SEC Releases Framework for “Investment Contract” Analysis of Digital Assets


0
ADVERTISEMENTSToken Agency
Blockchain Expo London 2019
global
Blockchain Partners

Before you get too excited, note what it says in fine print at the end:

“This framework represents the views of the Strategic Hub for Innovation and Financial Technology […] of the Securities and Exchange Commission. It is not a rule, regulation, or statement of the Commission, and the Commission has neither approved nor disapproved its content. Further, this framework does not replace or supersede existing case law, legal requirements, or statements or guidance from the Commission or Staff. Rather, the framework provides additional guidance in the areas that the Commission or Staff has previously addressed.”

advertisementToken Agency

So it’s a bit like “…you can’t park near the fire hydrant” – but how far is near?

The framework was cobbled together by SEC Commissioners Valerie Szczepanik, Senior Advisor for Digital Assets and Innovation aka “crypto czar” and Bill Hinman, director of the SEC’s Division of Corporation Finance.

Apparently, it’s an analytical tool that will help ICO issuers sort out if they will do jail time or not. But it’s a little late, the ICO ship left the harbour last year. 

However, it’s great that they go into great detail how Digital Assets play out with the Howey test – which has been an ongoing debate for years. And they are inviting issuers who have any issues to contact them at https://www.sec.gov/finhub which is a breakthrough – it’s been years of silence on this issue, never mind dialogue. 

The Howey test says that an “investment contract” exists if these conditions are met:

  • Investment of money: They bought the orange groves with real cash (U.S. dollars).
  • Common enterprise: The orange groves were managed under Howey’s company (i.e., a common enterprise).
  • You expect profits because of someone else’s work: Critically, the investors did not have to tend to the oranges themselves; Howey’s people did all the work.

CEO of MediaShower John Hargrave popped a great hypothetical in my inbox today which helps unpack the paper:

Let’s say that Amazon launches PrimeChain, which is a new blockchain available to Prime members. It creates a new blockchain-based token called PrimeCoin.

Think of PrimeCoin like reward points: for every dollar, you spend on Amazon, you earn 10% in PrimeCoin. You can redeem PrimeCoin for real-world purchases—just like redeeming frequent flyer miles for a flight. Save up enough PrimeCoin, you can buy a new pair of Apple EarPods.

You can also use PrimeCoin at any Amazon-owned business, which means you can buy your groceries at Whole Foods using PrimeCoin (that’s a lot of PrimeCoin). You can also sell the PrimeCoin back to Amazon for cash—which is something airlines won’t let you do with frequent flyer miles.

“Big deal,” you say. “These are just rewards points. My local coffee shop does this.”

But these PrimeCoin are recorded on the blockchain. They are recorded on a decentralized ledger, shared by thousands or millions of computers around the world—not on Amazon’s central servers.

What Amazon has done, in this case, is minted its own money. It has created a virtual currency that is supported by a shared global network of computers. Amazon, the master of cloud computing, has moved its value to the cloud.

This is what I mean when I say the cat is out of the bag.

What does that saying even mean? What kind of monster keeps a cat in a bag? They make cat crates, you know.

In my hypothetical example, Amazon now has PrimeCoin, its own money supply. True, it’s tied into the physical money supply (because Amazon still has to redeem it for dollars upon request). But Amazon will create a bunch of PrimeCoin benefits—just like Prime member benefits—and most people will just store and spend PrimeCoin instead of U.S. dollars.

In my example, any seller on Amazon can also accept payments in PrimeCoin. The SEC doesn’t want you transferring PrimeCoin—so no trading PrimeCoin on Poloniex—but Amazon will start selling PrimeCoin gift cards, and those will also function like cash. The Amazon credit card will also give you PrimeCoin benefits, so now you can earn PrimeCoin with any purchase, anywhere in the world.

Now Amazon has its own virtual currency, with a physical counterpart (gift cards), a payment system (Amazon credit cards)—all completely decentralized. This means it’s beyond the reach of any government to shut down. Amazon has just created its own economy to compete on a global scale with the dollar and the Euro.

It has also created a cottage industry of “miners” who keep the PrimeCoin network running. This means tremendous benefits for its Amazon Web Services cloud business (as many of them will run on AWS). Why will anyone want to donate their computer to the PrimeCoin network? Because they’re paid in PrimeCoin.

