Earlier this week BitcoinExchangeGuide had reported that Congressmen Warren Davidson and Darren Soto have announced the Token Taxonomy Act. The main intention behind this act is to provide a clear regulatory environment for businesses and companies in the blockchain environment.
The legislation clarifies how to define a digital token and how securities laws apply to companies that work with blockchain technology. One of the main issues that this bill clarifies is a court case that the SEC uses to determine what security is.
Congressman Darren Soto said that although the legislation is a great first step, they are looking also for feedback to improve it. They have been working for several months to create the H.R. 7356 Token Taxonomy Act. Several participants have given their opinion about it and the whole crypto space.
Congressman Warren Davidson commented on the matter:
“Providing this much needed certainly frees the SEC to perform its vital and much-needed consumer protection duties of enforcement on those who have engaged in securities fraud by making false claims or simply attempting to engage in regulatory arbitrage to circumvent securities law.”
Let Us Take A Closer Look At How This Bi-partisan Act Will Affect The Blockchain And Crypto Sector
The biggest union of the giants of crypto industry, The Blockchain Association that represents companies like Coinbase, Circle and Digital Currency Group said that the first version of the bill has enough guidelines to prove that most digital tokens can be excluded from the categorization of security.
They released a blog post following the announcement of the act in which they stated:
“This legislation proposes a definition of “digital token,” a new term for cryptocurrencies and other network tokens, and explicitly excludes them from the definition of a security. Digital tokens promote the open exchange of information and value and decrease the potential for fraud. They must be created in accordance with specified rules, recorded in a decentralized digital ledger, and capable of being traded without an intermediary.”
Regarding the bill’s correlation to the existing SEC policy, they added that the most detailed guidance from the SEC on this subject comes from a June 14th speech by Bill Hinman, the director of the Division of Corporation Finance.
They think that the definition of a digital token and elements from the Hinman speech have similarities — both frameworks acknowledge that decentralization is a key factor in determining whether application of the securities laws makes sense.
Almost like most of the early stage legislation, the bill isn't perfect yet. However, the exciting thing is that it was proposed by a bipartisan team, demonstrating a vision for innovation and responsibility that is shared across the aisle. With the new Congress starting in January, we can be hopeful that digital tokens will be an idea that we can build upon.
A government enforcement defense and securities litigation attorney, Jake Chervinsky said:
“The Token Taxonomy Act would provide exactly the type of regulatory clarity the crypto industry needs. Legislation like this is orders of magnitude more important than non-binding guidance from agencies like the SEC.”
Although we do not have a clear timeline for approval, it is good to know that the government is trying to steer the direction of regulation in the right direction.