Now, in plain language, what’s a “security,” and why does it matter?
If you make an investment in a company, and they give you something that represents your investment, then that thing is a security. Think of a share of stock in a company - long ago, they would actually give an investor a signed Stock Certificate in return for an investment - the Stock Certificate “secures” your ownership of a piece of the company. That’s literally why it’s called a “security.”
Putting it another way - if they’re selling you something in order to raise money to make a company, and that thing you’re buying is supposed to make a profit for you because of the company, that’s a security.
Years ago, there used to even be “door to door” salespeople selling Stock Certificates to raise money to start companies. Some would go to wealthy business people, but others would go to anyone who’d let them in the door. They’d try to convince people the company would be fantastic, and that their investment was a sure thing to make them rich.
They’d sell these investments in dubious companies to anyone who would give them cash. Some of them were outright frauds who would happily take your grandma’s life savings and leave her with worthless paper.
Some of them were real business investments, but there were a lot of scams, and people who couldn’t tell the difference were getting financially ruined! (To some people, this may sound a little like the ICO craze of 2017.)
This is why governments began regulating the sale of securities. Some of the rules require the people forming the company to register themselves and to disclose a lot of facts and information. The intent was to make sure people weren’t being lied to.
Other kinds of rules around offerings were intended to make sure that only people with plenty of money would get involved in risky ventures - “accredited investors.” The theory was that people who had a lot of money probably know a thing or two about investments… and if not, they certainly have enough money to hire someone to give them good advice… and if the investment fails, they won’t suddenly be ruined, because they have a lot of money.
So the regulations are supposed to “protect people.” On the other hand, these regulations can also get in the way of people trying to honestly raise money to start honest businesses, and that’s a problem - it often takes a lot of time and money to meet all the disclosure laws. And while an investment which is limited to accredited investors is intended to “protect” people with less money, it also means that to have the opportunity to invest and make money, you have to already be wealthy. For lots of people, this just sounds like the law is made to help the “rich get richer.”
For many people in the crypto space, cryptos are an opportunity to return to people the ability to raise funds or invest. For scammers, of course, it can be an opportunity to scam! We all have to be very careful with our investments.
Regardless your personal position on regulations, the following is true: big companies that work within the laws and that want to participate in the crypto space want to know what’s what. They want to know if they’ll have big legal implications from getting involved with particular cryptos. From that perspective, more clarify is a good thing.
The situation with Bitcoin Gold (BTG) is clear, because it’s not a security… But cryptos which are securities will likely face more regulations and legal hurdles. This is an area still being explored today. Technology and society often advance faster than the legal frameworks we live in!
What do you think?