About Richard Kastelein

Founder and publisher of industry publication Blockchain News (EST
2015), a partner at ICO services collective Token.Agency
($750m+ and 90+ ICOs and STOs), director of education company
Blockchain Partners
(Oracle Partner) and ICO event organiser
at leading industry event CryptoFinancing (Europe’s first ICO event now
branded Tokenomicon)
– Vancouver native Richard Kastelein is an award-winning publisher,
innovation executive and entrepreneur. He sits on the advisory boards
of some two dozen Blockchain startups and has written over 1500
articles on Blockchain technology and startups at Blockchain News and
has also published pioneering articles on ICOs in Harvard Business Review and Venturebeat.  Irish Tech News put him in the top
10 Token Architects in Europe.

Kastelein has an Ad Honorem – Honorary Ph.D. and is Chair Professor of
Blockchain
at China’s first Blockchain University in Nanchang
at the Jiangxi Ahead Institute of Software and Technology. In 2018 he
was invited to and attended University of Oxford’s Saïd Business School
for Business Automation 4.0 programme. Chevalier (Knight) – Ordre des
Arts et des Technologies at Crypto Chain University and an Advisory
Board Member of International Decentralized Association Of
Cryptocurrency And Blockchain (IDABC) as well as Advisory Board Member
at U.S. Blockchain Association. Over a half a decade experience judging
and rewarding some 1000+ innovation projects as an EU expert for the
European Commission’s SME Instrument programme as a startup assessor
and as a startup judge for the UK government’s Innovate UK division.

Kastelein has spoken (keynotes & panels) on Blockchain
technology in Amsterdam, Antwerp, Barcelona, Beijing, Brussels,
Bucharest, Dubai, Eindhoven, Gdansk, Groningen, the Hague, Helsinki,
London (5x), Manchester, Minsk, Nairobi, Nanchang, San Mateo, San
Francisco, Santa Clara (2x), Shanghai, Singapore (3x), Tel
Aviv,  Utrecht, Venice,  Visakhapatnam, Zwolle and
Zurich.  His network is global and extensive.

He is a Canadian (Dutch/Irish/English/Métis) whose writing career has
ranged from the Canadian Native Press (Arctic) to the Caribbean
& Europe. He’s written occasionally for Harvard Business
Review, Wired, Venturebeat, The Guardian and Virgin.com, and his work
and ideas have been translated into Dutch, Greek, Polish, German and
French. A journalist by trade, an entrepreneur and adventurer at heart,
Kastelein’s professional career has ranged from political publishing to
TV technology, boatbuilding to judging startups, skippering yachts to
marketing and more as he’s travelled for nearly 30 years as a Canadian
expatriate living around the world. In his 20s, he sailed around the
world on small yachts and wrote a series of travel articles called,
“The Hitchhiker’s Guide to the Seas’ travelling by hitching rides on
yachts (1989) in major travel and yachting publications. He currently
lives in Groningen, Netherlands where he’s raising three teenage
daughters with his wife and sailing partner, Wieke Beenen.

Visit Website

View All Articles

More News

Crypto Leaders Speak out as US Regulatory Uncertai…

You may also like:

The Blockchain – Can it Change the World?

SEC Commissioner Says Blockchain could revolutionize regulators’ approach to monitoring systemic ris…

Gideon Greenspan: Avoiding The Pointless Blockchain Project, How To Determine If You’ve Found A Real…


Like it? Share with your friends!

0

What's Your Reaction?

hate hate
0
hate
confused confused
0
confused
fail fail
0
fail
fun fun
0
fun
geeky geeky
0
geeky
love love
0
love
lol lol
0
lol
omg omg
0
omg
win win
0
win
Choose A Format
Story
Formatted Text with Embeds and Visuals
Video
Youtube, Vimeo or Vine Embeds
List
The Classic Internet Listicles
Open List
Submit your own item and vote up for the best submission
Countdown
The Classic Internet Countdowns
Poll
Voting to make decisions or determine opinions
Ranked List
Upvote or downvote to decide the best list item
Personality quiz
Series of questions that intends to reveal something about the personality
Trivia quiz
Series of questions with right and wrong answers that intends to check knowledge
Meme
Upload your own images to make custom memes
Audio
Soundcloud or Mixcloud Embeds
Image
Photo or GIF
Gif
GIF format