[modeless]

I think this is more negative for ICOs than your quotes imply. Look at this:

> By and large, the structures of initial coin offerings that I have seen promoted involve the offer and sale of securities and directly implicate the securities registration requirements and other investor protection provisions of our federal securities laws.

Basically, almost all ICOs so far are illegal. He says that it's possible to make an ICO that isn't illegal by following SEC rules, but I would be surprised if a single existing ICO actually qualified because most of the benefit of doing an ICO comes from not complying with the regulations.

[zemo]

> almost all ICOs so far are illegal.

a lot of them are offering to sell you an asset that they advertise as being sure to appreciate, with the subtext that you will sell the asset at a later point for a gain. Selling something purely to be a store of value and appreciation is basically the textbook definition of a security, isn't it?

[jessriedel]

No, your definition is based on the textbook definition of speculation, i.e., that the owner values the thing not because of its intrinsic value to him but only insofar as he can sell it to someone else later. As Kadin points out, the actual definition of a security is (basically) a claim on property or future profits, which is logically distinct.

A tulip can be speculative, but it's not a security. A non-transferable share of stock is a security but it's not speculative.

[Jd]

The textbook definition of a security is expecting to profit based on the efforts of a third party.

[jessriedel]

The definition in Kadin's comment that I reference is more exact.

[runeks]

With what money will you buy the security unless you, yourself, have exerted an effort? You’re profiting from the money you’ve earned through exerting an effort, followed by foregoing consumption, resulting in surplus capital with which you can purchase the security.

[bufferoverflow]

How many ICOs "advertise as being sure to appreciate"? I've looked at like 40 different ones, bought into none, but none of them promised any return on investment. That's some straw man argument.

[ianamartin]

All of them. The more coins have been mined, the fewer are left to mine and the harder they are to mine.

It's guaranteed scarcity. By design. All you have to add to that formula is the idea that there's a demand. And that's what every ICO is: hype about demand for a decreasingly available thing.

Once you have been sold that there's a demand, the appreciation is guaranteed by definition of what it is.

[eudoxus]

Seeing as most ICO are ERC20 tokens on the Ethereum chain you are most certainly incorrect about your deflationary theory implying appreciation. Since most ERC20 tokens are 100% premined and sold during the ICO, there is no concept of "mining" with those ICOs (except maybe Minereum :p ).

Please avoid making generalized statements, especially ones that are flat out wrong.

[dkersten]

If they’re “pre-mined” then surely there is already a preset limited amount of tokens?

[fidrelity]

wouldn't that apply to every trading card and collectible item then?

[xorcist]

There are, but many of the ICOs are controlled by a company that reserve the right to change the contract at any time.

[drumdance]

They don't advertise that because their lawyers told them not to. There are lots of ways to dance around this and imply appreciation without stating it.

[Kadin]

This is the (literal) textbook definition of a security:

    any note, stock, treasury stock, security future, bond, debenture,
    evidence of indebtedness, certificate of interest or participation in
    any profit-sharing agreement, collateral-trust certificate,
    preorganization certificate or subscription, transferable share,
    investment contract, voting-trust certificate, certificate of deposit
    for a security, fractional undivided interest in oil, gas, or other
    mineral rights, any put, call, straddle, option, or privilege on any
    security (including a certificate of deposit) or on any group or index
    of securities (including any interest therein or based on the value
    thereof), or any put, call, straddle, option, or privilege entered into
    on a national securities exchange relating to foreign currency, or, in
    general, any interest or instrument commonly known as a “security,” or
    any certificate of interest or participation in, temporary or interim
    certificate for, receipt for, guarantee of, or warrant or right to
    subscribe to or purchase, any of the foregoing. [1]

It's a somewhat circular definition, but my reading is that basically, anything whatsoever that gives you an ownership interest or claim on the future profits of an enterprise can be construed as a security. You can track who owns the shares of the enterprise via entries in a central ledger (the current method for most stock companies), use paper bearer certificates (traditional way), use a distributed ledger, hand out carved pieces of pottery, whatever. If it functions even remotely like a security, it's probably a security.

