Last year signified a transformation in the market for cryptocurrency owing to the increase of ‘initial coin offerings.’ But, it is likely that more crackdowns from the state will occur in future.
At the end of 2017 Floyd ‘Money’ Mayweather’s penchant for initial coin offerings was a news item again. This year, Mayweather, who is maybe the most famous boxer in the world, promoted not less than three ICOs. The organization of one of them was carried out by a firm known as Centra Tech, which is involved in a lawsuit for new class action. It alleges the offering broke the regulations of U.S. securities.
It is a sign of how the year handled this latest fund-raising scheme. After the appearance of ICOs in 2017, they will venture into the New Year as the topic of close analysis from financial regulators and lawmakers. They are similar to a lot of us, attempting to find out how to get an answer regarding an unclear legal part, where billions of dollars are all of a sudden moving back and forth.
An ICO entails selling valuable digital units known as tokens. They can be moved between blockchain network users, similarly as Bitcoin users move Bitcoins. Trading of the tokens is possible, and this makes them somehow identical to stocks.
However, in some instances, they can also work as a method of paying for file storage or private data management services offered by people who belong to a blockchain network (referred to as ‘decentralized applications’ by proponents).
What exactly does an ICO mean?
It comes as no surprise that in an unregulated financial world which is as hot as coals, in 2017 ICOs experienced some suspicious behaviour. Among the year’s most profitable token sales is an ICO of $232 million for a venture known as Tezos. It gives signs of being a system similar to Etherum, for decentralized applications. It is currently being sued by four investors who claim that the organizers broke the rules of U.S. securities.
Defining Bitcoin and Its Importance
Is it possible for a thriving ‘crypto-currency’ to compete with ordinary money? Some states have carried out investigations on ICOs. For instance, in September China prohibited them and this step led to the closure of cryptocurrency exchanges. Also, South Korea has banned ICOs, and it is possible that more governments will do the same this year.
The United States has so far used a more controlled approach. The Securities and Exchange Commission issued a report in July, stating that some digital tokens are at least securities and need registration in this regard, with the federal state.
In the past few weeks, the SEC has taken more action on ICOs. The previous month, it released a statement cautioning that token sales supported by celebrities may be illegal (Floyd). Almost instantly following this, Jay Clayton, the SEC Chairman, remarked that ‘he had not encountered an ICO without enough quantity of security hallmarks.’
Soon after this remark was uttered, the regulator intervened and stopped two ICOs. Following this, Clayton gave a lengthy statement describing the stand of the agency on ICOs and cryptocurrencies, providing a precise affirmation that not all tokens are essentially securities.
Therefore, what are they? For now, they seem to be a fast method of generating income for the ones selling them, and it is possible for them to encounter legal problems while doing this.
Maybe in 2018, we shall discover whether they can entail more than that.