What the SEC Regulation Means for Blockchain
The headline-grabbing cryptocurrency news this year was that the SEC, after months of will-they-won’t-they, finally decided to crack down on the sale and transfer of digital tokens.
It was decreed that digital tokens that pass the Howey Test could be categorized as securities, meaning that they fall under SEC jurisdiction. The official SEC statement read that “virtual organizations” that “issue and distribute ledger or blockchain technology-based securities” must be registered with the SEC.
The Heist That Shook the Web
The primary prerogative of the SEC statement was to address the biggest digital heist in history: the $50 million DAO hacking wherein some 7 million ethers were hijacked during a digital token sale.
Computer Science Professor, Emin Gün Sirer, had seen the bug in the code which compromised the integrity of the Ethereum blockchain system prior to the hack, but at the time, Ethereum was lauded for its impenetrable design.
At its inception in 2014, the Ethereum blockchain was viewed as the “next leap forward from Bitcoin” due to the addition of the smart contracts into its system. Blockchain technology was praised as the solution to faster monetary transactions and the reduction of red-tape. It was supposed to support a more secure and incorruptible payment system that rivalled fiat currencies and traditional third-party financial institutions. It was advertised as a decentralized and unchained entity.
Soon the growth of Ethereum led to more decentralized applications and the eventual DAO creation. Nonetheless, Gün’s suspicions were too little too late as the internet-breaking heist took place on 20 July 2016.
Since the technology was deemed impenetrable and because it relied on a steadfast encryption system, the heist was even more shocking. But eventually the shock and awe died down after the heist as the Ethereum community was called in to rein in the likes of these newly minted technologies.
Dot-com-like bubbles were speculated around these cryptocurrencies at the time, but the prices of the two biggest cryptocurrencies— Bitcoin and Ethereum have continued to soar. Since the major incident, more hacks have been perpetrated with this year’s Coindash and Veritaseum hack.
The Bright Side of the Moon
Through the SEC statement, it is now clear what test will be used to judge digital token sales and what type of companies are susceptible to scrutiny. These clearly defined outlines will bring some semblance of stability to the cryptocurrency world. There are many other positives from the ruling as well:
- The SEC regulation will enable the crypto-community to move from its bubble phase to a more mature implementation phase. The Wild-Wild-West of the digital currency world is likely to be tamed because of the regulations and it means that other pretenders to the throne who would have destabilized the already-shaky system will be vetted out. Instead, Bitcoin and Ethereum will emerge as the rightful invigilators of the crypto-community.
- The fact that the SEC has decided not to implicate or pursue any of the parties involved in the DAO will not leave a sour taste for the digital community. Instead, the DAO investigation will serve its purpose to outline the line that token sales should not cross.
- Not all digital token sales will need to be registered, especially ones that stick to enabling the community and those that are intended as not-for-profit entities. If these new token generating events stay away from enabling speculators to manipulate coin offerings, they will be able to co-exist in the blockchain prism of things.
- The SEC ruling also brings to attention the need for US Investors to be extra careful about who they invest with and what they expect from these digital investments.
- The ruling should also serve as a wake-up call for the digital currency community to come together and self-regulate the giant wave of digital coins. They should also persevere to eliminate fraud and abuse from harmful parties in their community.
Bringing the Community Closer
Thus, instead of looking at the SEC ruling as a bad omen, this is a great opportunity for the digital asset community to take proactive action in restricting and expelling the bad actors who have hijacked its technology.
Due to its anonymity, digital currencies are widely used in the black markets which means that regulators might have no choice but to squash this new wave of innovation if the community does not clean up its act.
A lack of a proper act by the digital community could also bring in heavier intervention from the governments of countries that are worried about coins being used to bypass foreign reserve restrictions and KYC regulations.
There is no denying that blockchain is a great technology and it has the potential to revolutionize the business world. Digital token sales too are revolutionary because they are a speedy way to fund and launch big ideas into the platform.
And, assuming that the community can get itself to self-regulate itself regularly, this is a great opportunity to clean up the digital asset platform. A cleaner digital currency world will enable this world-changing, innovative blockchain architecture to become the standard platform of doing business.
At Celsius Network, we seek to become a valuable member of the Ethereum and blockchain community through our innovative solutions. Stay tuned for more information about us in the following weeks.