More on Web3 & Crypto
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Nathan Reiff
3 years ago
Howey Test and Cryptocurrencies: 'Every ICO Is a Security'
What Is the Howey Test?
To determine whether a transaction qualifies as a "investment contract" and thus qualifies as a security, the Howey Test refers to the U.S. Supreme Court cass: the Securities Act of 1933 and the Securities Exchange Act of 1934. According to the Howey Test, an investment contract exists when "money is invested in a common enterprise with a reasonable expectation of profits from others' efforts."
The test applies to any contract, scheme, or transaction. The Howey Test helps investors and project backers understand blockchain and digital currency projects. ICOs and certain cryptocurrencies may be found to be "investment contracts" under the test.
Understanding the Howey Test
The Howey Test comes from the 1946 Supreme Court case SEC v. W.J. Howey Co. The Howey Company sold citrus groves to Florida buyers who leased them back to Howey. The company would maintain the groves and sell the fruit for the owners. Both parties benefited. Most buyers had no farming experience and were not required to farm the land.
The SEC intervened because Howey failed to register the transactions. The court ruled that the leaseback agreements were investment contracts.
This established four criteria for determining an investment contract. Investing contract:
- An investment of money
- n a common enterprise
- With the expectation of profit
- To be derived from the efforts of others
In the case of Howey, the buyers saw the transactions as valuable because others provided the labor and expertise. An income stream was obtained by only investing capital. As a result of the Howey Test, the transaction had to be registered with the SEC.
Howey Test and Cryptocurrencies
Bitcoin is notoriously difficult to categorize. Decentralized, they evade regulation in many ways. Regardless, the SEC is looking into digital assets and determining when their sale qualifies as an investment contract.
The SEC claims that selling digital assets meets the "investment of money" test because fiat money or other digital assets are being exchanged. Like the "common enterprise" test.
Whether a digital asset qualifies as an investment contract depends on whether there is a "expectation of profit from others' efforts."
For example, buyers of digital assets may be relying on others' efforts if they expect the project's backers to build and maintain the digital network, rather than a dispersed community of unaffiliated users. Also, if the project's backers create scarcity by burning tokens, the test is met. Another way the "efforts of others" test is met is if the project's backers continue to act in a managerial role.
These are just a few examples given by the SEC. If a project's success is dependent on ongoing support from backers, the buyer of the digital asset is likely relying on "others' efforts."
Special Considerations
If the SEC determines a cryptocurrency token is a security, many issues arise. It means the SEC can decide whether a token can be sold to US investors and forces the project to register.
In 2017, the SEC ruled that selling DAO tokens for Ether violated federal securities laws. Instead of enforcing securities laws, the SEC issued a warning to the cryptocurrency industry.
Due to the Howey Test, most ICOs today are likely inaccessible to US investors. After a year of ICOs, then-SEC Chair Jay Clayton declared them all securities.
SEC Chairman Gensler Agrees With Predecessor: 'Every ICO Is a Security'
Howey Test FAQs
How Do You Determine If Something Is a Security?
The Howey Test determines whether certain transactions are "investment contracts." Securities are transactions that qualify as "investment contracts" under the Securities Act of 1933 and the Securities Exchange Act of 1934.
The Howey Test looks for a "investment of money in a common enterprise with a reasonable expectation of profits from others' efforts." If so, the Securities Act of 1933 and the Securities Exchange Act of 1934 require disclosure and registration.
Why Is Bitcoin Not a Security?
Former SEC Chair Jay Clayton clarified in June 2018 that bitcoin is not a security: "Cryptocurrencies: Replace the dollar, euro, and yen with bitcoin. That type of currency is not a security," said Clayton.
Bitcoin, which has never sought public funding to develop its technology, fails the SEC's Howey Test. However, according to Clayton, ICO tokens are securities.
A Security Defined by the SEC
In the public and private markets, securities are fungible and tradeable financial instruments. The SEC regulates public securities sales.
