The following article originally appeared in CoinDesk Weekly, a custom-curated newsletter delivered every Sunday exclusively to our subscribers.
“I want to quash this false narrative that’s been going around for the past two years that you simply can separate blockchain from crypto. You can’t.”
No, that’s not a bitcoin maximalist, a HODLer or a crypto-anarchist talking. It’s a regulator.
And Sopnendu Mohanty, the chief fintech officer of the Monetary Authority of Singapore, wasn’t preaching to the crypto-converted, either, when he issued this reminder that native tokens are integral to a decentralized blockchain.
Rather, he was addressing an area filled with curious but wary central bankers and international development officials, all of whom were attending a G20 forum in Riyadh, Saudi Arabia on technology and financial inclusion.
It was refreshing to listen to someone within the official sector disagree with the simplistic “blockchain without bitcoin” refrain that gets sold to corporate and government leaders who don’t always realize that their problems could be better solved with a less cumbersome distributed database.
That wasn’t only because it’s important for people to know how native digital tokens are an integral a part of the motivation and security models upon which open, permissionless and censorship-resistant transaction-recording systems are built. it had been also because Mohanty’s intent was to assist shape sensible crypto regulation.
He was urging regulators to adopt nuanced policies that recognize certain crypto-tokens belong to a replacement sort of technology for improving economic coordination, one that can’t be jammed into a decades-old law framework. And it’s also encouraging to ascertain evidence that he’s not alone in thinking this manner .
Various regulatory authorities round the world are opening up to the thought that, when tokens have a clearly functional role within a blockchain network, it’s better to manage them with existing consumer protection and anti-money-laundering laws than with burdensome securities regulation.
To be sure, they’re doing so somewhat nervously; many are understandably concerned about investors being duped by scammy ICOs in Wild West token markets.
Nonetheless, their gradual yet earnest attempts to define these concepts open the door to blockchain technology’s more meaningful integration into the worldwide economy.
Here, Singapore’s financial institution is leading the way. during a March speech, MAS director Ravi Menon laid out a transparent rationale for distinguishing “good” tokens from “the bad and therefore the ugly.”
The Swiss Financial Market Supervisory Authority, or FINMA, has also been proactive. It came up with a useful taxonomy that divides tokens into three categories: payment tokens (bitcoin, litecoin and co.), utility tokens (ether and, in theory a minimum of , various sorts of ERC-20 tokens) and asset tokens, with only the latter being subject to securities laws.
Other developed-country jurisdictions also are wading in. Both Malta and therefore the U.K. dependency Gibraltar have shown an open regulatory posture toward ICOs and token exchanges. Meanwhile, Caribbean countries like Bermuda are developing regulatory frameworks for tokens that might promote blockchain innovation while preserving their status as trusted domiciles for foreign financial institutions.
Governments also are taking action at the provincial level. Wyoming’s state legislature passed legislation defining utility tokens as a replacement asset class and exempting them from securities regulations.
Until last month, it appeared that the U.S. Securities and Exchange Commission was taking the precise opposite approach. In February, Chairman Jay Clayton, speaking before the Senate, said, “I believe every ICO I’ve seen may be a security.” The implication was clear: most, if not all, of the many tokens already sold during this manner should have registered with the SEC and complied with related disclosure and compliance requirements.
In stoking fears of a dragnet approach from the SEC against all tokens, this statement prompted ICO issuers to ring-fence themselves from the U.S. markets. It also gave a lift to purveyors of “security tokens,” who don’t pretend to be inventing anything quite a more efficient means of selling securities to investors.
But since then, the SEC has also softened its stance. Clayton later told CNBC that bitcoin wouldn't be classified as a security. And, then, during a landmark speech last month, William Hinman, the SEC’s director of the Division of finance , answered an issue that had been nagging the ethereum community. While Hinman suggested that ether may need been a security at the time of the ethereum proto-ICO in 2014, he said it doesn't meet that definition today due to how it functions within the ethereum network.
This wasn't as proactive as other jurisdictions’ moves to explicitly carve out the concept of a utility token. Hinman was merely defining what ether wasn't . But by coming thereto conclusion, he had recognized the unique qualities of this particular token: how ether may be a quite “crypto fuel,” wont to buy the decentralized computation by which smart contracts are executed on the ethereum platform.