[colechristensen]

My followup question is, if exchanging World of Warcraft gold for currency was supported or facilitated by Blizzard, would the SEC classify it as a security?

Could Blizzard have an ICO for WoW gold that could only be used as it is now with no attached ideas of selling equity?

[everdev]

The SEC uses the Howey Test:

1. Was there an investment of money? (money is actually broadly defined to mean anything of value)

2. Was there an expectation of profits from the investment? (this is easy to prove because it's the opinion of the investor)

3. Was the investment of money in a common enterprise? (this means are the interests of the investor and company aligned, or does the investment go into running a business)

4. Does profit come from the efforts of a promoter or third party? (This means is the investor mostly powerless in having their investment go up our down in value)

In your WoW example:

1. Yes

2. Probably for someone

3. Yes, the money is used to develop the platform

4. Yes, if Blizzard hypes their coin or if you can trade it on an exchange

I think the biggest difference between an ICO and a digital good is that ICOs are traded on exchanges. If you buy a digital good and can only use/redeem/trade on the company's platform then it is not a security.

[regulation_d]

I'm not sure you can hand wave the "expectation of profits" factor as easily as you did. Seems like it would have to be a reasonable expectation of profits and would probably have to be true of the majority of the purchasers.

Imagine that I bought $10k worth of Chuck E. Cheese tokens and I could convince the SEC that I sincerely expected the value of those tokens to go up substantially. I doubt that would be enough to meet the Howey requirements, even if my expectation was sincere.

[everdev]

From my conversation, I understood "an expectation of profits" to mean from a reasonable investor. In fact no one even has to complain if the SEC thinks someone could have expected profits then it satisfies that bullet in the test.

[honestlyreally]

Not being that familiar with WoW, wouldn't it be classed as income more than speculation? These people grinded away at a game and earned "gold", now they want to convert it into a different currency.

Doesn't seem speculative for the people playing the game. Though for a trader it is.

Fail to see the difference between buy/sells on the company platform compared to a third party. Both could be used for speculation.

[everdev]

The difference from what I understand is an exchange vs a platform. A platform has utility, an exchange is investing. On an exchange you can trade one currency for another to ideally make a profit. On a platform you buy/sell as part of using the system.

[politician]

An exchange is a platform...

[omarchowdhury]

They would classify it as a security if they could conclusively prove that people were buying WoW gold "for the expectation of profits solely from the efforts of a third party or promoter."

[everdev]

Doesn't have to be wide spread. Even one investor complaining they thought they were going to make money is enough to satisfy the test. However, the SEC will probably only act in cases of high dollar value or many complaints.

[laser]

Is that really how the law is technically phrased? I doubt it. You're telling me that if Jose does an ITO (Initial Taco Offering) to open his new taco joint, selling 1000 tacos to anyone that wants to eat one, and I complain to the SEC that I thought Jose's tacos would be worth more if I resold them tomorrow, then his tacos fail the Howey Test and are classified as securities? Obviously that's not the case, but are you saying that's only due to selective SEC enforcement, not because the law has a higher standard than "Even one investor complaining they thought they were going to make money"?

[everdev]

That's what I understood from my call with the SEC. That if anyone could reasonably expect a profit it satisfied that bullet in the Howey Test.

For your tacos to be securities, the company would have to be working in some capacity to give those tacos more value in the future. Since tacos expire, all reasonable taco investors know that their investment will go to $0 in the near future, therefore no expectation of profit.

It's amazing how broadly security is defined and enforced. The only examples I was able to discuss with the SEC that were not securities were when the asset being sold could not reasonably generate a profit and could not be transferred. Basically like selling a product or accepting a donation.

There is also securities case law where a company sold a security to a single person or very few people and they were sued successfully.

[dragonwriter]

> That's what I understood from my call with the SEC. That if anyone could reasonably expect a profit it satisfied that bullet in the Howey Test.

“reasonably expect”, in law, imposes an “objective” standard; the mere subjective expectation of a buyer won't meet it, the court applying the test will need to find that the expectation was objectively justified in the concrete circumstances that existed. It's a much higher bar than merely did any individual buyer have a subjective expectation of profit.

[everdev]

I agree, the expectation has to be objectively reasonable.

If the coin has a mechanism where it can always be bought for $1 forever it's reasonable that you can't expect a profit.

But ICOs don't do this. They limit quantity to drive demand of people hoping their limited resource will be worth more in the future.

[beambot]

What about taco futures? I would prepay for tacos now, knowing that it's a stable investment that will likely have returns at least as good as inflation.

[everdev]

If you invest money and the money is used by the taco company to grow their business and your taco futures are transferrable and the value of a taco future can go up through the efforts of the company (their tacos becoming more delicious and therefore going up in price), then I think so.

[stale2002]

Yes, ITOs would fit the bill, IMO, of a security.

Here is the big reason why. If you are creating an ITO, you are implicitly promising that you will provide tacos to someone in the future.

It is a taco future. You can't just create futures, even taco futures, without falling under regulations.

THAT is the problem with ICOs. Look, if you just want to sell a cryptocurrency, that has ALREADY been created, you won't run into any issues with the law. There is nothing illegal about premining, and selling a crytocurrency.

The problem is when you say "This cyptocurrency represents stake in something that doesn't exist yet, but I totally promise that it will exist in the future". No. Thats a future. Thats a security. If it doesn't exist yet, you can't sell it without falling under security laws.

[mhluongo]

Agree with the idea re: futures in general, but there are presales for physical goods that most agree aren't a security...

[lkrubner]

> I complain to the SEC that I thought Jose's tacos would be worth more if I resold them tomorrow

They would dismiss your complaint as silly, trivial, and obviously frivolous. That is, your complaint would fail the test of common sense.

[nikcub]

That doesn't exclude the possibility of him being prosecuted tho and the regulation being abused.

If Jose was communicating with an ISIS recruiter but they couldn't pin him on that - could they pin him on the Taco racket?

[zekevermillion]

Probably not a security. But transferable WoW gold has bigger problems -- money transmitter laws. It would make Blizzard a money transmitter like E-gold, [1] or liberty reserve. Any centralized e-money issuer is doomed. That is an important part of why bitcoin exists.

[1] https://www.wired.com/2009/06/e-gold/

[jayd16]

Fraud is more about whether you were lied to not whether a product could be lied about.