With the new terrain of the financial and economic boost in the Fintech sector, Initial Coin Offering has become a radical tool to that effect. With over 200 ICOs created since the inception of the concept, the market capitalization of cryptocurrencies (bitcoin and altcoins) have amounted to over $200 billion USD within the space of 4 years. Recently, the topic of ICO conventions has become rampant in any internet based business and most are discussing the migrating possibility of their operational models to include the blockchain network and its derivatives.
More daunting than ever is the presence of the scarecrow personality trait of the SEC within the United States and economic analogs in other jurisdictions. They have vested time into the qualitative investigation of token sale conventions with a stern approach to dissuade the public from participating carelessly in unregulated forms of crowdfunding events that promise high returns on the completion of proposed projects.
However, the striking effects of the SEC have only made a dent in the overall concept of the crowd sale concept across the globe. This is so because it only applies exclusions based on jurisdictional compliance policies.
Since the advent of the blockchain technology, many interest parties have taken decentralized networks with a cautionary approach, as this new technology in its infancy has not been fully comprehended to understand its limits of application. So far, many practical use cases have been developed with many real-world backed assets being converted daily to match the experimental inferences of the newly distributed ledger.
Basically, the blockchain represents a decentralized ledger that allows for storage of information or data across the internet, verifiable through different nodes of the computer on the global networks. As the model implies it is an impeccable design that is immutable, most organizations find it convenient to use the blockchain as an economic tool for peer-to-peer transactions and as a trustless means of binding contracts between members of a business arrangement – smart contract.
The blockchain technology is not without a few cons. As the perks of the blockchain technology wade through many economic sectors, the system has been perforated by mischievous entities; who use the idea of the blockchain system to exploit innocent investors into swindling their investments.
The likes of an unregulated system of crowdfunding, token sales and fraudulent economic and financial practices are why agencies such as the Securities and Exchange Commission (SEC) exists.
SEC in the United States, is a government agency responsible for the overall regulation of transactions involving securities, financial activities of professionals and trading activities involving a hedge fund. Their aim is to preclude fraud and deliberate acts of deception by perpetrator or firms with an ulterior motive. The Securities and Exchange Commission has four major divisions of concern:
These four divisions serve as cardinal modus operandi for the SEC; They guide the actions and enforce policies through which the agency can influence trades related to securities and investments. They work coherently to ensure the objectives of the SEC are achieved with optimal results.
The SEC was established in 1934 as an independent parastatal of the federal government due to the Great Depression Era. The Securities Exchange Act of 1934, was passed to facilitate confidence in capital markets with the aim of providing investors with reliable information and establishing a smooth business relationship between individuals and corporations.
The Securities and Exchange Commission’s main role is to oversee organizational and individual business habits within the market; this includes, securities exchanges between dealers and brokers, and various investment regulations. Through these regulations, the SEC can confidently monitor and promote evident information as it pertains to both investors, brokers and investment firms. Regulation of market-related information such as provision of corporate registration documents, financial statements and reports on other related security information asset is made possible through complex e-data gathering database, – EDGAR. Other functions include facilitating capital formation, protection of investors rights against fraudulent practices and monitoring of corporate takeovers (involving sales or mergers) within the united states.
In 2008, a great recession had just ended and the SEC played an instrumental role in the prosecuting and bring to judgment financial institutions responsible for the economic havoc. Their operations recovered billions of USD to affected investors. An estimated sum of $4 billion USD we reportedly refunded as a monetary relief due to charges from penalties of 204 entities and individually operated corporations. Of the sum, Goldman Sachs, one of the giant financial corporations paid $550 million among others.
The question of why SEC seem to be neck deep into investigating ICO operations and their token sale activities isn’t surprising; the rise in ICO conventions are similar to those of the Great Depression Era. They were the arm of the federal government able to checkmate illegal financial and economic investments related to securities in order to protect the interests of investors have a mandate to ensure that all financial contracts and activities involving securities are properly scrutinized. They do so to also ensure that leading parties follow due processes to participate in securities registration, sales, and exchanges.
At a point in time, the U.S. SEC conveyed its opinion about initial coin offerings as exposing investors (supporters) to fraudulent activities. They have also claimed that some token sale activities are the guise of securities sales and therefore require proper documentation with jurisdictional authorities else would be in violation of securities and exchange policies.
In recent, a cyber-unit created within the agency has been tasked with the responsibility of enforcing regulatory policies involving the violation of securities and exchange laws by the decentralized ledger network and initial coin offering campaigns.
A major concern of the unregulated form of crowdfunding to the SEC is the investors’ habits in a pump/dump scheme which renders the cryptocurrency market volatile at any point of reflection.
Investors have been advised to be wary of such organizations promoting ICOs as a way to generate outsized returns.
While the concise objective of the Securities and Exchange Commission is to mitigate against financial and economic crimes due to abuse and non-compliance with financial securities law, they have no intention of crippling the blockchain technology especially due to its sizeable application to modern economics and its potential to unlock financial freedom, transparency and economic advancement through technology.
While some have maintained that ICOs are key to securitization through blockchain technology as it has a transformative agenda, others have opined that investors steer clear of ICOs with bogus claims on huge returns and without regulatory-compliant documentations.
Cryptocurrencies have the tendencies to revolutionize the economy in the future if given due sanctions. Some organizations have initiated plans to integrate regulatory-compliant policies into their ICO activities this is expected to mitigate against undue scrutiny from government economic and financial agents.
It won’t be long before conventional IPOs will adapt to the current trends of ICOs and investors will be able to freely exploit the capital market at will. This can only be made possible by synchronizing the blockchain concepts with real-world financial application.