The Supreme Court defined a security offering in SEC v. W.J. Howey Co. In its judgment, the court defines a security using four criteria:
- An investment contract's existence
- The formation of a common enterprise
- The issuer's profit promise
- Third-party promotion of the offering
Read original post.
Alex Bentley
3 years ago
Why Bill Gates thinks Bitcoin, crypto, and NFTs are foolish
Microsoft co-founder Bill Gates assesses digital assets while the bull is caged.
Bill Gates is well-respected.
Reasonably. He co-founded and led Microsoft during its 1980s and 1990s revolution.
After leaving Microsoft, Bill Gates pursued other interests. He and his wife founded one of the world's largest philanthropic organizations, Bill & Melinda Gates Foundation. He also supports immunizations, population control, and other global health programs.
When Gates criticized Bitcoin, cryptocurrencies, and NFTs, it made news.
Bill Gates said at the 58th Munich Security Conference...
“You have an asset class that’s 100% based on some sort of greater fool theory that somebody’s going to pay more for it than I do.”
Gates means digital assets. Like many bitcoin critics, he says digital coins and tokens are speculative.
And he's not alone. Financial experts have dubbed Bitcoin and other digital assets a "bubble" for a decade.
Gates also made fun of Bored Ape Yacht Club and NFTs, saying, "Obviously pricey digital photographs of monkeys will help the world."
Why does Bill Gates dislike digital assets?
According to Gates' latest comments, Bitcoin, cryptos, and NFTs aren't good ways to hold value.
Bill Gates is a better investor than Elon Musk.
“I’m used to asset classes, like a farm where they have output, or like a company where they make products,” Gates said.
The Guardian claimed in April 2021 that Bill and Melinda Gates owned the most U.S. farms. Over 242,000 acres of farmland.
The Gates couple has enough farmland to cover Hong Kong.
Bill Gates is a classic investor. He wants companies with an excellent track record, strong fundamentals, and good management. Or tangible assets like land and property.
Gates prefers the "old economy" over the "new economy"
Gates' criticism of Bitcoin and cryptocurrency ventures isn't surprising. These digital assets lack all of Gates's investing criteria.
Volatile digital assets include Bitcoin. Their costs might change dramatically in a day. Volatility scares risk-averse investors like Gates.
Gates has a stake in the old financial system. As Microsoft's co-founder, Gates helped develop a dominant tech company.
Because of his business, he's one of the world's richest men.
Bill Gates is invested in protecting the current paradigm.
He won't invest in anything that could destroy the global economy.
When Gates criticizes Bitcoin, cryptocurrencies, and NFTs, he's suggesting they're a hoax. These soapbox speeches are one way he protects his interests.
Digital assets aren't a bad investment, though. Many think they're the future.
Changpeng Zhao and Brian Armstrong are two digital asset billionaires. Two crypto exchange CEOs. Binance/Coinbase.
Digital asset revolution won't end soon.
If you disagree with Bill Gates and plan to invest in Bitcoin, cryptocurrencies, or NFTs, do your own research and understand the risks.
But don’t take Bill Gates’ word for it.
He’s just an old rich guy with a lot of farmland.
He has a lot to lose if Bitcoin and other digital assets gain global popularity.
This post is a summary. Read the full article here.
JEFF JOHN ROBERTS
3 years ago
What just happened in cryptocurrency? A plain-English Q&A about Binance's FTX takedown.
Crypto people have witnessed things. They've seen big hacks, mind-boggling swindles, and amazing successes. They've never seen a day like Tuesday, when the world's largest crypto exchange murdered its closest competition.
Here's a primer on Binance and FTX's lunacy and why it matters if you're new to crypto.
What happened?
CZ, a shrewd Chinese-Canadian billionaire, runs Binance. FTX, a newcomer, has challenged Binance in recent years. SBF (Sam Bankman-Fried)—a young American with wild hair—founded FTX (initials are a thing in crypto).
Last weekend, CZ complained about SBF's lobbying and then exploited Binance's market power to attack his competition.
