Warren Davidson has long been an enthusiast of virtual currency and distributed ledger technology having been in the technology space before he …
A new bill has just been created by US congressman, Warren Davidson, to prevent crypto startups from running to friendlier regions.
Breaking Switzerland’s Allure
Switzerland is fast becoming the Mecca for crypto startups and fast cementing its claim as the world’s blockchain hub. While a lot of governments legal architecture have been from skeptical to indecisive, Switzerland has been abundantly clear and open in its disposition towards the concept of blockchain and virtual assets.
While a few startups have been caught unaware after unfavorable rulings classifying their product as securities, Switzerland was highly praised even by industry veterans after it announced that some ICOs are not securities. United States indecisive stance towards the asset class of prospective ICOs is unsettling a number of entrepreneurs hoping to make their mark in the crypto space.
Warren Davidson discussed an encounter he had with a crypto entrepreneur in 2018 after becoming a congressman, one of the series of events that drove the decision behind his new drafted bill. Contemplating where to locate his new crypto startup, the entrepreneur told the congressman and friend:
“Look, it’s nothing personal. We just don’t trust that you guys are gonna get this done right. So we’re feeling kind of Swiss.”
This could only mean one thing, Davidson friend thought Switzerland has a friendlier climate for cryptocurrency than the United States.
The United States has displayed its willingness to be at the forefront of things more times than the world can count; however, on the subject of cryptocurrency and blockchain, they just might be losing the race before the race had even begun. Davidson’s drafted bill is meant to stop the migration and to make sure the United States maintains its attraction towards new cryptocurrency innovations.
Pass the Bill
Warren Davidson has long been an enthusiast of virtual currency and distributed ledger technology having been in the technology space before he became a congressman in 2016. Having been an entrepreneur with a number of manufacturing companies at his behest, Davidson noted the legal uncertainties that were constantly cropping up during ICOs, and his tenure is an opportunity to address the problem. With the help of fellow congressman, Darren Soto, Davidson released the new Token Taxonomy Act in December last year.
The new bill which discusses the exemption of ICOs as securities define its conditions. For example, some of the conditions are that: the token’s supply can’t be controlled by a single person or group of people; once finalized, transactions can’t be altered by a single person or group of people; and the token “is not a representation of a financial interest in a company, including an ownership or debt interest or revenue share.”
Caitlin Long, a blockchain advocate, and one who recently help passed a crypto ruling in Wyoming has warned that while the new development is a significant and welcome one, it just might take years before it is fully implemented.
When he arrived in Washington D.C., he noticed that Initial Coin Offering is one of the problems with no solution. Davidson has joined forces with …
Warren Davidson is an American politician from the state of Ohio trying to make the United States more attractive to crypto startups. He owned a group of manufacturing companies before becoming a congressman in Ohio. When he arrived in Washington D.C., he noticed that Initial Coin Offering is one of the problems with no solution.
Davidson has joined forces with Darren Michael Soto who is an American attorney and politician from Orlando, Florida. The main reason to join the American attorney is to release a bipartisan bill which is known as the Token Taxonomy Act in December 2018. The Act provides Digital Token a security law concern and favorable tax reforms. He aims to amend the Securities and Exchange Act of 1934 and the Securities Act of 1933 along with the Token Taxonomy Act in order to get the regulatory certainty which actually cryptocurrency market needs.
There are a few criteria exempted from security viz., the token is not a representation of a financial interest in a company, including ownership or debt interest or revenue share; the token’s supply can’t be controlled by a single person or group of people; once finalized, transactions can’t be altered by a single person or group of people; and the blockchain platform the token runs on has already launched.
“If you want to raise money to sell oranges, and you don’t own any oranges or an orange grove, that’s security. But if now the oranges have grown and are in barrels, the oranges are no longer securities,” said Davidson. It means that if the bill moves forward, then the crypto startups will have to pursue traditional funding models such as venture investment or angel in order to support operations before launching a product, according to a report by Forbes.
