Coin Center, a leading non-profit research and advocacy centre for cryptocurrency technologies such as Bitcoin, has released a report that provides a framework for securities regulation of cryptocurrencies— e.g. Bitcoin and derivative projects or “alt-coins.”
“This permissionless ecosystem for invention is one of the reasons we should celebrate and support the technology: it helps to break down many of the structural barriers that divide us, whether as producers and consumers, banked and unbanked, or rich and poor. The openness of the ecosystem also means that many will misuse the technology for selfish and malicious reasons”, the paper said. “It is the goal of this report to help regulators, in particular securities regulators, identify the scams from the true innovations.”
Peter Van Valkenburgh, director of research at Coin Center and author of the report, explains that the framework is based on the Howey test for an investment contract as well as the underlying policy goals of securities regulation.
“We find that several key variables within the software of a cryptocurrency and the community that runs and maintains that software are indicative of investor or user risk. These variables are explained in depth and mapped to the four prongs of the Howey test in order to create a framework for determining when a cryptocurrency resembles a security and might therefore be regulated as such”, Van Valkenburgh added.
He said that larger, more decentralized cryptocurrencies (such as Bitcoin), pegged cryptocurrencies (i .e. sidechains) as well as distributed computing platforms (such as Ethereum) do not easily fit the definition of a security and also do not present the sort of consumer risk best addressed through securities regulation. However, some smaller, questionably marketed or designed cryptocurrencies may indeed fit that definition, he added.
