public Initial Coin Offering Once Ridecoin certificates have received approval from the SEC, the team will create the Ridecoin blockchain. The genesis block will create certificates and distribute them to all funders according to their individual contributions. Initially no ridecoin tokens will be created. Once the blockchain has been created, remaining funds will be used to create user interfaces and contract with necessary third party stakeholders. The Fair Ride team will be hard at work to create a secondary layer for users to interact easily with the blockchain, so that the barrier to entry is reduced as much as possible. 31 Business Insider, Oscar Williams-Grut, August 2017 http://www.businessinsider.com/tezos-launching-vc-fund-investing-stocks-bonds-ico-2017-8 Meanwhile, certificate holders will use this time for initial voting to determine necessary partnerships and markets. As the amount of capital available to distribute as new user incentives will be limited, it is necessary to pick and choose carefully the starting markets targeted by the Ridecoin network. Some third party petitions will need to be approved to help the network grow. Q4 2018 - Ridecoin Blockchain Created (Genesis Block) Proof of Stake Investigation To date, proof of stake projects have relied on a financial stake in the project when choosing the users who will sign blocks. This makes sense for digital projects as a financial stake in the project is the best indicator of a long-term desire for the platform to succeed, combined with the high cost of impersonation. However, because Ridecoin operates in physical space there are other possibilities. During the tech investigation outlined above, the Ridecoin team will investigate a proof of stake protocol that incorporates network participation in physical space. For example, drivers who have logged many hours into the system may not hold a lot of the security token, but their livelihood still would depend on the continued existence and success of Ridecoin. As a result, they could be excellent candidates to sign blocks. Coin Sale Terms Ridecoin will be financed by two funding rounds as described above, first by a private seed funding round and later by a public initial coin offering. As the seed round occurs before the technical investigation, marketing execution, and SEC registration, it carries significant additional risks. Accordingly, it will offer a higher rate of token distribution than the public ICO. During the public ICO each dollar or dollar equivalent value will be worth 10 Ridecoin certificates. During the seed round this number will be 35 certificates per dollar. The seed round will be capped at $1.745 million and the public ICO will be capped at $50 million. Upon creation of the Ridecoin blockchain, 20% of the total certificate supply will be awarded to Fair Ride. This grant of certificates allows Fair Ride to operate its ridesharing services without profit and open-source. It is assumed that all other companies who will eventually build on Ridecoin will be for-profit enterprises. As a result, Fair Ride is the only transportation company who will be granted certificates. Risks With any new blockchain platform there are significant risks that impact the potential profitability of the underlying token. There are currently very few distributed platform projects that have registered with the SEC. This is a very new area of law and the systems described above are not guaranteed to work with future SEC rules. While SEC representatives have been consulted, it is presently unclear how the regulation process will play out. The Ridecoin design includes two tokens, one a security and one utility. This compounds the above risk as it requires the SEC to have a firm understanding and even definition of these types of tokens in blockchain systems, despite the fact that no one has built anything like this before. Being a trailblazer always involves risk. All signs point to the ridesharing industry eventually being disrupted by autonomous vehicles. Uber has invested in companies specifically created to develop self-driving cars and existing 32 auto manufacturers are also heavily interested in having their own autonomous fleet when vehicles are road ready . 33 It is impossible to know when autonomous vehicles will be designed, built, tested and will have overcome regulatory hurdles. This represents a risk to Fair Ride as the planned network will need time to grow with human drivers to achieve a network effect. Once a network has been established the Ridecoin blockchain will be able to convert to serving autonomous or human piloted vehicles. Indeed, Fair Ride’s business model of facilitating transactions without a middleman fee is just as disrupted for autonomous vehicle networks as it is for ridesharing. Whether autonomous vehicles are owned by individuals, or owned in fleets by large companies, Ridecoin is built to allow a frictionless transaction between any transportation service provider and end users. Additionally, there are several other competitors who are seeking to unite blockchain technology and ridesharing. Arcade City , Chasyr , and Fairride.io have all announced varying degrees 34 35 36 of effort in this space. Fair Ride is excited and challenged by these competitors and is confident it will come out on top, but competition risks are real and should be weighed by any potential investors. Conclusion Ridecoin is an experiment designed to bring the technological advantages of blockchain technology to the transportation economy. Ridecoin has been designed to include economic incentives to drive the participation of the necessary stakeholders promoting organic, sustained 32 Ridester, Ridester Team, October 2017 https://www.ridester.com/automated-cars-rideshare-industry/ 33 Autotrader, Michelle Krebs, June 2016 https://www.autotrader.com/car-shopping/autonomous-cars-with-ridesharing-key-to-gms-vision-for-future-mobility-254768 34 Arcade City https://arcade.city/ 35 Chasyr https://www.chasyr.com/ 36 Fairride.io https://www.fairride.io/ growth. With its use cases tied to physical space, Ridecoin seeks to become the first cryptocurrency with both a security registered with the SEC and a utility token, granting additional rights and protections to its owner investors while preserving market liquidity. Ridecoin removes the middleman fee from rideshare transactions to deliver the cheapest possible rideshare network to users who own and control their data.