The SEC Gets a Token Fight

I mean the obvious answer is “hahahaha yes of course they are come on,” but it is worth taking the question seriously for a minute. In theory this is how an initial coin offering ought to work:

Is that token a security? Maybe! The classic “Howey test” in U.S. law is that a security is “an investment of money in a common enterprise with a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.” If you buy the tokens in the ICO, before the network is ready, you probably expect them to go up in value, if for no other reason than that you’re taking a risk (the network may never work!) and want to be compensated for it. And if they go up in value it certainly won’t be through your doing; it will be through the hard work of the visionary/entrepreneur who is trying to build the network, and who took your money in exchange for the tokens. There’s an argument the other way—that you are buying the tokens solely as a pre-sold product, as a way to buy file storage or whatever, and not as an investment—but it is a little chancy, since (1) you can’t actually use the tokens to buy file storage today and (2) if the Securities and Exchange Commission interviews you, you are probably going to say “of course I bought the tokens because I expected the value to go up!”