Secondly, the question of Ethereum being a security is a tricky one. It is a security by definition given in the same speech. So, it started out as a security but then it is not a security any more? That is confusing. A good read on this:
"based on my understanding of the present state of Ether, the Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions."
> The Securities and Exchange Commission disclaims responsibility for any private publication or statement of any SEC employee or Commissioner. This speech expresses the author’s views and does not necessarily reflect those of the Commission, the Commissioners or other members of the staff.
What people really want or where I think the promise of Ethereum in particular really lies is to tokenize traditional assets in the form of ERC-20 tokens in the case of stocks or ERC-721 tokens in the case of unique property. The SEC will need to be involved in the former to make it legal. Both Coinbase and TZero possibly others are working on that now.
The SEC has consistently seen utility tokens as securities. The workaround, so far unproven in court, is the SAFT (simple agreement for future tokens).
The issue with all of this is that people are trying to fit a new technology into a series of boxes when it doesn't fit into any of them.
The problem cryptocurrencies aim to solve looks like this. I have a hardcopy of a book that I've finished reading and I'm prepared to sell it so I can use the money to buy a copy of another book. I am not keen on the efficiency of the barter system, so what I need is currency that allows me to sell the book I have and then buy the book I want.
But currency isn't a security. The rules for securities are much more strict, because you have to worry about people defrauding investors and engaging in stock price manipulations etc. In the normal everyday currency transaction where I exchange my book for a $20 bill and then go somewhere else and exchange my $20 bill for a book, there is never any paperwork for me to fill out. I don't have to give anyone my name or anything else to allow them to compile a database of which books I read or which social clubs I patronize or what kind of contraceptives I use.
The rules for digital credit transactions are also strict, because they were designed for credit transactions, where you have to worry about someone buying something on credit and then not paying, or taking out credit in someone else's name.
What's really needed is a digital version of cash. But there is no law designed for digital cash, so people keep trying to squeeze things that aim to serve that purpose into one box or another when the rules were clearly designed for something else.
What we need is for the law to more explicitly allow the internet to work like the real world.
No, I think it's more that it does fit into those boxes, but those with interests in the technology desperately want to think it doesn't.
"What we need is for the law to more explicitly allow the internet to work like the real world."
It obviously impacts the initial value of a coin if it can't practically be used as currency because future trades have to be treated as a regulated securities instrument.
This underscores the absurdity of the SEC's position on investing in the first place, including the requirement for "accredited investor status", etc.
You can spend as much as you want on a thing which may patently have zero-value, as long as you call it an asset (or something else). No one will stop you. But, the minute it's suggested that the thing represents the possibility of profit-sharing or ownership in something of potential value, then it is verboten or otherwise heavily regulated.
Likewise, no one stops you from blowing your entire paycheck on a slot machine or lottery tickets. And, this, with a simple disclaimer of odds.
Seems investment opportunities can be similarly disclaimed so that people can make their own decisions. This would not preclude SEC prosecutions for outright fraud, etc. when people are found to be nakedly defrauding the investing public.
Yes they do.
Those things are illegal in most places, and where they are legal they're heavily regulated or run by the state.
For future reference, it's OK to just say "My bad. I didn't know that. Thanks for the info."
Also, any regulations in place have nothing to do with restricting how much customers can spend.
Well I don't think that IBM, Sun, Nvidia, Oracle, Apple, Google, Microsoft, Sandisk, Cisco, Ebay, Craigslist, Wikipedia, Facebook, Snapchat, Wechat, Instagram, Pinterest, fall into that category.
AirBnB, Uber, some weed companies ... DraftKings, Kik, Telegram ... I suppose fall into that.
But 'hotel permits' and 'cab permits' are in another league altogether from 'selling drugs / gambling' or 'unregulated securities', so I think ABnB and Uber really are in a middle category.
Selling 'classically licentious stuff' like porn, drugs, gambling - and also selling financial scams - these things are as old as time ... and there's good reason we regulate it, even if we don't always agree on the thin red line (i.e. should weed or prostitution be illegal?).
