Cryptocurrency regulations are constantly being looked at nowadays, with the latest news being that president Biden is issuing an executive order next week to study cryptocurrencies and a central bank digital currency(CBDC), to come up with a strategy to regulate all digital assets. This can be a good thing, but also a bad thing for cryptocurrencies everywhere. Most importantly, how will ReddCoin(RDD) be handled by the Securities and Exchange Commission(SEC) and other authorities on financial investments. A small look at ReddCoin and it’s utility status.
Blockchain currency, security or utility
Regulations on cryptocurrencies have been changing over the past 13 years since the inception of Bitcoin and have been attracting the attention of all governments and financial agencies across the globe. While Bitcoin is deemed a currency, a lot of other crypto’s are seen as securities, making them “vulnerable” to SEC ruling and legislation. ReddCoin on the other hand has a utility status, which means it has a specific use case and has a whole other set of rules it should comply with.
Currency
A currency is a medium of exchange, which basically means it’s money. You can trade the medium for a product(i.e. USD to food), or you can trade the medium for another medium world wide(i.e. USD to EUR). Bitcoin falls under this classification, as you can trade it in most countries not only to native currencies, but also use it as a form of payment.
Security vs. utility
The first difference between a utility coin or a security is that an utility coin has a specific use case. This can basically mean that the utility can be traded for a certain product(a coupon for free apple) or a service(a coupon for washing your car). Or it can mean in ReddCoin’s case that in order to run ReddID in the future, it can only work with RDD. If you don’t have RDD, you cannot use the software.
The next difference is just as important as the first one. All cryptocurrencies undergo a certain test called the Howey four-prong test, which decides if a something can be seen as an investment contract, when all four requirements are met. The four prongs are:
-1. An investment of money
-2. In a common enterprise
-3. With the expectation of profit
-4. Derived from the effort of others
The most important of these prongs in the crypto sphere is “expectation of profit to be derived from the efforts of others”. Which basically means that if you are investing in a certain coin with the sole purpose of making money while others(a team) does all the work, it is seen as a security.
On top of this the SEC decided that ICO’s were defined as a security by using four criteria which correspond with the four Howey test requirements, making most of them illegal to be traded in the US.
-1. The existance of an investment contract
-2. The formations of a common enterprise
-3. A promise of profits by the issuers
-4. The use of a third party to promote the offering
ReddCoin
As ReddCoin does not qualify for these criteria, it has gotten the status of a utility coin, meaning it is a commodity which can be traded in the US. The team works on the use case of the coin and software while not focusing on profit or promising a direct profit to the users(buyers). By doing so, ReddCoin fastened it’s proverbial seat belt in the coming crypto regulations ride, which might leave a lot of the coins being unable to be traded. The future of a lot of the current cryptocurrencies might be on the line, while ReddCoin will be “safe” to most rules.