• Understanding the difference between Coins, Utility tokens and Tokenized securities
  • Micha Benoliel
  • Tunneling plan — Blockchain split rudder
  • Permanent link to this article: github.com/xitu/blockc…
  • Translator: mingxing47

How is blockchain disruption shaking up the status quo

Recent initial public offerings (ICOs) of digital currencies have set off alarm bells in the financing industry, from venture capital firms to government agencies, in terms of the number of initial public offerings, the huge amounts of money raised and the speed with which they were launched.

The last two months have seen the great success of ICOs, but this success has also created a lot of confusion for traditional financiers. People are scrambling to learn what an ICO is and how to use it to their advantage. A few successful fundraisings: Bancor (+ $150 million), Status (+ $200 million), Civic (+ $33 million), Tezos (+ $200 million), EOS (+ $200 million).

The SEC’s recent announcement to treat ICOs as securities may actually be a good thing, as the agency highlights the importance of digital currency initial public offerings (ICOs) as a new and viable way to raise capital. The agency also stressed the need for new regulations.

Balaji S. Srinivasan wrote a great article about tokens back in May, and Tim Draper recently posted a linkedin post quoting his open letter to the SEC, The open letter kicked off a debate about whether token sales should be considered securities.

When PLANNING ICOs for my own project, I did a lot of research on ICOs. One of the most important conclusions I’ve found is that there are three main types of tokens.

It is unclear whether these three tokens are securities, as their technical differences are obscure. That is why a new regulation may be needed to allow new innovation to flourish.

“If the purpose of a token is for social change, and all proceeds are used to further support and develop the token, then it does not need to be registered,” Tim Draper wrote in his open letter.

conclusion

1. Payment ghostwriting or cryptocurrency

This type of digital currency, such as Bitcoin, uses cryptography to manage the creation of each unit of currency and verify the transfer of funds. They can operate independently of the central bank.

Before long, each fiat currency could become a cryptocurrency, in which case it could work with central banks. That is what Singapore is doing with the Ubin project, which is being launched.

2. Practical tokens

A utility token is a service or unit of service that can be purchased. As described in Balaji S. Srinivasan’s article, these tokens can be compared to the API keys used to access services, thus being used for normal access to some services.

They are a way of funding shared infrastructure projects that were previously unavailable. To enable such an ecosystem to be established, some tokens can be “pre-mined” and sold in a “mass sale” during the token launch.

3. Securitize tokens

These tokens can represent shares in the business. Furthermore, given the SEC’s statement, any token that fails the Howey test should be considered a security and should be governed by the Securities Exchange Act of 1934. The Howey Test includes the following:

  • Is it money or assets?
  • Is it an investment of money or assets in an ordinary enterprise?
  • Do you have any expectation of profit on your investment?
  • Does any profit come from the efforts of the promoter or third parties?

The final factor in the Howey test is whether profits from investments are largely or entirely outside the investor’s control. If so, the investment may be a portfolio investment.

This makes any utility token potentially a security in part because they can be traded on third-party platforms. The utility tokens that startups issue to fund purchases by future customers should not be securities, since their purpose is to facilitate purchases.

Coinbase has released a useful tool that can help developers determine whether their tokens are securities: the securities legal framework for blockchain tokens. Score more than 100 points in this tool, which will judge your token as a security.

To learn more about ICOs as a new way to fund your business, read my previous post: Crack your Funding Puzzle with Digital Currency IPOS.

You should not take this article as legal advice. The purpose of this article is simply to provide general information as a guide to some of the conceptual aspects related to the narrow issues it deals with. You should seek advice from your own advisers, who know the specific facts and circumstances of what you want to do and can provide tailored advice.

This article is published “as is” without any representations, warranties or obligations to update, but I reserve the right to modify or change this article from time to time. It has not established client privilege and does not intend to advertise as an attorney in any jurisdiction.

Thanks to Will O’Brien.

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