The US House of Representatives has reintroduced the Token Taxonomy Act, less than two weeks after the Securities Exchange Commission (SEC) published its framework on tokens and ICOs, raising the possibility they would be treated as securities and regulated.
Reintroduction of the Act now means the prospect of cryptocurrencies being regulated as securities now recedes, much to relief of those who consider crypto by design and necessity a decentralized and unregulated peer-to-peer financial system.
Republican Representative for Ohio, Warren Davidson, proposed the Token Taxonomy Act – and emphasized the importance of its effect on encouraging innovation and investment in the crypto space:
“Without it, the US is surrendering its innovative origins and ownership of the digital economy to Europe and Asia,” he said.
“Passing this legislation, Congress would send a powerful message to innovators and investors around the world that the US is the best destination for Blockchain technology.”
The Act amends two longstanding pieces of legislation that would classify cryptocurrencies as securities and open the way for regulation – The Securities Act of 1933 and the Securities Act of 1934.
The framework published by the SEC relies on the 1946 Howey Case to try and establish whether tokens and ICOs are, in fact, securities.
The Token Taxonomy Act was first introduced in December 2018 – the reintroduction of the Act will establish the regulatory powers of bodies such as the Commodity Futures Trading Commission [CFTC] and the Federal Trade Commission [FTC] – and also replaces existing State laws regarding US crypto industry.
The Token Taxonomy Act will also form part of the National Securities Markets Improvement Act.
Read the Token Taxonomy Act online
Twitter newbie Xrp jamest @XrpJames hunted down the actual Act and uploaded the link.
Here is the actual token taxonomy act. https://t.co/9O3pRI8ZjJ
— Xrp jamest (@XrpJames) 9 April 2019
The Introduction to the Act reads:
To amend the Securities Act of 1933 and the Securities Exchange Act of 1934 to exclude digital tokens from the definition of a security, to direct the Securities and Exchange Commission to enact certain regulatory changes regarding digital units secured through public key cryptography, to adjust taxation of virtual currencies held in individual retirement accounts, to create a tax exemption for exchanges of one virtual currency for an-other, to create a de minimis exemption from taxation for gains realized from the sale or exchange of virtual currency for other than cash, and for other purposes.
The Act sets out plans to clarify current inconsistencies in regulation and between States regarding crypto, including establishing guidelines.
Token Taxonomy Act and SEC
The Act also calls on the SEC to enact regulation regarding digital currency secured using public key cryptography – as well as calling for legislation to make trading one cryptocurrency for another not liable to taxation.
By coincidence, as social media was debating the reintroduction of the Act to Congress, former founding team member at Messari Crypto, Katherine Wu @katherineywu, tweeted news of Blockstack Token LLC filing for a $50 million USD Token Offering – which she pointed out would make Blockstack, once qualified, “the first ever token company (to my knowledge) to successfully offer tokens under Regulation A”.
Once qualified, Blockstack would become the first ever token company (to my knowledge) to successfully offer tokens under Regulation A.
One headache that has plagued token companies in the U.S. is over legally compliant token funding/distribution methods. This is a huge step! https://t.co/rt9UksJHRp
— Katherine Wu (@katherineykwu) 11 April 2019
Regulation A+ is an alternative to an Initial Public Offering (IPO) and helps smaller companies and startups to raise capital.
Parent company Blockstack said in a statement:
“Blockstack Token LLC, our wholly-owned subsidiary, today announced that it has filed an offering statement with the Securities and Exchange Commission (SEC) to conduct a $50 million token offering using the SEC Regulation A+ framework. Upon approval, the offering is expected to be the first SEC-qualified token offering of its kind. The net proceeds of the offering will be used to accelerate the development of the Blockstack decentralized computing network and app ecosystem.”
The Future for Crypto after the Token Taxonomy Act
After the SEC framework was published, the crypto community raised concerns as to how projects already in the pipeline might be affected if tokens and ICOs were classed as securities and regulated.
However, the Act make clear that crypto should not be treated as securities – although it might open the way for cryptocurrency to be treated as a new category of currency legally.
The emphasis on supporting innovation and the concerns over possibly surrendering the digital economy to other nations seems to suggest that governments are beginning to realise the value of the crypto space and the need for it to operate as a decentralized payment and investment platform to thrive.
Rather than the cryptocurrency markets being seen as something to be suspicious of, crypto is actually expanding the possibilities of finance. Cryptocurrency came to market in the wake of the 2008 financial crisis and has become currency with a conscience, enabling companies like Celo to develop apps that allow access to a payments system to the unbanked and under-banked – as well as allowing the Blockchain-based crowdfunding platform, WHIRL, to start developing platforms to help democratize finance.
“WHIRL is built to unite the world in mutual self-support and create a platform with real social impact that helps people realize their dreams,” says co-founder Roel Wolfert.
According to WHIRL, like cryptocurrency and blockchain, crowd-funding “has stagnated over recent years due to fraud and over-saturation, resulting in declining success rates”.
“The success rate of fundraising campaigns through Kickstarter have dropped to approximately 35% while the same metric sees GoFundMe come in at a paltry 10%,” says Wolfert.
“WHIRL intends to resolve these problems by listing a limited number of campaigns at once and additionally incentivizing backers with a fair and transparent points system, called ‘Karma’.
“Essentially when a participant backs another campaign, he/she earns ‘Karma’ points, which then feeds into how much can be raised by them and when a campaign can go live when they come to seek funding themselves.
“It’s a pay it forward approach. Those aspects together with the development of a contributing culture set WHIRL’s offering apart from that of the current incumbents in the crowdfunding space.”
Cryptocurrency has sparked something of a revolution and now it appears the regulators and central government are beginning to see how freedom of movement in the crypto space is needed to enable innovation and investment that could benefit everyone.
Read the 2019 version of the Token Taxonomy Act here.
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