Coin Center, a US-based non-profit research and advocacy centre for cryptocurrencies, released a paper today offering a guide framework for the regulation of cryptocurrencies as securities.
Authored by Peter Van Valkenburgh, Coin Center's director of research, the paper presents a framework based on the Howey test for an investment contract, as well as the underlying policy goals of securities regulation.
Coin Center's work, says Van Valkenburgh, found that several "key variables" within the software underlying a cryptocurrency, and in the community that runs and maintains that software, are indicative of investor or user risk.
The paper examines these variables, and explains them in depth. Further it maps them to the "four prongs" of the Howey test to determine when a cryptocurrency resembles a security and might therefore be regulated as such.
Larger, more decentralized cryptocurrencies such as bitcoin, pegged cryptocurrencies such as sidechains, as well as distributed computing platforms like Ethereum, do not easily fit the definition of a security and also do not present the sort of consumer risk that is best addressed through securities regulation, the paper argues.
Van Valkenburgh added:
"We do find, however, that some smaller, questionably marketed or designed cryptocurrencies may indeed fit that definition."
The goal of the report is to help securities regulators separate "the scams from the true innovations", it states.
Packed with notes and references, the paper provides a thorough overview of cryptocurrencies and related technologies, a breakdown of their functions, strengths and weaknesses, as well as presenting guidance for regulators with each section.
Also covered are variables that can affect user and investor risk, such as software and community variables, including transparency, decentralisation and developer profit.
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