BLOCKCHAIN: TOP 10 Lessons from #StartEngineSummit — ICO 2.0
Dear Crypto friends…
On this past Friday, November 10th, I was happily invited to attend the Start Engine ICO 2.0 Summit, which was organized by tech mogul Howard Marks. After attending numerous conferences on Blockchain and crypto currencies this year, I realized this past event was definitely something very different.
I was surprised to see the crowd filled with attorneys, investment bankers, VCs and investors from prominent angel groups, like my friends from Tech Coast Angels, attending the event. As this industry grows, we see more & more smart money sitting on the sidelines, looking to understand regulations and best practices so they can move in as stealthy as a shark would.
Through this blog post, my intention is share with all of you what I learned, and what I believe would be of benefit to you, as this was a very educational conference.
So here are my TOP 10 most important takeaways from the Start Engine ICO 2.0 Summit:
#1. UNCERTAINTY:
All is very unclear! There seemed to be very little certainty surrounding this very complicated issue, even among high-level researchers from academic institutions who were in attendance. However, I do not personally believe that complex issues surrounding Blockchain and crypto currencies are going to be able to be properly addressed and certainly not answered by those in academia or research. The word on the street circulating around this summit was that “We don’t know, but we are figuring it out as we go!”
#2. GOOD COP:
According to attorneys who drafted the JOBS ACT, the SEC (US Security Exchange Commission) is clearly engaged and fostering growth, and wanting the industry to prosper. However, as long as every ICO is treated as a Security or Commodity. So no matter what you think about your idea for an amazing token or crypto currency that is going to change the world, the reality is that most likely you will be either a Security or a Commodity — in the eye’s of the SEC.
#3. BAD COP:
Although we do not often hear about them, outside the DAO scandal, the SEC is now actively shutting down 100’s of ICOs. So assuming you do not want all your efforts going down the drain and your genius idea being shut down, I think it is very wise to really understand how this space is being regulated and to keep up to date with the latest information.
#4. AT HOWEY’S MERCY:
So how do I make sure that I am not going to get shut down? According to J. Clayton of the SEC, a balanced approach to evaluating an ICO can be done by looking at the ICO to define if it qualifies as a security under the “Howey Test.” The catch here is that most ICOs will be considered a security if tested under the guidelines of the “Howey Test.” If you think about it, the SEC is just making certain that it is regulating this space in its early stages before it escalates into what we saw in 2008. At the moment, the $3B USD investments in ICOs this year is still a small amount in comparison to what we saw happening in the sub-prime crisis in 2008, where the IMF estimates that global financial firms had to write-off, $1.5 TRILLION USD in sub-prime products.
#5. SECURITY Vs. UTILITY:
In the eyes of many regulatory bodies around the world, including the Asian MAS and the British across the pond, everything is considered a crypto asset. From this understanding that everything is a crypto asset, we should then identify if we are dealing with regulated securities, or utility tokens. A security token is same as the Walt Disney Company issuing Disney Stock at the NYSE, and utility tokens being the effort of The Walt Disney Company issuing Disney Dollars for you to spend at their amusement parks on ice cream, rollercoaster rides and pictures with Goofy. Regardless of it being Disney Stock or Disney Dollars, regulators view it all as a crypto asset, and therefore the government wants their due share of both.
#6. UNCLE SAM’S TAX BENEFIT:
Although the government is forcing a “lion’s share” of ICOs to operate under security’s law, a good thing to realize is that by raising money through a security ICO, you will have a large tax benefit!
#7. PAY THE RIGHT TAXES:
Taxes are a topic that should be very carefully understood by all of us trying to change the world through various ICOs. The main mistake currently going on in the market, is made by entrepreneurs releasing utility tokens and not collecting sales taxes from a sale of a utility token, which puts that entrepreneur in the position of selling a security ICO in the eyes of the IRS. So make certain that whatever you do, that you have a linear and logical behavior when dealing with the government, meaning when you deal with the SEC, FINRA and the IRS.
#8. THE END OF YOUR PRIVACY:
Aside form the government wanting a piece of every pie, I think it is wise for us all to consider that the 1st thing to “go out the door” in a regulated environment is our beloved decentralized, Blockchain oriented anonymity. The dream of living in the fantasy of a libertarian world where the government does not know who you are and where you spend your money, is no more than that — a fantasy or wishful thinking.
#9. IS SAFT SAFE?
In this confusion of defining if your ICO is a utility or security, many are using a mechanism called SAFT, which stands for Simple Agreement for Future Token, as a way to raise money. However, in the eyes of regulators, a SAFT should only work for Disney Dollars, reward programs such as Hilton Points of American Airline Advantage Miles. Unlike its cousin, the SAFE Note which is commonly utilized by venture capitalist such as the Y-Combinator, a SAFT should been viewed form a tax perspective as a liability and therefore should be treated as such by the company raising money. By issuing a SAFT the company has an obligation, (future obligation) of delivering all those promised hotel points, ice creams and airline miles to the token holder.
#10. BRAVE NOT NEW WORLD:
Last but not least — as I hate to shatter everyone’s dreams of having new regulations and special treatments for those in our wonderful and innovative crypto world, it is understood by many of the lawyers who are close to the SEC, and who also participated in the drafting of the JOBS Act, that the SEC has “ZERO” intention in developing a new regulation for this space. This consequently makes us all to be bound to comply with existing laws unless you want to have police officers knocking on your door.
I hope that you liked my takeaways above and that they gave you a bit more insight into the complex world of crypto currencies and ICOs. If you would like to learn more, please subscribe to our channels as I continue to attend different conferences and events, so I can share key points about this fascinating and always changing crypto environment.
Cheers,
-AN
Alex Nascimento
Chief Strategist at 7MarketingMedia
