[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?

[dkersten]

Usually the companies that make trading cards can also print more.

[tomkarlo]

Not generally, because there's no promise of any future utility or increase in demand, at least by the manufacturer. People buy them because they hope they'll appreciate in value, but that just makes them the subject of speculation, not a security.

[xorcist]

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

[gomox]

Can you point to a specific ICO where the token contract allows for additional token issuance? The ERC20 reference code does not include functionality for this, nor for replacing the token code at a later date.

[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.