Blockchain: Regulators Still Confused


On October 12th, the SEC’s Investor Advisory Committee (“IAC”) held a meeting in which blockchain and other distributed ledger technology was on the agenda. The IAC was created with the mandate to advise the SEC on regulatory priorities, promote investor confidence and maintain the integrity of the marketplace. While promulgations from the IAC should not be taken as law or any indication of imminent regulatory efforts, the discussions of the IAC can provide helpful insight on the perspective that established industry practitioners have on certain securities issues.

To be brief, the key take-away from the meeting (at least in this author’s eyes), was that established practitioners are still a long way away from adequately understanding the technology behind blockchain and other distributed ledger technologies and the potentially broad array of use cases for such technologies. Despite thoughtful presentations and statements from those invited to speak at the meeting, most of the committee members, as indicated by their questions, illustrated a failure to understand the basics of blockchain technology or the use of cryptocurrencies within such technologies. To several of the committee members’ credit, some acknowledged the potentially transformative characteristics of the technology. In particular, several committee members acknowledged that blockchain technology could be used to provide additional investor protection measures and that, theoretically, such technology could also offer the SEC, and other regulatory agencies, the ability to engage in real-time regulation and enforcement of the markets.

So what does this mean for those looking for further guidance in the ICO/token sale market?

Unfortunately, not much. Other than one committee member’s impassioned, yet fraught with legal and logical fallacies, argument that any and all tokens should be considered securities, the committee members generally stayed away from the issue of whether the SEC would have jurisdiction over all forms of tokens, including pure utility-tokens. This result was expected given that we are still in the nascent stages of regulatory efforts surrounding tokens and blockchain technology as a whole. The committee meeting was most compelling, and most fruitful, when viewed as an illustration of how practitioners in the industry are struggling with this new technology and, as such, how regulators will likely struggle as they try to fit this new technology into the unfit and rigid boxes of regulation that currently exist. Ultimately, and hopefully through the efforts of those in the blockchain industry, regulators will realize that new regulations are absolutely necessary to deal with this new technology. Until that time comes, those in the industry will need to learn to expect that the “old-guard” will continue to struggle to understand the technology and the appropriate ways to discuss/regulate it.

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