Blockchain interest group Coin Center carries on to believes several cryptocurrencies look like securities by law, and should be controlled as such. Peter Van Valkenburgh, the organization’s director of research, published a brand new report Friday arguing that some cryptocurrencies follow the often cited Howey Test and act as investment contracts. As such, he wrote, they must be treated as securities. The report updates a 2016 version, which laid out a potential framework for regulators in determining whether a given cryptocurrency should be a security in accordance with the Howey Test. The framework examines 3 variables that Valkenburgh considers are essential for determining if crypto currency is security: distribution, decentralization and functionality.
Especially, he says, how the token is originally distributed, how decentralized its underlying network is and what powers or rights token holders have should ascertain whether it’s a security. He wrote. We find that bigger, more decentralized cryptocurrencies, e.g. Bitcoin, pegged cryptocurrencies, I. E. Sidechains, in addition to distributed computing systems, e.g. Ethereum, don’t readily fit the definition of security and also don’t present the form of consumer danger best addressed by securities regulation. We do find, however, that a few smaller, questionably advertised or designed cryptocurrencies may really fit that definition.” . The brand new version more closely examines initial coin offerings compared to the first, perhaps representing the fundraising system’s spike in popularity last year.
ICOs raised $46 million in 2016, less than one 10th of the greater than $5 billion raised in 2017. Additionally, it gives more in depth explanations of alt coins and how they might fit into the framework. Valkenburgh also notes the growth in airdrops and ERC-20 tokens, writing that many network, most prominently ethereum, are intended to empower their users to produce further bespoke tokens at the top of the parent network. The minting and transmission of those new tokens as well as their use is closely policed and clarified by the consensus mechanism and blockchain of the underlying network.” .
Like the last version, Valkenburgh then summarizes potential risks to investors, providing suggestions on the way to shield them without damaging innovation. House frame picture via Shutterstock. The leader in blockchain information, CoinDesk is a media outlet that tries for the greatest journalistic standards and adheres to a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.