That doesn't leave to many real companies skirting regular law and waiting for regulation to catch up.
ICO's I think are a special case.
The one's the SEC has said are 'cool' are basically the token-only one's and I think they are all de-facto scams, to the extent I highly doubt any of those tokens will be viable.
The SEC is missing one thing - and that is the speculative nature of the coins and that they are not bought up front as 'currencies to do stuff'. No - they are bought with the hope of massive increase in valuation of the currency, thereby making them more like securities than currencies. Or rather, they are 'financial options on some future currency'. In which case, I think they need to be regulated, at least lightly, or at least in some basic way, i.e. requiring minimum amounts of transparency, at very least the executives have to register with the CEO and can go to jail if they just run off with the money willy nilly, which it seems they can do today ...
I don't think you're right about that. Congress waited to pass laws about software patentability. They waited to hold Craigslist accountable for potentially illegal ads on their site. They took a conservative approach in applying things like libel laws to the likes of spam filters, to Wikipedia and social networking. Instagram and Pinterest definitely skirt the law when it comes to copyright violations and they could have easily ruled early on that if you publish something on your website, you're responsible for the legality of that content. YouTube (not that you mentioned it) grew out of illegally hosting copyrighted material before they learned to play nice with the big corporations by implementing contentID and the like. The government could well have regulated these websites like they did with television: banning the use of profane language or sexual content. You severely underestimate the wild west that a lot of these companies were operating under. Hardware, fine, but I don't know of what regulations a person might want to place on them to begin with.
None of those companies were broadly breaking any rules to the point of fundamental ambiguity wherein 'we all waited to see what was going to happen'. I see your point about Pinterest but it wasn't really an existential issue, really.
And none of said companies faced existential issues or angst awaiting legal clarity on anything really.
Huh? It's absolutely an existential issue. Pinterest's entire business is built on unauthorised use of content from other websites.
That’s 100% true of Google too, and actually Facebook as well to a large extent. And certainly Reddit.
Ebay could proactively fight those scams or at least remove the fraudulent offers after they've been reported, but they do nothing and profit from it instead.
Hopefully, laws will eventually adapt, but until then, there's a lot of money to be made from unsuspecting customers.
But... is there anything wrong with that? It’s a junk investment, but aren’t junk investments just as valid as strong investments? If my gift card for an unreleased product trades for pennies on the dollar... isn’t that still a valid investment?
Edit: To be really clear, I’m talking about the opinion that basically says, if your coin functions as equity then it’s equity; if it functions as a gift card, it’s a gift card; but if it functions as a protocol, it’s a protocol, even if it has speculators bidding it up and benefits going to coin-holders — basically a lot of the properties of equities and gift cards that cause them to be regulated.
The second sentence answers the first: we do not want to trust criminals with people's livelihoods, so we leave lots of brainpower lying around outside of "normal society" because we don't want to let an embezzler write accounting software. Is it any wonder, then, that we would see an abnormal number of criminals end up working in a field where there was money but nobody to keep them out? You and I can choose between academia, industry and weird self-owned schemes, but there is a certain group of smart people that have only one option...
They served their time, and the justice system has deemed them safe, and they hopefully learned their lesson, so please welcome their return to free society. It is much better for everyone if they could actually contribute their skills to the betterment of humanity by participating in the legal free market, especially if they have specialized skills in demands, rather than potentially risking that they return to the life of crime out of necessity as a result of being isolated from the legal free market.
Given that cryptocurrency currently and historically has existed almost solely as a "you can get rich quick with this" scheme, I don't find it surprising at all.
Embermine is a mostly unknown project but one in which the scam is pretty obvious. Search for `"James Carl Drake" Nebraska Mugshot` on Google Image Search and you will see mugshots of the founder of the "Embermine" platform. "CEO" served 15 years probation for defrauding people writing bad checks, among other convicted felonies. Has been known under at least three different legal names. Convicted felon in multiple states. All public info.
