Ether Tokens Are Likely Securities (2016)

So, follow-up question: are Team Fortress 2 hats securities? It arguably meets all four points: Valve gets money for releasing hats into the TF2 ecosystem, TF2 is a common enterprise, hat speculators expect to make a profit through simple capital appreciation, and the hat owners rely on the effort of Valve to develop TF2 for their profits.

The IRS still defines cryptocurrency as a &quot;product&quot;, not a security. [1] It is to be treated as such in your taxes. I think that&#x27;s the best indicator of the state of affairs. They provided detailed guidelines and answer many common questions 2014. [2] That may change but I&#x27;m pretty comfortable with not treating it as a security for the moment.<p>Also, since were treating it as a product, I view contributing to Ether based ICO&#x27;s as not a sale of my &quot;product&quot; since the product is still the same, just tied to a smart contract. I see it the same as buying a physical product and then exchanging it for another physical product at the same store. I don&#x27;t incur taxes when I exchange.<p>[1] <a href="https:&#x2F;&#x2F;www.irs.gov&#x2F;uac&#x2F;newsroom&#x2F;irs-virtual-currency-guidance" rel="nofollow">https:&#x2F;&#x2F;www.irs.gov&#x2F;uac&#x2F;newsroom&#x2F;irs-virtual-currency-guidan...</a><p>[2] <a href="https:&#x2F;&#x2F;www.irs.gov&#x2F;pub&#x2F;irs-drop&#x2F;n-14-21.pdf" rel="nofollow">https:&#x2F;&#x2F;www.irs.gov&#x2F;pub&#x2F;irs-drop&#x2F;n-14-21.pdf</a>

What else could they be other than securities? That&#x27;s the purpose they serve.<p>From Investopedia: &quot;A security is a fungible, negotiable financial instrument that holds some type of monetary value. It represents an ownership position in a publicly-traded corporation (via stock), a creditor relationship with a governmental body or a corporation (represented by owning that entity&#x27;s bond), or rights to ownership as represented by an option.&quot;<p>That was the design of tokens from the beginning, and they were created for the purpose of being securities.<p>It should be no surprise that they&#x27;re regulated as such.

Can we make a cryptocurrency that automatically only has value iff it is not declared a security by the SEC?<p>Whenever it is not declared a security, there is an expectation of profits, which would now qualify it as a security under the Howey Test. But if it is then declared a security, then there is no expectation of profits, which would subsequently disqualify it as a security under the Howey Test.<p>I really REALLY want to see this happen.

I struggle with point number 4, &quot;Did token holders rely on the efforts of others for their (expected) profits?&quot;.<p>It is the effort of (early) investors that make&#x2F;made Ether out of their own work (mining) that creates the token supply and because Ether is needed in order to interact with Ethereum DApps, it&#x27;s the demand for the token that makes it gain market value in exchanges. This seems to suggest that there is an effort on the part of the investor.<p>Many ICOs will simply state they are out of limits for US investors and again we see that regulators like democracy and capitalism but don&#x27;t really want it to be accessible to _everyone_.

Since the SEC investigative report concluded the DAO tokens were securities, one of the biggest questions is: are there any factual distinctions between the sale of DAO tokens and the sale of Ether.<p>I really can&#x27;t understand why the SEC spent its time on the DAO seeing as the token purchasers essentially agreed by majority vote to null and void their purchase, meanwhile the Ether sale did in fact become binding.

Very interesting, but SEC could have gone after Ethereum but explicitly did not and went after the DAO which was issued on top of Ethereum. My interpretation is that SEC doesn&#x27;t think Ether is a security

Its amazing the logical hoops people will jump through to defend their rights to invest in pyramid scams.

The SEC notice also mentions buyers violating some Section 5. Does that mean that buyers are also at risk here for simply purchasing some tokens that were later found to be unregistered securities? That seems rather chilling.

What about cryptocurrencies then that could as well be seen as crypto assets. Instead of launching a token on Ethereum they could launch a copy of Ethereum. Investors can buy &quot;in&quot; or use it to trade&#x2F;pay. Premining is common and used to pay for building out the infrastructure of such a system. How can one gov entity power grab and be in charge of an entire global emerging technology. Something does not seem right in this picture.

Ether tokens have a clear use-value. They don&#x27;t provide holders with any passive income from profits earned by a common enterprise. I am not a lawyer, but in my opinion, the idea that they&#x27;re securities is ridiculous.<p>This is a good analysis of how US securities laws relate to tokens:<p><a href="https:&#x2F;&#x2F;www.coinbase.com&#x2F;legal&#x2F;securities-law-framework.pdf" rel="nofollow">https:&#x2F;&#x2F;www.coinbase.com&#x2F;legal&#x2F;securities-law-framework.pdf</a>

Is selling new Kanye West sneakers, yeezy&#x27;s, a security? The resale price is usually 5x the retail price. I know there are some edge cases but how you market it can be the difference between illegal and legal. I think a problem with the DAO token, there was voting rights. A simple token coming off as a commodity should be safe

<a href="http:&#x2F;&#x2F;www.investopedia.com&#x2F;terms&#x2F;s&#x2F;security.asp" rel="nofollow">http:&#x2F;&#x2F;www.investopedia.com&#x2F;terms&#x2F;s&#x2F;security.asp</a><p>&quot;It represents an ownership position in a publicly-traded corporation (via stock), a creditor relationship with a governmental body or a corporation (represented by owning that entity&#x27;s bond), or rights to ownership as represented by an option.&quot;<p>Stop it!

By this criteria, wouldn&#x27;t this make art of an artist (fractional ownership) sold by an art dealer a security and therefore subject to SEC registration? Basically tokens are a security because the SEC says so. I haven&#x27;t seen a good explanation otherwise.