(Clayton said digital tokens were securities, but cryptocurrencies were not.) Hinman's announcement marks the official position of the SEC: the name isn't important, but the way in which it's sold, promised, and behaves is the key deciding factor. Also if the investors in the cryptocurrency have an expectation of profits the asset could be classed a security. The distinction lies in how the asset is offered or sold to the public. While a token in and of itself may not be a security, the purchaser's expectation during a sale will determine its classification, he said. Many in the community feared that such a designation would lead to a slowdown in investment and development across the industry. Projects will often dance around their token's nomenclature to avoid self-branding as something that could be seen as a security, but Hinman conveyed that the SEC isn't fooled by the verbal footwork.
For example if deemed a security, websites offering trading in the token would have required licenses from federal regulators.
He also pushed back on the idea that there can be utility tokens which are not securities, saying "even digital assets with utility that function exclusively as a means of exchange in a decentralized network could be packaged and sold as an investment strategy that can be a security". The economic realities, he said, are more important than how something is labeled.
As the United States government begins to crack down on ICOs, the head of the Division of Corporation Finance at the Security and Exchange Commission (SEC) doesn't believe ether (ETH) should be classified as a security.
"What about cases where there is no longer any central enterprise being invested in or where the digital asset is sold only to be used to purchase a good or service available through the network on which it was created?"
Hinman made clear that the SEC hasn't changed its view on initial coin offerings, in which companies raise money through sales of digital tokens.
"When we think about how ether today is operating, at least, we see a highly decentralized" network, not the type of centralized actor that characterizes securities offerings, Hinman said. "With this guidance, the SEC is showing that taking a pro-innovation approach does not have to come at the expense of protecting investors". Finally, one of the biggest questions and debates in crypto has been answered by the SEC, officially.