Another scrap over ICOs is brewing. A potential legal showdown between US Securities and Exchange Commission and the organizers of one of 2017's biggest initial coin offerings could rekindle a contentious debate over the question: are all ICO tokens really securities?
Remember ICOs? Once upon a time, they raised billions of dollars for startups via public token sales to retail investors, and were hailed as a revolution in early stage fundraising. In the US, that dream began crashing down in early 2018, when the head of the SEC said every ICO he'd ever come across met the definition of a security, or a traditional investment like a stock or bond. In legal terms, something qualifies as a security if investors would expect to profit thanks to the efforts of the seller. If crypto-tokens are securities, that would mean they couldn't be sold before complying with strict rules focused on the disclosure of information to investors.
The SEC has halted several projects during the past year, charging them with illegally selling securities. Now Kik, a social media startup that raised $100 million via an ICO in 2017, has revealed to the Wall Street Journal not only that it is in the SEC's sights, but also that it plans to fight the agency. The company says it never marketed its digital token, called Kin, as a security: it didn't make investors think they should expect a profit.
Kik's CEO Ted Livingston told the WSJ that it expects an the SEC to bring charges, and the WSJ reviewed Kik's 39-page rebuttal. Instead of a security, Kin was sold as a "utility token," argues Kik. That's a controversial term blockchain enthusiasts often use to refer to what they say is a new kind of digital asset: one that can be used not only to finance the creation of a new network but also to access the network's services once it's built. You could think of it like an arcade token (though in many cases the arcade hasn't been built yet). Kin, for its part, is supposed to be a means of paying content creators on the Kik network.
Whether "utility tokens" are even a thing is a matter of ongoing debate within the blockchain world. If the courts have to weigh in on this case, it could, as the WSJ says, have "broad ramifications for the digital currency market." Stay tuned.
Just two hacker groups may have stolen $1 billion in cryptocurrency. That's according to blockchain analytics firm Chainalysis, which recently spent three months tracking cryptocurrency funds stolen during known hacks of online exchanges. It was able to link much of that money to two professional hacking groups, which it dubbed Alpha and Beta. If the analysis is correct, then the two cybercriminal groups' exploits would account for 60% of all publicly reported crypto-heists.
The researchers suspect that Alpha is "a giant, tightly controlled organization at least partly driven by non-monetary goals." Beta, on the other hand, "seems to be a less organized and smaller organization absolutely focused on the money." Chainalysis says that both Alpha and Beta used extensive networks of cryptocurrency wallets to cover their tracks, transferring the stolen funds an average of 5,000 times before cashing out. Whereas Alpha tends to start the elaborate process immediately, Beta is known to sit on the money until the publicity around the hack fades.
The cryptocurrency industry, and especially the exchange scene, has been under increasing scrutiny from regulators who say it can't yet be trusted to secure customer funds. Revelations like this support that conclusion. (Also see "Criminals thought Bitcoin was the perfect hiding place, but they thought wrong")
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Loose Change
Fill your pockets with these newsy tidbits.
- Popular trading app Robinhood has obtained a BitLicense in New York, meaning residents there can now use the service to trade cryptocurrencies. (The Block)
- Polkadot, a startup founded by Ethereum cofounder Gavin Wood and focused on blockchain interoperability, is seeking new funding that would value it at around $1 billion. (Wall Street Journal)
- Harvard University and the apparel company Levi Strauss will work together to create a blockchain-based system for auditing factory health and safety with self-reports from workers. (Reuters)
- Tangem, a startup that makes "blockchain smart card wallets," says it will make "physical banknotes" for new digital currency the government of the Marshall Islands is creating. (Tangem)
