The headline-grabbing cryptocurrency news this year was that the SEC, after months of will-they-won’t-they, finally decided to crack down on the sale and transfer of digital tokens.
It was decreed that digital tokens that pass the Howey Test could be categorized as securities, meaning that they fall under SEC jurisdiction. The official SEC statement read that “virtual organizations” that “issue and distribute ledger or blockchain technology-based securities” must be registered with the SEC.
The primary prerogative of the SEC statement was to address the biggest digital heist in history: the $50 million DAO hacking wherein some 7 million ethers were hijacked during a digital token sale.
Computer Science Professor, Emin Gün Sirer, had seen the bug in the code which compromised the integrity of the Ethereum blockchain system prior to the hack, but at the time, Ethereum was lauded for its impenetrable design.
At its inception in 2014, the Ethereum blockchain was viewed as the “next leap forward from Bitcoin” due to the addition of the smart contracts into its system. Blockchain technology was praised as the solution to faster monetary transactions and the reduction of red-tape. It was supposed to support a more secure and incorruptible payment system that rivaled fiat currencies and traditional third-party financial institutions. It was advertised as a decentralized and unchained entity.
Soon the growth of Ethereum led to more decentralized applications and the eventual DAO creation. Nonetheless, Gün’s suspicions were too little too late as the internet-breaking heist took place on 20 July 2016.
Since the technology was deemed impenetrable and because it relied on a steadfast encryption system, the heist was even more shocking. But eventually the shock and awe died down after the heist as the Ethereum community was called in to rein in the likes of these newly minted technologies.
Dot-com-like bubbles were speculated around these cryptocurrencies at the time, but the prices of the two biggest cryptocurrencies— Bitcoin and Ethereum have continued to soar. Since the major incident, more hacks have been perpetrated with this year’s Coindash and Veritaseum hack.
Through the SEC statement, it is now clear what test will be used to judge digital token sales and what type of companies are susceptible to scrutiny. These clearly defined outlines will bring some semblance of stability to the cryptocurrency world. There are many other positives from the ruling as well.