Vitalik Buterin, the co-founder of Ethereum and Russian-Canadian programmer, has donated 300k USD to crypto startups focused on the software solutions for the Ethereum network, according to a report by Ethereum World News. The idea of the donation came after a Twitter debate with the CEO of SpankChain Ameen Soleimani who has drawn special attention towards the scalability and speed of this blockchain. Preston Van Loon, the founder at MachinePowered, responded to Soleimani’s tweet. He stated that being a small startup they could not devote to the network.
[The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views and/or the official policy of the website. ]
How Warren Davidson Makes US More Attractive To Crypto Startups
Warren Davidson is an American politician from the state of Ohio trying to make the United States more attractive to crypto startups.
The bill’s primary goal is to define the criteria for when a cryptocurrency initialcoin offering (ICO) is a security, in attempt to exempt some of them from …
In the fall of 2018, Republican congressman Warren Davidson was meeting with a cryptocurrency entrepreneur in Massachusetts. The CEO was deciding where to locate his startup, and they were discussing the regulatory uncertainties surrounding digital currencies and initial coin offerings (ICOs).
The entrepreneur told Davidson, “Look, it’s nothing personal. We just don’t trust that you guys are gonna get this done right. So we’re feeling kind of Swiss,” implying he might move to Switzerland, a country with an arguably more business-friendly approach to crypto regulation.
Over the past few years, most companies that created digital tokens and sold them through ICOs assumed they wouldn’t be deemed securities. But when regulators think otherwise, startups can face major legal trouble, as we’ve seen recently with the cases of Airfox, Paragon and Basis. In December, Warren Davidson introduced a new digital token bill, aiming to kill the uncertainty and keep innovation inside U.S. borders.
“The SEC’s stance has caused a massive flight of startups to offshore jurisdictions,” says Caitlin Long, a former managing director at Morgan Stanley who helped Wyoming pass new blockchain legislation last year. “Lawyers right and left were telling clients, ‘Don’t issue tokens to U.S. investors and don’t domicile in the U.S.’”
Marco Santori, former head of the financial technology group at law firm Cooly and current president of crypto company Blockchain, says the present regulatory environment has spawned “mostly a state of confusion among entrepreneurs. … That is not a good place for American innovation.” Crypto investors also point to regulatory uncertainty as a cause of the crypto bear market in 2018, a period when bitcoin lost nearly 75% of its value.
In February 2018, Switzerland declared that some ICOs are not securities, drawing applause from industry veterans. Today about 420 crypto and blockchain startups are domiciled there, according to research by PwC and Swiss blockchain investment firm CV VC. Although the U.S. population is 40 times larger, it has just 2,100 such startups, AngelList reports.
In other words, for every 100,000 residents of each country, Switzerland has five crypto startups, while the U.S. has only one.
Tezos, a blockchain platform founded in 2016 by two New York-based entrepreneurs, has its governing foundation headquartered in Switzerland. Dfinity, a high-profile crypto startup whose CEO is based in San Francisco, is incorporated in Switzerland.
Media-focused blockchain startup Singular DTV chose Switzerland as its home because “it was the only jurisdiction in the world at that time—early 2016—that was actively working to understand blockchain technology and classify ICOs … within its regulatory framework,” CEO Zach LeBeau says. He adds that, since then, Switzerland has adopted “a more U.S.-centric approach” that has “slowed blockchain development there.”
Warren Davidson is trying to make the U.S. more attractive to crypto startups. Before becoming a congressman in Ohio in 2016, the 48-year-old was an entrepreneur and owned a group of manufacturing companies. After he arrived in D.C., he noticed that ICOs were an often-discussed problem without a solution. A self-described tech geek, Davidson joined forces with Florida Democratic congressman Darren Soto to release a bipartisan bill in December 2018, the Token Taxonomy Act. Just a few weeks earlier, Davidson had created a stir by releasing a bill to fund President Trump’s proposed border wall with public donations.
With the Token Taxonomy Act, Davidson aims to amend the Securities Act of 1933 and the Securities and Exchange Act of 1934—the laws the government uses to define securities—“to get the regulatory certainty that I feel like the market needs.” The bill’s primary goal is to define the criteria for when a cryptocurrency initial coin offering (ICO) is a security, in an attempt to exempt some of them from the maligned designation.
