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SEC Official Defends 'Balanced' ICO Oversight in Congress

Sec official defends 'balanced' ico oversight in congress

SEC Official Defends 'Balanced' ICO Oversight in Congress

Sec official defends 'balanced' ico oversight in congress

A U.S. Congressman called for a ban on initial coin offerings (ICOs) during a hearing on Thursday.

The remarks from Rep. Brad Sherman (D-Calif.) came as William Hinman, the director of the Securities and Exchange Commission’s Division of Corporation Finance, was speaking before the House Financial Services Committee’s Capital Markets, Securities, and Investment Subcommittee. Hinman had told the committee that his division is “striving for a balanced approach” when it comes to cryptocurrencies and ICOs.

Yet Sherman argued against that line of thinking, asserting that token sales are detrimental to the economy.

“The reason for securities markets is to provide jobs in the real economy,” Sherman remarked. “An IPO [initial public offering] does that, an ICO does the opposite. It takes money out of the real economy.”

When Hinman began to argue that the blockchain technology that underpins ICOs “may have some promise,” Sherman cut him off:

“I’m not saying ban blockchain, I’m saying ban the ICOs.”

Hinman, in turn, pushed back by saying: “Some folks are finding that the ICO instrument allows for a different type of enterprise, one that’s more decentralized, and which they think has some value.”

During his opening remarks, Sherman struck a critical tone toward bitcoin in particular, remarking that “bitcoin is a security in that it is an investment.”

It’s a notable comment, given that it’s one that the SEC is unlikely to agree with – Hinman’s boss, SEC chairman Jay Clayton, suggested in November that while ICO tokens likely qualify as securities, bitcoin does not.

“When you depart from the bitcoin or the ethereum, and you get into the tokens, the hallmarks become pretty clear,” Clayton told the Wall Street Journal.

Speaking to CoinDesk Friday, Digital Asset Research senior analyst and counsel Matt Gertler said bitcoin does not meet the Supreme Court’s definition of a security.

“The first prong of the Howey Test is an investment of money,” he said via email. “Considering that all bitcoin was mined and not sold for money at issuance, it is unclear how bitcoin would satisfy the Howey Test.”

Not all negative

The reception to ICOs at the House subcommittee hearing wasn’t entirely hostile, however. Rep. Tom Emmer (R-Minn.) criticized his colleagues’ “ignorance about how special this area is.”

Emmer’s enthusiasm for cryptocurrencies is not new – he told CoinDesk in March that the U.S. must avoid overregulating the sector.

The lawmaker asked Hinman at Friday’s hearing if there were circumstances in which a token sale would be “something other than a securities offering.”

“It’s quite hard to have an initial sale without having a securities offering,” Hinman replied, “which is why the chairman has noted that the initial sale of these may require compliance or exemptions.”

Emmer then asked about utility tokens, which ICO proponents argue should not be regulated as securities because they are designed to facilitate the usage of a blockchain-based network, rather than act as investments.

“We certainly can imagine a token where the holder is buying it for its utility and not as an investment,” Hinman responded.

Hinman went on to suggest that the SEC would take a token’s circumstances into account, “especially if it’s a decentralized network.”

“The issues around whether a particular coin offering may be a security are somewhat complex,” Hinman told committee chairman Rep. Bill Huizenga (R-Mich.). He went on to say that his division’s goal is to “not stifle innovation.”

Capitol image via Shutterstock

This article has been updated for clarity. 

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

Published at Fri, 27 Apr 2018 16:00:17 +0000

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Hacker Allegedly Siphons $31 Million Out of Tether, Driving Further Speculations About the Cryptocurrency

Hacker Allegedly Siphons $31 Million Out of Tether, Driving Further Speculations About the Cryptocurrency

Tether, a cryptocurrency pegged 1-to-1 to the U.S. dollar, was allegedly hacked today to the tune of $31 million.

Tether functions to convert U.S. dollars to a type of cryptocurrency. The project’s token (USDT) is pegged to the dollar and is used in exchange trading. The idea behind Tether is that instead of having to sell your bitcoin or other token for a fiat currency, you can convert it to USDT, and either hold it in USDT or else transfer your USDT to another exchange and use it to purchase tokens there.

As for the exchanges, USDT allows them to trade in something akin to dollars, without requiring them to have a bank account.

Tether operates on the “Omni Layer Protocol,” which itself operates on top of the bitcoin network, and uses bitcoin addresses. According to a blog post on the project’s website, $31 million worth of USDT was sent to an unauthorized bitcoin address on November 19, 2017.

In the blog post, Tether also noted it released a new version of the Omni Core software used by exchanges and wallets to support USDT transactions, thus implementing a temporary hard fork to the Omni Layer. As a result, the affected tokens are frozen in place, making them essentially worthless to the hacker.

“We strongly urge all Tether integrators to install this software immediately to prevent the coins from entering the ecosystem,” Tether wrote, adding that “any tokens from the attacker’s addresses will not be redeemed.”

Some exchanges, like Kraken, have stopped trading USDT temporarily while they upgrade to the newer software.

The heist was made in three separate USDT transfers out of Tether’s core Treasury wallet in the amounts of 23,000,000; 7,900,000; and 500,000 USDT. It is unclear why the hacker did not move all of the money out at once.

In addition to the other exchanges it trades on, USDT is widely traded on Bitfinex, an exchange that lost 119,756 BTC (worth $72 million at the time) in a hack that took place a year and a half ago.

News of the Tether attack comes at a time when some — notably the blogger “Bitfinex’ed” — are questioning whether USDTs are being issued without backing of actual U.S. dollars. Similarly, there has been growing speculation that Tether is being used in possible market manipulation to drive up the price of bitcoin.

The current market cap value of USDT is around $673 million. If that money is backed by real reserves, as Tether claims, the project would need to have at least that much in its bank account in Taiwan.

Tether publishes a bank account balance on its website’s Transparency page and claims the money is redeemable for U.S. dollars at any time directly through the Tether platform.

The project’s website has been up and down sporadically, since the hack. An archive of the site is available here.

The post Hacker Allegedly Siphons $31 Million Out of Tether, Driving Further Speculations About the Cryptocurrency appeared first on Bitcoin Magazine.

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