Their ICO raised very little money but they have funded their cryptofailures through lying to unsuspecting speculator/investors, promising all sorts of big developments that are bound to happen "soon". For example, promising to be listed on Binance to one investor to secure a deal. Sometime back in December people began to notice that nothing was going on, which is when it was revealed by ex employees that nobody was working for him/them anymore. Turns out the guy took out loans to many people online, didn't repay them. Stole money from some as well, i.e. people sent ETH for tokens but got nothing back. People started asking tough questions, got banned from Telegram (of course). One "proof" of progress given by the CEO was a picture of him writing an Ethereum smart contract in... Microsoft Word. Can't make that up.
Their "CEO" is basically defrauding people, claiming to possess all sorts of skills he obviously does not have in order to instill confidence in his variety of projects. The stream of bullshit that comes out of there is endless. James Drake makes up a random project, associates a token to it, mints it all to himself and then "airdrops" part of it all the while selling his own tokens on the market or in OTC trade with unsuspecting investors. His latest idea? "BONG" tokens. This is completely insane, I could go on for hours.
So it's really just simple, low-level crookery. Yet it's still ongoing, people are still getting scammed. This sort of long-tail scam you don't hear much about but I suspect it's much more widespread than cryptocurrency proponents would like to admit. I'm sure others will recognize the behaviour even if they have never heard of Embermine in particular.
I like that both are gaining acceptance, but to the early entrepreurs willing to sell a clear security without filing or the growers willing to sell a controlled substance underground, go the spoiles when the states and federal government bend to the will of the market.
Unfortunately, it creates an unfair playing field for those willing to take a criminal risk and puts those that try to do things legally from day 1 at a disadvantage.
And likewise, the majority of listings on Airbnb are properties that aren't normally resided in by the owner.
The whole "sharing economy" is a cheap veneer. It's commercial activities at heart.
So, those of us that decide that the potential for financial or criminal consequences is not with it miss out when it turns out all but the most egregious scams will get a pass.
I agree with you, that the law should be as small as possible, but you're missing the second part (just as important IMO) - that the law (small as it should be) be enforced fully and applied fairly.
That's literally what you're advocating for.
The track record of firms breaking laws to get ahead is grim. Where running ahead of the law has worked, it involved a trifecta of (a) popular support and (b) a municipal (not state or federal) law challenged with (c) civil (not criminal) penalties.
The narrow opinion this article is based on is limited to Ethereum. It is the personal opinion of a single SEC commissioner (albeit, an influential one).
I care about protecting them far more than preventing an unfair playing field for the unfortunate startups that didn't break the law fast enough.
Wish I could recall the months old thread I found that in. I believe it was also blockchain-related
What the SEC cares about is whether uninformed investors are being ripped off.
What matters way more than the letter of the law is whether people are being scammed.
Ans I don't think this is a bad thing. The whole POINT of these laws in the first place is to protect people from being ripped off.
And if you ARENT ripping people off, then the government probably won't go after you.
Fairness isn't the purpose. The purpose is to protect people.
And if you don't hurt anybody, well what was even the point of the law to begin with? No harm no foul is a perfectly reasonable philosophy.
Security law is in place for good reason, to protect investors.
I think that for the example given, ICOs, the opposite is true.
For "most" of these situations, whether something is a straight up scam or not is very obvious. And I am glad that the SEC has chosen to mostly go after the scams.
Sure, grey areas will come up. But what does it matter if the grey areas are less than 1% of the market?
There are certainly cases in the world where the nitty gritty details matter, and that there are huge grey areas. I just don't think the ICO market is one of these nuanced cases.
Government, good government, isn't trying to crush the entrepreneurial spirit. They also recognize that startups deserve a different legal arena than more established companies.
this seems to be the trend for a few years already.
If it is truly worthy of prison time, it will probably fall under existing general crimes: criminal fraud, reckless endangerment, theft, and so forth.
My point is about the regulatory regimes being enforced with criminal penalties, not some technicality over who does the prosecution. I’m not sure why you’re so focused on that.
Video here: https://davidgerard.co.uk/blockchain/2018/06/14/topline-comm... (no transcript, sorry)
We all concurred: assume your ICO is a security, talk to your regulators.
