The Blockchain Coin Center support group continues to believe that some cryptocurrencies resemble securities by law, and should be regulated as such.
Peter Van Valkenburgh, director of research for the organization, published a new report on Friday claiming that certain cryptocurrencies follow the often cited Howey Test and acts as an investment contract. As such, he wrote, they should be treated as titles. The report updates a 2016 version, which outlined a possible framework for regulators to determine whether a certain cryptocurrency should be a security according to Howey's test.
The framework examines three variables that Valkenburgh considers important to determine if a cryptocurrency is a security: "distribution, decentralization and functionality". In particular, he says, how a token is initially distributed, how decentralized its underlying network is and what powers or token holders need to determine if it is a security.
"We find that larger, more decentralized cryptocurrencies – eg bitcoins – cryptocurrency pegged – sidechains – as well as distributed computing platforms – eg ethereum – do not easily fit the definition of security and they do not present the type of consumer risk that is best addressed through securities regulation, but we believe that some smaller, commercially or fairly designed cryptocurrencies may actually correspond to that definition. "
The new version looks more closely at the initial coin offerings (ICOs) compared to the original, perhaps reflecting the peak of the fund-raising method in popularity last year. ICOs raised $ 46 million in 2016, less than one-tenth of the $ 5 billion raised in 2017. It also provides more in-depth explanations on alt coins and how they could fit into the picture.
Valkenburgh also notes that an increase in airdrops and ERC-20 tokens, writing that "different networks, particularly the ethereum, are designed to allow their users to create additional tailor-made tokens" above "the network of parents.The coinage and transmission of these new tokens and their use is controlled and described by the consent mechanism and the blockchain of the underlying network. "
Like the previous version, Valkenburgh outlines the possible risks to investors by providing tips on how to protect them without damaging innovation.
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