On Friday, Crowdfund Insider ran a story entitled “ICOs are Securities: Token Based Offerings Poised for a Rude Awakening as US Regulators May Soon Act”.
Digital Token Basics
Frequently, we observe overheated dialogue on the topic of ICOs. What is often lacking in these discussions is a comprehensive understanding of what digital tokens are and how blockchain technology works.
The reason tokens and token sales defy easy and across-the-board characterization is simple: digital tokens are no more or less than numbered entries on a blockchain-based electronic ledger. These ledger entries may indeed be structured to look very much like traditional “securities” – representing promises to pay amounts in the future, ownership, or other interests in an entity, etc.
However, digital tokens can also represent units of value, which may make them look more like commodities; they can function as property records or warehouse receipts; they can entitle owners to the right to use a software system, which makes them look more like licenses. Some digital tokens simply may represent data points in a larger data structure.
This is what many lawyers and others mean when they caution that there is no single type, nor set of clear categories, of digital tokens. There is tremendous flexibility in how to structure digital tokens and what those digital tokens may represent.
With barely a year of active use of digital tokens, it is far too soon to make strong pronouncements about what category or functionality “most” digital tokens fall into. New applications and uses of digital tokens are being tested and created in the marketplace at rapid speed.