Great News for Altcoins: Hit With $24 Million Fine

Did you hear?

Earlier this week, U.S. regulators fined cryptocurrency company for its ICO of EOS, the decentralized app and enterprise platform.

U.S. Securities and Exchange Commission (SEC) slapped the company with a $24 million fine for raising $4 billion without its approval. That fine covers the token used for the ICO, not the token it later created for its EOS blockchain.

(EOS moved from an Ethereum smart contract to its own blockchain after the ICO.)

You may think that fine is barely a tap in the wrist, as CCN reports.

How a Crypto Startup Escaped With a Comical Fine After Illegal $4 Billion ICO

You may also think this action is “capricious,” as @lex_node says in a Twitter thread:

You may even think it’s really odd that the original token broke the law, but the current token does not.

Maybe so, but U.S. rules are based on 80-year-old securities laws that make no sense for any tokens issued on a blockchain. As a result, you get some bizarre results.

Clear but not complete decision

Basically, here’s what the SEC is saying:

If you sell a cryptocurrency on the premise that your company will do something to make it valuable, you have to register with the SEC. If you’re just creating money and giving it to people, you don’t need to register.

That sounds simple and it makes sense on one level. Dave and Buster’s shouldn’t have to register with the SEC, right?

Once you get into the nitty-gritty, you realize it’s not that simple. With the decision (and the less-known Nebulous decision), SEC raised some new regulatory questions that aren’t worth getting into here. It will need to clean up some inconsistencies.

This is frustrating for cryptocurrency companies to deal with, I’m sure. Nobody likes regulators.

But on this specific case, SEC’s decision was clear. In time, regulators and businesses will have to work through the other issues.

And the good news?

SEC’s settlement only covered the original Ethereum smart contract. If it believed the current EOS token also broke the law, it would’ve said so. It didn’t do that.

Essentially, SEC acknowledged that EOS tokens do not fall under U.S. securities laws.

By letting EOS off the hook, SEC continues to carve out a legal path for people to create new cryptocurrencies. Its message is clear: “work with us and you’ll be ok.”

If you follow the SEC’s rules, you can issue an ICO.

As a result, businesses can experiment with new uses of blockchain. They can make money off of those efforts. Blockstack and YouNow already launched their ICOs, and you can expect more to follow.

Cleaning Up Their Act

For cryptocurrency to thrive in the U.S., you need this activity. Otherwise, we’ll return to the days of scam white papers and bogus vaporware. Or worse, a ban on new crypto.

I expect you’ll start hearing people say “security token offerings” or STOs instead of ICOs. It’s all part of the movement to make cryptocurrency seem normal and regulated.

After all, ICOs are scams. STOs are financial innovation!

(Fundamentally they are the same. But, you know, branding and all that…)

Along with the SEC’s decision to allow ICOs, the U.S.’s biggest cryptocurrency exchanges created the Crypto Rating Council and a website that rates which digital assets are probably securities.

On top of that, Bakkt and ErisX got the U.S. government’s approval for physically-settled bitcoin futures. Big firms have created institutional custody platforms. Legitimate companies now provide market surveillance and industry forensics.

Cryptocurrency continues to mature, and U.S. regulators continue to let it do so.

One step closer to mainstream

The SEC’s decision isn’t perfect.

You can’t expect regulators to only make decisions you agree with. Cryptocurrency needs to grow a lot bigger and more powerful before it can dictate terms to the U.S. government.

Meanwhile, take wins when you can get them.

To get the masses into cryptocurrency, we need to make it safe and easy. Lack of regulations is one of the two reasons 75 percent of all investors say they avoid bitcoin. It’s also a big reason so many cryptocurrency companies avoid setting up in the U.S.

Why does that matter? Isn’t cryptocurrency a global technology? Aren’t other countries way ahead of the U.S.? Can’t anybody buy and use cryptocurrency?

Yes, but the U.S. owns a quarter of the world’s wealth. Its businesses contribute about one quarter of the world’s GDP. Its investment firms hold over half of the world’s investment capital.

That’s a lot of money. Right now, hardly any of it is going into the cryptocurrency markets.

Obey now, win later

If you want crypto to prosper, you need U.S. money.

To get U.S. money, you need the SEC on your side.

To get the SEC on your side, you need to do what it says.

Cryptocurrency entrepreneurs have started doing what the SEC says.

The money will follow.


Mark Helfman is author of Consensusland, a Readers’ Favorite 5-star book about a country that runs on cryptocurrency. You can also catch him on Medium. He publishes every Friday.

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