EDIT: The Supreme Court's "Howey Test" [2], which came out of a 1946 case over complex real-estate leaseback deals, is in some respects a simpler method to determine whether something may be a investment contract, which is a security:

  1. It is an investment of money    
  2. There is an expectation of profits from the investment   
  3. The investment of money is in a common enterprise   
  4. Any profit comes from the efforts of a promoter or third party

The Howey Test is reliable in the sense that anything satisfying those four points is extremely likely to be an investment contract and thus a security, but I believe there are probably securities that fail one or more aspects of the test but are still regulated, due to the broad statutory definition of "security" under the 1934 and 1940 Acts.

[1] That's from the Investment Company Act of 1940, which seems to be definitional; there are some other definitions used elsewhere in the UCC and other Federal laws (largely from 1934), but they seem to be similar, and quite a few places punt to this definition. (Quoted in http://apps.americanbar.org/buslaw/newsletter/0014/materials... which is an annoyingly "locked" PDF that you will need to de-DRM; this is left as an exercise to the reader.)

[2] http://consumer.findlaw.com/securities-law/what-is-the-howey...

[Jd]

Here's the earliest legal work on this stuff which will probably interest you:

https://coincenter.org/entry/reporting-back-from-the-blockch...

[sillysaurus3]

Mobile friendly. (Mostly because I'm on mobile and no way am I going to swipe back and forth 40 times to read this):

any note, stock, treasury stock, security future, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security (including a certificate of deposit) or on any group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a “security,” or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing. [1]

[elmar]

> 1. It is an investment of money 2. There is an expectation of profits from the investment 3. The investment of money is in a common enterprise 4. Any profit comes from the efforts of a promoter or third party

------------

Using the "Howey Test" on Bitcoin you find that Bitcoin and almost all other cryptocurrencies should be considered securities.

  1. It is an investment of money 

yes, electricity and hardware are equivalent to money

  2. There is an expectation of profits from the investment  

yes

  3. The investment of money is in a common enterprise   

yes

  4. Any profit comes from the efforts of a promoter or third party.

yes, from Satoshi the original promoter and all subsequent miners.

[randomsearch]

Fails on (2). The only reason you expect to profit is you think (without rationale) that the value of the coins will increase. That’s pure speculation.

[Frogolocalypse]

You fail on number one I'm afraid, and go down from there. 1. By that rationale, buying baseball cards is buying a security. Maybe if you were the ISSUER of the cards, you'd have a point. But even then, it's tenuous. Maybe if they were selling pre-release cards? 2. So baseball card buyers are buying securities? 3. Where is this supposed bitcoin enterprise? 4. Where can I buy these coins from satoshi?

[elmar]

Using the "Howey Test" even CryptoKitties should be regulated by the SEC!

[freeone3000]

The IRS considers them securities for capital gains. I'd be surprised if the SEC saw it differently.

[complexmango]

Forget about technical definitions for a second, and consider a practical view from a businessperson.

A share of stock in a publicly traded company is a legally recognized right to the earnings/assets of the company. Of course, the company may choose to distribute the earnings, or reinvest them for greater future earnings/assets. However, all ICOs I've seen so far bestow no legal right to $$ denominated earnings/assets of any sort.

So an ICO to purchase a cashflowing asset (e.g. an apartment building) gives the owner of the token ZERO legal right to claim any of the cash from the rent collected or proceeds from a sale of the apartment building. However, the owners of stock in the corporation that purchased the building definitely have legal rights to the cashflow/proceeds from sale etc, even if their purchase was facilitated by the sale of virtual tokens. They have no legal obligation to pay the token holders anything whatsoever.

This is an over-simplified example to drive the point home.

[phaed]

> Basically, almost all ICOs so far are illegal.

They are only illegal in the US if they allow US citizens to participate, and the majority ban US citizens. So I think you have it backward.

[eximius]

Legally speaking, are they on the hook if they merely say that and don't take preventative measures against US citizens? It could come back to haunt them if they ever want to expand to the US down the road and didn't take precautions.

[londons_explore]

A simple dropdown saying "citizenship" and then turning red with an error message saying "United States is not allowed. Did you mean United Kingdom instead?" will encourage most people to put something else.

Then the company can fairly legitimately say "The customer lied to us about their citizenship. We took all reasonable measures to determine their citizenship, because there isn't a freely available database of which people have which citizenships"

[tfha]

My understanding is that the SEC expects you to require proof of an alternate citizenship via a passport. Simply having a drop-down that users can lie about by clicking a box or using a VPN is not good enough.

