It comes as a surprise that Ether has been declared as not being a Security Token! With this sudden change in order, Ether, core to Ethereum Blockchain finds itself in quite a different mode because it shall be exempted from the ‘Federal Securities Laws’.
Such a conclusion comes after the Director of Corporate Finance from the United States SEC (Securities and Exchange Commission) announced that the agency no longer considers Ethereum as well as Bitcoin as Securities. This news came to public’s notice at the Yahoo Finance’s All Market Summit, where William Hinman, the Director of Corporate Finance at SEC clarified on regulator’s decision.
Before you dwell further, let us get a hang of things that relate to cryptocurrencies; one of them being ‘Security Token’ while other is ‘Utility Token’.
The Big Difference: Utility vs Security Token
Some of the readers here may be aware of ICOs and in case you do not then don’t be overworked, continue reading to know more about it. You shall learn more about ICO, tokens, and cryptos:
What is an ICO?
“ICO is an abbreviated version of Initial Coin Offering; it is unregulated means through which funds can be raised for any cryptocurrency venture. Generally, it is startups who tend to use ICOs as it turned out to be an easier process when compared to raising capital via banks or similar other capitalists.”
Crypto Tokens? What are they?
“In simple words, Crypto Tokens are tradable asset built with Ethereum as its base (for the most part).”
Difference Between Utility Tokens and Security Tokens
“Utility Tokens: Tokens are tokens after all, however; the difference lies in the way these tokens are put in to use. Let us now speak about Utility Tokens, and as the name says, these are User Tokens representing access to a service. Another aspect for Utility Tokens is that they have not been designed in any manner to be used for investment purposes resulting in no Federal Securities Law being applicable to them. This is the cause for SEC recently declaring that Ethereum is not a Security Token.”
“Security Tokens: On the other hand, Security Tokens have been specifically created to be a tradable asset. This results in them being subject to all the Federal Securities Regulations. As a matter of fact, Security Tokens are capable of issuing tokens that go on to represent company stock’s shares.”
Looking carefully at similar aspects, William Hinman, Director of Corporate Finance at SEC stated the changes. Furthermore, with United States’ Securities and Exchange Commission stepping in, there shall be a new direction in the world of cryptocurrencies along with its working conditions.
SEC shall determine as to whether Securities are being sold according to the laws laid down by the authorities or not. They would also be considering whether they come under the Laws of Regulatory Control of the Securities and Exchange Commission. The Director went on to add that at this juncture, that there shall be a lot of confusion regarding securities laws and the like.
However, to have a smooth run of the things across the structure, a System shall be in place to ensure that guidance is being given to everyone on use of this digital asset as well as to determine which is a Security Token and which one is a Utility Token. Most importantly, regulations are to be strictly followed by people involved in order to utilize the best of best results that these tokens provide; even SEC would be clarifying doubts that may arise post this announcement on Security Tokens.