What Type of Regulation Do We Need?

Since 2009 when Satoshi Nakamoto first released Bitcoin into the wild, cryptocurrencies and their supporters have embraced a decentralized and autonomous ethos that dominated the last nine years of their development. They have not taken kindly to disruption in this area.

Last fall, China took the first step toward regulation by implementing an outright ban on ICOs, and several other countries have issued their own versions of crypto regulation. Each time they do so, crypto markets react poorly as investors express their concern for cryptocurrency’s future legal viability.

Although cryptocurrencies and their exchanges are currently unregulated in the U.S., they have been getting increased scrutiny from the SEC. In a March statement, the SEC reiterated their position that many crypto assets should be classified as a security and should be regulated as such. At this point, future regulation feels inevitable.

Of course, digital assets have different functions and use cases that make broad regulation problematic. In short, all digital currencies are not created equally. Some digital currencies, like Bitcoin, are intended to facilitate p2p transactions without the use of a centralized intermediary. These particular assets fulfill their title as “currency.”

In contrast, digital tokens that represent a share in a company, whether implied or explicitly denied, are in a category unto themselves, and they are attracting the most attention from federal regulators. These tokens create a murky grey area because they do not offer a formal stake in a company, but they also have no tangible value outside of the company other than as a tradeable asset.

Meanwhile, utility tokens are intended to facilitate data transfers within a blockchain platform, and these are considered functional, not profitable. Evident Proof’s EPT token falls into this category. The native EPT token is a utility token that’s generated when data is stored on the platform. The EPT tokens can be used to pay platform fees, to provide a data owner or third-party permission to view a proof certificate, or to request access to a proof certificate.

In this way, utility tokens are more akin to corporate currency or loyalty points than a digital security. As CoinDesk reported in February, there is a reason to believe that these utility tokens will be regulated differently than other digital currencies. According to their report, Wyoming became the first state to formally exempt utility tokens from securities laws. Although this issue is far from settled at the federal level, there is a growing appreciation for the unique distinctions that comprise various cryptocurrencies.

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