How did CZ do that?
CZ invested in SBF's new cryptocurrency exchange when they were friends. CZ sold his investment in FTX for FTT when he no longer wanted it. FTX clients utilize those tokens to get trade discounts, although they are less liquid than Bitcoin.
SBF made a mistake by providing CZ just too many FTT tokens, giving him control over FTX. It's like Pepsi handing Coca-Cola a lot of stock it could sell at any time. CZ got upset with SBF and flooded the market with FTT tokens.
SBF owns a trading fund with many FTT tokens, therefore this was catastrophic. SBF sought to defend FTT's worth by selling other assets to buy up the FTT tokens flooding the market, but it didn't succeed, and as FTT's value plummeted, his liabilities exceeded his assets. By Tuesday, his companies were insolvent, so he sold them to his competition.
Crazy. How could CZ do that?
CZ likely did this to crush a rising competition. It was also personal. In recent months, regulators have been tough toward the crypto business, and Binance and FTX have been trying to stay on their good side. CZ believed SBF was poisoning U.S. authorities by saying CZ was linked to China, so CZ took retribution.
“We supported previously, but we won't pretend to make love after divorce. We're neutral. But we won't assist people that push against other industry players behind their backs," CZ stated in a tragic tweet on Sunday. He crushed his rival's company two days later.
So does Binance now own FTX?
No. Not yet. CZ has only stated that Binance signed a "letter of intent" to acquire FTX. CZ and SBF say Binance will protect FTX consumers' funds.
Who’s to blame?
You could blame CZ for using his control over FTX to destroy it. SBF is also being criticized for not disclosing the full overlap between FTX and his trading company, which controlled plenty of FTT. If he had been upfront, someone might have warned FTX about this vulnerability earlier, preventing this mess.
Others have alleged that SBF utilized customer monies to patch flaws in his enterprises' balance accounts. That happened to multiple crypto startups that collapsed this spring, which is unfortunate. These are allegations, not proof.
Why does this matter? Isn't this common in crypto?
Crypto is notorious for shady executives and pranks. FTX is the second-largest crypto business, and SBF was largely considered as the industry's golden boy who would help it get on authorities' good side. Thus far.
Does this affect cryptocurrency prices?
Short-term, it's bad. Prices fell on suspicions that FTX was in peril, then rallied when Binance rescued it, only to fall again later on Tuesday.
These occurrences have hurt FTT and SBF's Solana token. It appears like a huge token selloff is affecting the rest of the market. Bitcoin fell 10% and Ethereum 15%, which is bad but not catastrophic for the two largest coins by market cap.
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Marcus Lu
2 years ago
The Brand Structure of U.S. Electric Vehicle Production
Will Tesla be able to maintain its lead in the EV market for very long?
This is one of the most pressing issues in the American auto sector today. One positive aspect of Tesla is the company's devoted customer base and recognizable name recognition (similar to Apple). It also invests more in research and development per vehicle than its rivals and has a head start in EV production.
Conversely, established automakers like Volkswagen are actively plotting their strategy to surpass Tesla. As the current market leaders, they have decades of experience in the auto industry and are spending billions to catch up.
We've visualized data from the EPA's 2022 Automotive Trends Report to bring you up to speed on this developing story.
Info for the Model Year of 2021
The full production data used in this infographic is for the 2021 model year, but it comes from a report for 2022.
Combined EV and PHEV output is shown in the table below (plug-in hybrid electric vehicle).
It is important to note that Toyota and Stellantis, the two largest legacy automakers in this dataset, only produced PHEVs. Toyota's first electric vehicle, the bZ4X, won't hit the market until 2023.
Stellantis seems to be falling even further behind, despite having enormous unrealized potential in its Jeep and Ram brands. Stellantis CEO Carlos Tavares said in a recent interview that the firm has budgeted $36 billion for electrification and software.
Legacy Brands with the Most Momentum
In the race to develop electric vehicles, some long-standing manufacturers have gotten the jump on their rivals.