Under the new bill, some of the criteria for exemption from security status are: the blockchain platform the token runs on has already launched; the token’s supply can’t be controlled by a single person or group of people; once finalized, transactions can’t be altered by a single person or group of people; and the token “is not a representation of a financial interest in a company, including an ownership or debt interest or revenue share.”
The stipulation about having already launched a product is important. “If you want to raise money to sell oranges, and you don’t own any oranges or an orange grove, that’s a security,” Davidson says, using a business example that served as the basis for the Howey Test, a Supreme Court precedent the government also uses to help define securities. “But if now the oranges have grown and are in barrels, the oranges are no longer securities.” That means, if the bill moves forward, crypto startups would need to pursue traditional funding models like angel or venture investment to support operations before they’ve launched a product.
The Token Taxonomy Act would be “a significant advance if it were to pass,” says blockchain legislation advocate Caitlin Long. She sees defining a digital security as critical and says the proposed bill follows the models set forth in Switzerland and Wyoming. “It would provide a lot of clarity and ensure that blockchain innovation stays in the U.S.,” says Kyle Samani, managing partner of crypto fund Multicoin Capital. “This is designed to precisely help prevent things like Basis shutting down.” Hoboken, New Jersey-based Basis closed its doors in December 2018 due to concerns its product would be deemed a security.
Ari Lewis, a cofounder of crypto fund Grasshopper Capital who also consulted Ohio on its project to let businesses pay taxes in crypto, says, “This bill doesn’t change the fact that many of these tokens don’t have a utility purpose today [outside of speculation] … but one of the problems with the government is that they study everything to death. Kudos to Warren Davidson for trying to make policy change and make a difference.”
At nine pages, Davidson’s bill is short and narrow in scope, focusing primarily on the definition of a security. “This could turn into a bill that would be very long, that would involve three or more committees in Congress,” he says. “By taking slices, not only do we make it easier to create regulatory certainty and go light-touch on the regulation, we make it easier to actually move through Congress.”
The next step is for him to reintroduce the bill, a requirement given that a new Congress started on January 3. He expects to do that in a few weeks or a couple months, and then the bill will go to the Financial Services Committee for review.
What are the chances it will become law, and how long might that take? Davidson expects it to pass but declined to predict when. And Caitlin Long isn’t banking on it. “We’re not holding our breath,” she says. “It could take years.”
Should the House pass the bill, cryptocurrencies and initial coin offerings (ICOs) will no longer be under the Securities and Exchange Commission …
Kate Rooney, CNBC’s markets reporter, has revealed that two congressmen are working on a bill to remove crypto from the 72-year-old U.S. securities law. The representatives, Warren Davidson and Darren Soto, are calling it the “Token Taxonomy Act” and will be presenting their ideas to the House within the next few months.
Should the House pass the bill, cryptocurrencies and initial coin offerings (ICOs) will no longer be under the Securities and Exchange Commission (SEC) regulations.
History Repeats Itself
Comparing the state of crypto to that of the early internet, Davidson stated that back then, Congress had to pass regulations without over-doing it. The same must be done here if we are to keep the crypto industry growing:
“In the early days of the internet, Congress passed legislation that provided certainty and resisted the temptation to over-regulate the market. Our intent is to achieve a similar win for America’s economy and for American leadership in this innovative space.”
Of course, regulators are worried about consumer safety in the cryptocurrency industry. 2018’s big blowup didn’t help with things either, as many companies lost large investments of Bitcoin and other cryptos in a short period of time.
Cryptocurrency enthusiasts often state their disgust at the government using such an old framework to regulate a modern asset. As of now, the SEC decides which cryptos are securities based on the “Howey Test” from 1946. Essentially, if “a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party,” then that investment is considered a security.
Fortunately for us, those in power are starting to realize that cryptoassets are a little different from traditional ones. Because of blockchain technology, there isn’t always an interfering central authority. That, and platforms can expand and improve over time. These investments aren’t necessarily like a regular stock.
