The federal Security Exchange Commission is trying to crack down on fraudulent offerings, where a company inflates its tokens' value by making promises it can’t keep.
(TNS) -- U.S. Rep. Warren Davidson of Ohio announced Monday a plan to regulate cryptocurrency and initial coin offerings through the federal government.
An initial coin offering is when a company begins to sell a cryptocurrency in the form of tokens. There are a limited amount of these tokens, which is what gives them value. Investors can pay for these tokens with money or existing cryptocurrency. Because these tokens sell quickly and run out, it gives the company a wave of money that it can use to build a product.
In the case of FileCoin, which has the largest initial coin offering to date at $257 million according to the New York Times, the money will fund a blockchain-based storage system. People who own FileCoin tokens can use them to pay for that storage.
The federal government thus far hasn’t regulated a company’s ability to raise money through initial coin offerings. The federal Security Exchange Commission is trying to crack down on fraudulent offerings, where a company inflates its tokens' value by making promises it can’t keep. The SEC is setting up a new division to talk to financial technology companies who want to launch initial coin offerings.
In the past, the SEC has found that several initial coin offerings used tokens as publicly traded securities, which are subject to regulations. The bipartisan bill would seek to create an “asset class” for tokens, which would prevent them from being classified as securities, but would also allow the federal government to regulate initial coin offerings more effectively.
“What this does for entrepreneurs is it gives people an ability to raise capital a different way,” he said. "This
The legislation has not yet been introduced, but should become public soon. Davidson, a Hamilton Republican who in September invited more than 30 leaders in the industry to discuss potential regulations, is hopeful on what this means for the future of the financial industry.
Davidson announced his plans Monday at the Blockland Solutions conference, held in downtown Cleveland. The four-day event is discussing applications for blockchain technology, the online distributed ledger system on which cryptocurrency is based.
Though the conference focuses on uses outside of cryptocurrency, a main point is how blockchain can be used in government. Lt. Governor-elect Jon Husted spoke Sunday evening about how blockchain technology could be incorporated into InnovateOhio, a plan to modernize Ohio’s government processes.
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