Are crypto tokens investments or do they deserve their own regulatory classification?
Speculation has driven most of the popular interest in virtual currencies, but if you ask the hundreds of entrepreneurs who have created crypto tokens, you’ll likely hear that the answer isn’t that simple. Crypto tokens, they’d argue, aren’t just currencies or “digital gold“—they can also be a new method of transaction, a novel way of enabling trust between people and computers. As such, crypto entrepreneurs often claim that their tokens aren’t investments, at least in the classic sense of the term. Rather, blockchain-based tokens can be pieces of software, which allow a person to access a good, a service, or a platform. There’s even a Merriam Webster’s entry for these “utility tokens.”
The debate about whether cryptocurrencies are investments isn’t academic. If a token is deemed a “security,” it means the associated project and its founders are bound by the same laws that govern the stock market. These include reporting and disclosure requirements—which would likely enhance buyer protection, but also crimp a project’s production and marketing strategy. For unregistered securities offerings, founders and promoters may even face legal consequences and fines. Kik Messenger, whose Kin cryptocurrency has reportedly drawn the attention of the US Securities and Exchange Commission, has started a legal defense fund to fight potential regulation.