Cryptocurrency has now been protected under laws along side virtual businesses. | Sonny Singh/ The Cougar
A couple of weeks ago, a report was released by the Securities and Exchange Commission (SEC) which determined that securities laws will apply to a facet of virtual organizations. The Decentralized Autonomous Organization (DAO) is an investor-directed venture capital fund, based on the Ethereum blockchain, sought to expand its operations by offering DAO tokens which would be traded for Ether, a cryptocurrency on the Ethereum blockchain.
From April 30th to May 28th of 2016, The DAO sold tokens as a way for investors to fund and claim voting rights of entities that would act as contractors with the DAO. The contractors would submit proposals and details for their projects through what are known as “smart contracts” on Ethereum.
Cryptocurrencies continue to gain popularity and are rightfully considered a form of “money” in the investigation by the SEC. The investigation ascertained that this Initial Coin Offering (ICO), or crowdsale, would be subjected to the same securities laws as other securities, such as stocks on the stock market.
Despite some critics apprehension for the decision, securities laws will only serve to legitimize crypto securities, cryptocurrencies and distributed ledger technology in the eyes of the United States economy. One possible requirement will be to register initial coin offerings that are marketed as an investment with the SEC. This would mark progress since the rejection by the SEC of a bitcoin-based exchange traded fund (ETF) from entering the stock market earlier this year.
In addition, the hacking of the DAO that followed the aforementioned crowdfunding of last year caused the organization to do what is called a “hard fork.” A hard fork involves splitting the blockchain to follow a different path of coding, which subsequently created two different types of cryptocurrencies, Ethereum and Ethereum Classic.
While I don’t believe that a hard fork was the appropriate decision for the future of the blockchain, I understand it was a tough decision to make in a newly constructed space. That being said, as far as the SEC ruling goes, I would reason that future hackings will be deterred or at least brought swiftly to justice considering this technology would now come under the jurisdiction of a federal agency.
The wording of the report is admittedly vague. Words like “investment” and “money” are broad in scope how they’re worded in the investigation. However, the principles of blockchain technology and virtual currencies can still be preserved in their immutability. Any harm done to the principles which the technology is founded pales in comparison to the current, potential opportunities for fraud and theft.
In the past, there have been rulings from the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) and New York State’s Department of Financial Services attempting to lay foundational regulation for how virtual currencies get administered, exchanged and used. The SEC, on the other hand is a larger regulatory agency that acts as a gatekeeper for the modern economy in the United States.
Opinion columnist Nicholas Bell is an MBA graduate student and can be reached at [email protected]