Volkswagen, one of these storied manufacturers, has made a significant investment in electric vehicles (EVs) in the wake of the Dieselgate scandal. The company plans to roll out multiple EV models, including the ID.3 hatchback, ID.4 SUV, and ID. Buzz, with the goal of producing 22 million EVs by 2028. (an electric revival of the classic Microbus).
Even Ford is keeping up, having just announced an EV investment of $22 billion between 2021 and 2025. In November of 2022, the company manufactured their 150,000th Mustang Mach-E, and by the end of 2023, they hoped to have 270,000 of them in circulation.
Additionally, over 200,000 F-150 Lightnings have been reserved since Ford announced the truck. The Lightning is scheduled to have a production run of 15,000 in 2022, 55,000 in 2023, and 80,000 in 2024. Ford's main competitor in the electric pickup truck segment, Rivian, is on track to sell 25,000 vehicles by 2022.
Ezra Reguerra
3 years ago
Yuga Labs’ Otherdeeds NFT mint triggers backlash from community
Unhappy community members accuse Yuga Labs of fraud, manipulation, and favoritism over Otherdeeds NFT mint.
Following the Otherdeeds NFT mint, disgruntled community members took to Twitter to criticize Yuga Labs' handling of the event.
Otherdeeds NFTs were a huge hit with the community, selling out almost instantly. Due to high demand, the launch increased Ethereum gas fees from 2.6 ETH to 5 ETH.
But the event displeased many people. Several users speculated that the mint was “planned to fail” so the group could advertise launching its own blockchain, as the team mentioned a chain migration in one tweet.
Others like Mark Beylin tweeted that he had "sold out" on all Ape-related NFT investments after Yuga Labs "revealed their true colors." Beylin also advised others to assume Yuga Labs' owners are “bad actors.”
Some users who failed to complete transactions claim they lost ETH. However, Yuga Labs promised to refund lost gas fees.
CryptoFinally, a Twitter user, claimed Yuga Labs gave BAYC members better land than non-members. Others who wanted to participate paid for shittier land, while BAYCS got the only worthwhile land.
The Otherdeed NFT drop also increased Ethereum's burn rate. Glassnode and Data Always reported nearly 70,000 ETH burned on mint day.
Adrien Book
3 years ago
What is Vitalik Buterin's newest concept, the Soulbound NFT?
Decentralizing Web3's soul
Our tech must reflect our non-transactional connections. Web3 arose from a lack of social links. It must strengthen these linkages to get widespread adoption. Soulbound NFTs help.
This NFT creates digital proofs of our social ties. It embodies G. Simmel's idea of identity, in which individuality emerges from social groups, just as social groups evolve from people.
It's multipurpose. First, gather online our distinctive social features. Second, highlight and categorize social relationships between entities and people to create a spiderweb of networks.
1. 🌐 Reducing online manipulation: Only socially rich or respectable crypto wallets can participate in projects, ensuring that no one can create several wallets to influence decentralized project governance.
2. 🤝 Improving social links: Some sectors of society lack social context. Racism, sexism, and homophobia do that. Public wallets can help identify and connect distinct social groupings.
3. 👩❤️💋👨 Increasing pluralism: Soulbound tokens can ensure that socially connected wallets have less voting power online to increase pluralism. We can also overweight a minority of numerous voices.
4. 💰Making more informed decisions: Taking out an insurance policy requires a life review. Why not loans? Character isn't limited by income, and many people need a chance.
5. 🎶 Finding a community: Soulbound tokens are accessible to everyone. This means we can find people who are like us but also different. This is probably rare among your friends and family.
NFTs are dangerous, and I don't like them. Social credit score, privacy, lost wallet. We must stay informed and keep talking to innovators.
E. Glen Weyl, Puja Ohlhaver and Vitalik Buterin get all the credit for these ideas, having written the very accessible white paper “Decentralized Society: Finding Web3’s Soul”.