Kristin Smith, leader of The Blockchain Association, the first group to lobby for blockchain technology at Washington, agrees: “These decentralized networks don’t fit neatly within the existing regulatory structure. This is a step forward in finding the right way to regulate them.”
Suggested Reading : Learn about the best Monero wallets.
A Change of Heart
This news comes after SEC chairman Jay Clayton stated that he would not update the Commission’s regulations for cryptocurrencies. He believes that every ICO is a security aside from Bitcoin and Ethereum, which should be registered as commodities. The head of the Division of Corporation Finance at SEC, William Hinman, echoed this, stating that ICOs are securities because a central party is benefitting from investments.
If approved, the Token Taxonomy Act would amend the Securities Act of 1933 in addition to the Securities Exchange Act of 1934, which established the current securities laws. Only this time, the bill would add a new definition for “digital tokens.”
However, it’s important to note that digital assets will still see regulation, says Overstock.com blockchain lobbyist Kristin Smith. She continues, stating that the job would fall to the Federal Trade Commission or the CFTC should this bill pass. Also, this bill would cause the IRS to alter virtual currency taxation.
The Token Taxonomy Act is the result of a roundtable with over 50 representatives this past September. Davidson hosted it, and members included Fidelity, Nasdaq, State Street, Andreessen Horowitz, and the U.S. Chamber of Commerce.
Parties spoke on companies struggling with ICO taxation—especially regarding utility tokens. They argued that if these regulations aren’t “crystal clear,” then the industry in the U.S. could not flourish and these companies would move overseas.
The bill will need to be reintroduced next year, however, the presentation causes much to think about, says Smith.”It shows that there’s momentum on both sides. There’s interest among bipartisan members, and lays groundwork for the next Congress.”
Two Congress members of the U.S. House of Representatives are now looking for ways of exempting cryptos and other digital assets from the federal standard securities laws. A bill was tabled before Congress on December 20, 2018.
Representatives Darren Soto and Warren Davidson introduced the ‘Token Taxonomy Act of 2018’ in Washington D.C which seeks to bar cryptos from being called and defined as securities. This will be done by amending the “Securities Act of 1933 and 1934. This bill particularly calls for:
“…. direct the SEC to enact certain regulatory changes regarding digital units secured through public key cryptography, to adjust taxation of virtual currencies held in individual retirement accounts, to create a tax exemption for exchanges of one virtual currency for an-other, to create a de minimis exemption from taxation for gains realized from the sale or exchange of virtual currency for other than cash, and for other purposes.”
Earlier 2018, Jay Clayton, the chairman of US SEC indicated that the commission does not intend to play by ear rules for ascertaining which cryptos are securities or not.
ICOs Lacks Regulatory Clarity
The bill also says that Secretary of the Treasury should make sure that regulations giving key data for returns crypto transactions is issued where losses and gains are acknowledged.
Warren declared plans to bring legislation and form an ‘asset class’ for cryptoassets earlier this month. He said that the law would stop them from being regarded as securities, though it would enable the federal government to regulate ICOs much better.
“While this legislation is a great first step, we are looking for feedback. The Federal Trade Commission (FTC) has a history of policing web services, while the Commodities Futures Trading Commission (CFTC) has authority over commodity derivatives,” Rep. Darren revealed.
The bill comes after a Congressional ‘cryptoasset roundtable’ that was held by Warren in September this year. More than 40 representatives from bullish Wall Street companies and various digital asset firms told lawmakers that there is a clear absence of regulatory clarity for ICOs and cryptos, and others said that the present regulations are obscure and outdated.
All representatives are showing optimism that the bill will bring a more secure market for the infant blockchain technology sector in the U.S and stop potential entrepreneurs from escaping to digital currency friendly countries such as Singapore, Malta, Switzerland and many others.
Last month, Warren declared plans to bring a bill that would see ICOs dodge U.S. securities laws & suggest that ICOs be deemed as commodities instead of being treated as securities especially at the State & Federal level.