For long, the crypto space has been an investment world largely viewed with much suspicion mainly because of its volatile nature. However, what has really made it lose most is the lack of a definitive regulatory framework that would foster investor confidence, especially in the wake of recent reports of scams and fraud schemes happening in this fast-growing space.
Now, two congressmen have stood up to do something about this situation; to support a motion that would give the space more clarity especially in regard to the question of whether cryptos are securities or not. The two are Congressmen Warren Davidson of Ohio and Darren Soto of Florida.
What’s The Problem?
For one, decentralized systems don’t really flow well with the current regulatory policies. That’s according to one Kristin Smith, a popular lobbyist and supporter of the blockchain technology. To cover that angle, the Token Taxonomy Act advocates that the existing securities policies would not be used to define the status of cryptocurrencies once they evolve into networks.
The logic here is that a good number of cryptos are actually network platforms on which developers can build stuff. In fact, William Hinman has been quoted as saying that Ether and Bitcoin cannot be considered securities since they are purely decentralized systems with no controlling authorities behind them. William is SEC’s head of the Division of Corporation Finance. At a Senate hearing early in the year, SEC Chairman Jay Clayton echoed William’s sentiments, but he added that most other cryptos, including ICOs, are actually securities. In that sense, and given that cryptos keep advancing in technology and adoption techniques, the introduction of a new definitive framework like the Token Taxonomy Act would solve that problem.
Token Taxonomy Act: What’s About It?
According to Davidson, a new legislation by the US Congress targeting the crypto space would ensure that this new and vibrant industry isn’t subjected to the old policies that define securities. For one, that framework was defined 72 years ago, which means that it wouldn’t be prudent to use it to define or regulate an industry that came up a few years back.
If the Token Taxonomy Act passes, cryptos will no longer be considered securities on the same basis as used on stocks. As such, SEC would need to amend its policies to incorporate a new separate definition for digital tokens.