And, ah, don't do fraud - "fake it till you make it" needs to not become "make material misstatements when making an offering". Doing your best to do things properly will definitely make regulators much more helpful.
Remember that financial regulators actually want you to do well in business, and make a great big pile of money! The SEC's mission statement is: "protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation." They'll be delighted to help with that third part as long as you're not messing with the first two parts.
Note also that the regulators are all going "what on earth", and they all talk to each other. FINMA in Switzerland has some surprisingly clear guidance on ICO tokens. Basically: it's a security unless it's pure utility, and if your "utility" token is exchange-tradeable it probably becomes a security. We expected this would be a good rule to work to.
Let me stress again: talk to your regulators first. One of the guys on the panel (Davide Vicini from Maveric SA) spends way too much of his time helping ICOs who launched and then tried to square things with the regulators.
I hear they're generally found in the same habitat as unicorns.
They claim it was not an ICO, but I never got the coins I expected. They were doing quite well, and are in the top 20 on coinmarketcap. I feel cheated, and have received a lot of flak since becoming more vocal about the issue... there were even some half-joking death threats and websites created to discredit me.
They claim there was a deadline I missed. I maintain there was insufficient notice of the deadline, and that they just wanted to keep the coins themselves. Also, I'm not sure it's legal for them to keep something like that once it's paid for...
It's a big question, worth a lot of money, and I'm glad the SEC is finally getting involved in this area.
And there's the rub. Sometimes, it's hard to tell.
1. As @woah said, your statement is incorrect, HN has more vocal crypto opponents than supporters.
2. You needlessly called people "idiots".
3. Your comment was rambling and mostly consisted of whinging and name-calling.
4. HN Guidelines frown on commenting about the voting on comments (yes, I know that's what I'm doing too).
Literally every ico is a scam aimed at idiots.
Honestly if I met someone that outright said they sell cocaine I would have more respect for them than anyone involved in an ICO
Well, if you were planning a scam, would you aim it at smart people? Seems similar to the reason why so many of those scam emails have terrible grammar: they want to weed out anyone smart enough to recognize the scam.
Like that aussie dude who keeps telling people he is satoshi. He told the lie for so long that he refuses the remotest possibility that he is amongst the very small minority of people he surrounded himself with that reinforces his reality. The facts don't matter to religious fanatics. They are simply pawns of sociopathic tendencies.
I have an extremely strong association between the words ICO and "scam", but I also recently found out that seed rounds are basically non-existent 
If the SEC tacitly allows for "good-faith" ICO's, I would consider it. I don't want to shutter the work of my cofounders and contributors just because the seed-stage startup ecosystem is this broken.
However, I have gone down extremely long rabbit holes and I am very wary.
I would like to raise approximately 300k for a play that is built for an acquisition for a major player (within a small number of years). We got one term sheet for effectively 51% of the company for $17k or so. (That was from a real VC.) There were no other serious offers.
Another (more promising?) alternative would be to bootstrap doing something unrelated. For example we have some expertise on our team in machine learning and perhaps could use it in an unrelated market where the size of the opportunity is pretty small (and it's pretty competitive).
Is ICO worth exploring at this stage? (Bearing in mind that we are built for acquisition.)
We are a "real" startup and don't have anything to do with cryptocurrencies or tokens. I also personally think the SEC does fantastic work that makes the whole startup ecosystem, and indeed investment at all, possible.
There is a reason the United States investment climate is one of the best in the world, if not the best, and I think the SEC and general legal framework is one of these. So I am strongly biased against unregulated ICO's and would be very happy to submit to any oversight that would increase transparency and investor protections.
$8.5 billion were invested across close to 14,000 seed and angel-stage rounds in 2017 . On both deal frequency and gross volume, seed and angel financing grew from 2016.
worldwide. :) That's "basically non-existent".
Maybe you can flip it around like this: the number of people worth at least $30 million worldwide is 226,450.
Then no, you should not be attempting an ICO.
Like if I had said "We don't have anything to do with cryptography or any expertise in cryptography. Should we roll our own cryptographic protocol?" Then the answer is "Then no, you should not."
