• Albany International School

Cryptocurrency and property?

Updated: Aug 28, 2020

The cryptocurrency was born as an instrument of "breaking" the financial system, it escapes goes to regulators. Over time this notion has transmuted. Now the platforms that trade cryptocurrencies proclaim that the "revolution needs rules”. Bodies regulators like SEC, CFTC and FinCEN struggle to apply traditional securities, raw materials and principles that change money by changing experiments on the market. For example, the SEC has initiated a series of actions claiming that many cryptocurrencies offer involve the sale of a security, subject to the registration provisions of the Securities Act. The CFTC states that coins are commodities and subject to certain provisions. of commodity laws. FinCEN has released a disclaimer regarding the lack of transparency for certain types of transactions. The most recent SEC action in this area seems to bring together several themes. The case focuses on the digital asset known as "Gramm s "offered by the owners and operators of the Telegram Messenger mobile messaging application. Preliminary offers raised billions of dollars for a solicitation launch. Perhaps more importantly, Grams binds to a worldwide encrypted communication system based on the concept of secrecy and total privacy. [1]

Telegram Group Inc., is a British Isles privately owned company based in Dubai, United Arab Emirates. Its main product is Messenger, a private encrypted messaging application with approximately 300 million monthly users, popularly known as the favorite messaging app in the world of cryptocurrencies. TON Issuers Inc. is a company in the BV Islands, owned by Telegraph Group. It is based in Tortola, British Virgin Island. Telegram is owned by Dr. Nikolai Durov and his brother Pavel. Both are Russian citizens. Pavel resides in Nevis (Federation of Saint Kitts and Nevis). Dr. Durov is Telegram's Chief Technology Officer. The TON Foundation, controlled by the brothers, is a non-profit association of the Cayman Islands, dedicated to the promotion and support of the TON Blockchain. The Durov brothers launched Telegram Messenger in late 2013. Users of the service were told that it is "free and will always be free" and will not sell advertising. More importantly, users have been assured that their privacy is taken seriously and that the company "will never give third parties access to your data." Users can have secret chats as well as the use of transmitted encrypted data is distributed across multiple servers. In late 2017, the brothers launched a new version of Telegram. The new iteration, called "Telegram Open Network" or "TON", has been designed to host the next generation of multi-blockchain systems. Telegram described the system as "always an expanding decentralized supercomputer and value transfer system". For a period of three months, starting from January 2018, Telegram has entered into Gram purchase agreements with initial buyers. The agreements provided that TON Issuer Inc., a subsidiary of Telegram, would issue a new cryptocurrency called "Grams ". A new blockchain platform known as "TON Network" will be launched. Investors purchased Grams for delivery after the completion of the TON Blockchain. After the completion of that project, the investors would be reimbursed the Grams less the expenses of the service. Altogether, about 2.9 billion Grams were sold with the exchange rate of $ 1.7 billion. The Grams according to Telegram are not securities but are a currency. Investors were told that the Grams would appreciate their value over time. This would not come from the ability to exchange them for goods and services that did not exist, but from the construction of the ecosystem or the TON network. The series of documents used in connection with the offers indicated that the capital raised from the initial requests would be grouped and used over time in connection with the development of the network. Subsequent issues of Grams would be valued with a premium to those acquired in the initial offers. Telegram noted that the Gram Purchase Agreement is an investment contract. Telegram noted to warned US-based investors that the offer and sale of the security by reference to the Agreement - were not registered under the 1933 Securities Act and could not be transferred without an effective registration declaration. Grams, however, are not titles, according to Telegram but are a currency. In March 2019 Telegram released a beta version of the TON Blockchain. The network was designed to test the functionality of TON and Grams. This test was important for the final delivery of the Grams in autumn 2019. A fundamental requirement of the TON Network and Blockchain proposal is the number. The widespread distribution and use of Grams around the world are critical to keeping the promise of the initial offerings. The TON Blockchain can become truly decentralized if the owners of Grams other than the original buyers actually bet on Grams and, therefore, act as "validators" of the transactions on the TON Blockchain. According to the SEC markets are about to be flooded with unregistered stocks which will essentially disappear shortly. The SEC's complaint concerns violations of Sections 5 (a) and 5 (c) of the Securities Law. It should be noted that there is now a real regulatory and interpretative jungle of regulators who look and expect to assert their jurisdiction. Grams and TON Blockchain put together the promise of the crypto-revolution but it will be a possible nightmare for regulators. The tokens promise to be "off the grid" with a worldwide messaging system that is encrypted and guarantees complete privacy. For those interested in avoiding regulatory oversight, it appears to be the long sought safe haven. For regulatory bodies, this could be a key challenge. For the SEC, the system has what appears to be a title: a contract, even the founding brothers admit that it is an investment contract and that it is apparently sold outside the confines of securities laws. The claim that the Grams are in currency seems designed to keep it out of the reach of SEC assessment and control. The CFTC can say that grams are a commodity. In the past, the agency said that the coins involved in cryptocurrency offers are commodities under their jurisdiction. This does not mean, however, that these coins need to be registered. Since the contracts under which they are purchased promise delivery, they are not forward contracts. Rather, they appear to be forward contracts that are beyond the scope of the product laws registration provisions. FinCEN may declare that the Grams and / or related agreements are subject to money exchange laws. If so, you may need to register them, opening up the prospect of a disclosure that would be contrary to the underlying purpose of the system.

Having analyzed this dynamic that seems very complex, let's move on to another very problematic concept on the ownership of cryptocurrencies. The first question would be; l to cryptocurrency qualifies as property? In New Zealand this is being discussed legally. While it may seem obvious that cryptocurrency would be considered property, legal systems around the world have struggled with its categorization, as it does not easily fit into any of the recognized categories of property and that the information itself is not generally considered to be property. In New Zealand the 'High Court has taken a firm decision on the legal question of Cryptopia, defining the cryptocurrency as a form of intangible personal property. This decision was made with reference to the broad definition of "ownership" in section 2 of the Companies Act and also to previous cases that considered the categorization of other assets such as money. The main implication of the debate in the context of this case has been that by defining cryptocurrency as a property, this decision will clarify several aspects in relation to bankruptcy law, inheritance law and commercial law in general. The High Court decided that the cryptocurrency remaining in the Cryptopia accounts was kept in foster care for the account holders. In reaching this conclusion, he examined Cryptopia's operating practices, how it had been marketed to account holders and the terms and conditions in place at various times. Of particular importance was the fact that account holders brought their currency to the platform to make it available for exchange. The Criptopia acted as a platform for the exchange but did not hold the currency as part of its activities (apart from the currency traded on their own). The consequence of this decision is that only account holders have the right to recover the remaining cryptocurrency in the event of Cryptopia's insolvency. If the High Court had decided that the cryptocurrency was not kept in confidence, it would simply be considered an asset in liquidation to be distributed among all creditors. Although this ruling has territorial limitation in New Zealand, it serves as a reminder, from the point of view of both platform owners and investors. It seems very important to be clear about the terms in which investments or deposits are made. Definition of securities or virtual property certainly does not end here... Absolutely.

[1] For more details see SEC against Telegram Group Inc., Civil action no.19 Civ.9439 (S.D.N.Y. filed 11 October 2019).

Written by Giacomo Breda

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