[AlexCoventry]

Yes, they are on the hook in that case. (Not lawyer, not legal advice.)

[AlexCoventry]

Unless they're using expensive KYC procedures, I doubt that many ICOs have done enough to exclude US investors that the law will excuse them from SEC regulations.

[Kiro]

Why would I care what the SEC thinks if I'm outside the US?

[beagle3]

Because of FATCA and friends, essentially all financial institutions in the world now report to the US and follow its rules. If you are not a US taxpayer, and outside the US, they don't directly apply to you, but they have already affected the regulations that do apply to you.

[noway421]

This is literally why we need crypto

[ckastner]

Funnily enough, I drew the opposite conclusion from grandparent's comment: To me, this is literally why the I'm-beyond-government-control crypto dream cannot work.

[killjoywashere]

You should be aware that the decision of jurisdiction can pull you into courts you never knew existed, in jurisdictions you wouldn't imagine could exist. Finding a country that won't extradite you may become an issue of treaty, or even a string of treaties. IANAL, but I sat in on one of my brother's international law classes, which quickly convinced me to not fuck around in that arena. Lawyer up early.

[ars]

Most countries have securities laws, not just the US.

Are you sure your country doesn't?

[scotty79]

Most countries define security as either equity or fixed income instrument and that's all. Nothing of the US "maybe it is, maybe it isn't ... is there expectatiom of profits? ... so maybe it is or it isn't"

My country has a list of things that are securities written into the law. Until they write in there crypto tokens they are not securities.

[sah2ed]

Filecoin's ICO seems to be one of the few exceptions to follow securities law.

https://www.cryptocoinsnews.com/filecoin-ico-raises-record-2...

[Alex3917]

> Filecoin's ICO seems to be one of the few exceptions to follow securities law.

The SEC commissioner said that no ICO has registered as a security so far. Given that Filecoin was one of the only ICOs to openly advertise themselves as being a security, it seems like they could be in even more legal trouble than everyone else.

[tfha]

They filed a Reg D exemption, which is different from a registration, but allows you to legally offer securities if you comply with a narrow set of restrictions.

[phaed]

KYC is not expensive when you're raising millions. Most do them.

[htormey]

Here’s a question. I’m a permanent resident (green card holder) who lives in the USA. Is it legal for me to invest in ICOs?

[ikeboy]

Most of the benefit of doing an ICO is that investors are throwing a ton of dumb money into ICOs.

[modeless]

Exactly. And SEC regulations are designed to stop dumb money from going into risky investments. If you comply then you can't cash in on that dumb money and there's no point to doing an ICO.

[ikeboy]

A lot of that dumb money is being put in by wall street, so not sure you're right.

[modeless]

This is not my impression. It seems to me that the dumb money is people who made early fortunes in crypto or regular people looking to ride the next pump and dump. If Wall Street money is coming in it's mostly to take advantage of the dumb money for a quick profit, for example by getting preferential pricing or timing so they can sell to later investors).

[ikeboy]

I think most of the money that's going in is by people with more than the 250k limit. Above that you can market pretty much anything as long as you're honest, I think. So I don't think it would be affected much, except that ordinary users wouldn't be able to use it (unless they could get it on exchanges, which may be under different laws?)

Not a simple question, I guess.

[dweekly]

What's the 250k limit? (If you're speaking of Accredited Investors, the limit is $1m in net worth not including primary residence.)

[username223]

> If Wall Street money is coming in it's mostly to take advantage of the dumb money for a quick profit,...

Examples? Is Goldman playing in the current bubble?

[thinkmassive]

Yes. https://www.bloomberg.com/news/articles/2017-12-07/goldman-s...

[mrschwabe]

Is dumb money also considered money that is going towards free speech activists?

Why do you think the SEC should be arbitrators of what and what is not dumb money?

[api]

There is a second benefit.

Right now the crypto space is like the entry point of an MMORPG. Picture a bunch of dollars entering and then walking around and trying things. "What do I do here?" "How do I play?"

Obviously it's bubbly but that's not the point. The point is that all this new money entering the crypto space is looking for something to do.

Putting out an ICO will attract some of it. It is not accessible in any other way.

... and unfortunately ICOs and crypto have sucked a lot of the air out of conventional crowdfunding, equity crowdfunding, and small time angel investing. So crypto is where the money is and you have to go crypto to reach it.

It's dumb but markets are not rational.