Michael J. Casey is the chairman of CoinDesk's advisory board and a senior advisor for blockchain research at MIT's Digital Currency Initiative.
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 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 a room full of 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 hear someone in the official sector take issue with the simplistic "blockchain without bitcoin" refrain that gets sold to corporate and government leaders who don't always realize that their problems might be better solved with a less cumbersome distributed database.
That wasn't only because it's important for people to understand how native digital tokens are an integral part of the incentive and security models upon which open, permissionless and censorship-resistant transaction-recording systems are built. It was also because Mohanty's intent was to help shape sensible crypto regulation.
He was urging regulators to adopt nuanced policies that recognize certain crypto-tokens belong to a new type of technology for improving economic coordination, one that can't be jammed into a decades-old securities law framework. And it's also encouraging to see evidence that he's not alone in thinking this way.
Various regulatory authorities around the world are opening up to the idea 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 global economy.
Here, Singapore's central bank is leading the way. In a March speech, MAS Managing Director Ravi Menon laid out a clear rationale for distinguishing "good" tokens from "the bad and 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 at least, various kinds of ERC-20 tokens) and asset tokens, with only the latter being subject to securities laws.
Other developed-country jurisdictions are also wading in. Both Malta and the U.K. dependency Gibraltar have shown an open regulatory posture toward ICOs and token exchanges. Meanwhile, Caribbean countries such as Bermuda are developing regulatory frameworks for tokens that would promote blockchain innovation while preserving their status as trusted domiciles for foreign financial institutions.
Governments are also taking action at the provincial level. Wyoming's state legislature passed legislation defining utility tokens as a new asset class and exempting them from securities regulations.
Until last month, it appeared that the U.S. Securities and Exchange Commission was taking the exact opposite approach. In February, Chairman Jay Clayton, speaking before the Senate, said, "I believe every ICO I've seen is a security." The implication was clear: most, if not all, of the hundreds of tokens already sold in 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 boost to purveyors of "security tokens," who don't pretend to be inventing anything more than 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 would not be classified as a security. And, then, in a landmark speech last month, William Hinman, the SEC's director of the Division of Corporate Finance, answered a question that had been nagging the ethereum community. While Hinman suggested that ether might have been a security at the time of the ethereum proto-ICO in 2014, he said it does not meet that definition today because of how it functions within the ethereum network.
This was not as proactive as other jurisdictions' moves to explicitly carve out the concept of a utility token. Hinman was merely defining what ether was not. But by coming to that conclusion, he had recognized the unique qualities of this particular token: how ether is a kind of "crypto fuel," used to pay for the decentralized computation by which smart contracts are executed on the ethereum platform.