Abstract
Distributed ledger technology, also known as the blockchain, is gaining traction globally. Blockchain offers a secure validation mechanism and decentralized mass collaboration. Cryptocurrencies make use of this technology as a new asset class for investors worldwide. Cryptocurrencies are being used by companies to raise capital via initial coin offerings (ICOs). The substantial inflow of unregulated capital into a transactional and transnational industry has aroused interest from not just investors, but also national securities and monetary regulatory agencies. In this paper, we review the Security and Exchange Commission’s initial statements and subsequent pronouncements on ICO’s to illustrate the potential problems with applying an older legal framework to an ever-evolving ecosystem. Recognizing the inability of enforcement within existing regulatory frameworks, we discuss the importance of regulation of the crypto asset class and internal collaboration between government agencies and developers in the establishment of an ecosystem that integrates investor protection and investments.
Highlights
Blockchain has recently emerged as a secure, peer-to-peer platform for verifying digital events and validating transactions in an increasingly decentralized economy
Any transaction of the virtual currency with respect to a property has to be adjusted with respect to its adjusted cost base and gain or loss depending upon the fair market value at the time
This paper reviewed the Security and Exchange Commission’s initial statements on initial coin offerings (ICOs), and subsequent pronouncements and the evolving legal framework
Summary
Blockchain has recently emerged as a secure, peer-to-peer platform for verifying digital events and validating transactions in an increasingly decentralized economy. While appreciating the desire to find exemptions from registration under the US Securities Act of 1933, and to raise money with security “tokens,” argued that a new structure was needed to accomplish both goals: raise capital and launch a successful blockchain protocol Across the globe, another digital venture investment fund from India called GainBitCoin, guaranteed its investors a monthly return of 10% on their crypto-token investment. In May 2017, the SEC chairman mentioned the usage of the term coin/token does not circumvent the fact that capital is eventually raised from the public, classifying it as a security and not a currency (Roberts 2018).2 The scale of these fintech marketplace developments clearly creates new avenues for entrepreneurial financing and for financial fraud (Ahlstrom et al 2018a). A discussion of the implications of managing crypto risks, challenges, and regulatory uncertainty follows in the last two sections
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