Digital Tokens: Rethinking the term “Cryptocurrency”

Guest post by Daniel DeWolf, Rachel Gholston, and Marine Bouaziz of Mintz Edge

What are the similarities between a one dollar bill, a share of a company, and a pre-paid gift card? The answer is……..not so much! The same is true of the similarities between virtual currencies, security tokens, and utility tokens; in truth, not so much. Yet, if you follow the world of digital tokens in the media and popular press, you would think that virtual currencies, security tokens, and utility tokens are all very similar because they are often concurrently and interchangeably discussed under the topic of “cryptocurrency.”  On the news, in numerous blog articles, and even in investment prospectuses, “cryptocurrency” is used to describe virtual currencies, security tokens, and utility tokens even though they are very different concepts, each of which is subject to different legal frameworks and regulations. While each of these items are created on distributed ledgers using blockchain software, from both a legal and a functional perspective, the similarity ends there. We should re-think the use of the word “cryptocurrency,” and instead use the terms that are specific to the categories that have developed: virtual currencies, security tokens, and utility tokens.  In our descriptions below we provide further information on the meanings of each of these categories.

Continue reading

Takeaways from SEC’s First Ever Enforcement Actions Against Cryptocurrency Firms for Failing to Register as a Broker-Dealer and Investment Company

Guest post by Michael S. Dicke and Alexis I. Caloza of Fenwick & West LLP

Over the past year, the U.S. Securities and Exchange Commission has ramped up its scrutiny of cryptocurrencies and other digital token offerings. On Sept. 11, 2018, the SEC escalated its crackdown when it announced a pair of settled enforcement actions against non-issuers participating in the offer and sale of cryptocurrencies it deemed unregistered securities. As with prior cryptocurrency cases, the SEC charged the defendants with offering or selling securities without filing a registration statement or having a valid exemption from registration. However, these cases mark the SEC’s first cryptocurrency enforcement actions against non-issuers for failing to register as broker-dealers and investment companies. As such, they highlight the SEC’s continuing efforts to bring the purchase and sale of cryptocurrencies within a regulated framework, including by targeting third parties who facilitate the purchase and sale of such assets.

Continue reading