Are you saying the same thing? If we're not experts in ICO's and crypto currency (if indeed it has nothing to do with our business) then we should not be doing anything with it? (i.e. is it only appropriate for companies that are specialized in it?) Please elaborate if you can. And thanks for the response!
As for the previous comment, I mean that if your business has nothing to do with cryptocurrencies or blockchain, and your entire motivation is to jam in some vague token into your business model for the purpose of fundraising, then no you shouldn't be doing an ICO.
Do what makes sense from all angles, not just the one angle of needing a fundraising method.
As soon as you said "for a company", it became an ICO the SEC would consider a security. Read the actual article closely.
But majority ICOs just choose avoid US investors and SEC
FTA: "Loosely speaking, then, ICOs that seek to fund the construction of decentralized open protocols should still work under the SEC’s rules."
Also "ICOs that are just fundraising schemes for companies will be treated like securities.."
I'm looking at this distinction with both eyebrows raised. I'm highly skeptical that an ICO will be treated differently under different use cases. This would only lead to confusion. Further down, in the article, the author brings up a third category - Ripple. What's to prevent a fourth and a fifth category? The law when it comes down is going to be uniformly applicable to ALL ICOs not just "Good" and "Bad" ones.
The % of 'Good ICO' is very very small, if non existant. It turns out nobody wants to do an ICO unless they get money. Fuck you. If you've been involved in an ICO or blockchain charlatanism, you are well deserving of scrutiny.
In a few years after the crypto craze is over, everybody will be busy sending out DMCA notices to Google to hide their involvement in the 99% of ICO that will never deliver, get 'hacked', or just take off with the money.
People are getting scammed when buying things online. The elderly are sending money to Nigerian princes. There are rapists and murderers on chatrooms preying for victims. Kids addicted to online games drop out of school. There is deviant pornography turning young men and girls into perverts or enticing them to post nudity online.
I strongly believe we must protect the public, and we must put severe regulations on the internet.
Noone should be able to just set up a website or online business. It is far too dangerous. Aspiring e-entrepreneurs must be required to file a goverment-reviewed application, and be represented by an attorney throughout the whole process, as well as undergo background checks and pay various fees to state and federal agencies.
If all goes well, within 1-2 years (depending on backlog) they can have permission to put up a website. Every year they must renew their website license, and according to what kind of content they wish to host they will need different licenses (eg different if you want to serve video, different if you want to have chat) /s
Makes sense right? The internet seemed like a weird crazy unregulated space back then. Except that.... that would have killed all of the amazing innovation that happened in the past 25 years in the US.
My point is. We must protect the public, of course. But it is never as simple as pulling out the torches and pitchforks screaming "BAN BITCOIN. BAN THE DARKWEB. STOP ICOs". We cannot risk stifling innovation. Because if we do - innovation will still happen just... somewhere else in the world. And no government wants that.
EDIT: FYI - in case you think I am exaggerating, the scenario I described above is similar to today's internet situation in mainland China. You need an ICP license (granted by the government and renewed yearly) in order to be able to have a publicly accessible domain name. If you want to serve back visual content (images/video) and user-to-user communication (chat or public text posts) you need to undergo extra delays and checks to prove that you are trustworthy and can censor content. Certain websites from outside of China (eg google, fb) are just banned.
I don't disagree with this or condone excessive regulation. However, if what you said is true, innovation would not happen in China. Turns out, the startup scene is just fine in China, and innovations are not happening just... somewhere else in the world. Bad example.
Their big web companies are so far almost all based on US products that were banned in China. They also failed to capture any international audience and are mostly only successful within China.
Baidu, a copy of google. Weibo, a clone of twitter. QQ a clone of Facebook. WeChat a clone of Messenger. Alibaba a clone of Amazon. Etc etc
China started properly innovating, countering brain-drain, and going beyond copying what was successful in the west only in the recent years.
From what I can tell, the regulation only strengthened in the recent years. Something else must be in the works, then.
Straw man . Nobody serious suggests banning any of these.
EDIT: I agree with you that they are not serious opinions worthy of consideration, so your point might stand.