Last October, the US Securities and Exchange Commission released this update, which detailed the adoption of the final rules surrounding equity based crowdfunding offerings. The concept was first addressed as part of the Jumpstart Our Business Startups (JOBS) act way back in 2012, which was signed in by Barack Obama, as a tool that would facilitate the process through which small and medium business enterprises gain access to operating and development capital.
Up until now, it has been illegal for existing companies or startup projects to offer equity in return for capital through crowdfunding – primarily because capital-equity transactions must adhere to financial authority (in this case the SEC) regulatory framework. Crowdfunding is not a new concept, but the last decade has seen the space expand, and with the expansion, the need for relevant regulations that allow equity transactions.
So now its here, why are we talking about it? Well, one of the most obvious applications for bitcoin (and the blockchain, but we’ll talk about that shortly) is crowdfunding. A number of companies have attempted to set up traditional crowdfunding model (i.e. perks and rewards in place of equity) bitcoin platforms, but with little success. Most of the names in the space have little to no funded projects and many have been dormant for a long time.
This is speculation, but one of the reasons for this is likely rooted in the transparency of such transactions. How does an individual know they are going to receive their reward if all they have as far as identity of the person or team requesting funds is a BTC address? There are many more reasons, but we won’t go in to them here.
With the new note passed, however, things are different. Issuers need register with the SEC, and the whole process is regulated. Of course, there is the question, where does bitcoin fit into this? Will the SEC allow BTC as a form of payment for securities? Maybe, maybe not. But it kind of doesn’t matter. Last week we wrote about Rebit. The company seeks to transfer capital using bitcoin as the mode of transfer, but the end user doesn’t receive bitcoin – instead he or she receives cash. Bitcoin is just the transfer medium. Most of the big name bitcoin payment processors work in exactly this fashion – online retailers aren’t receiving bitcoin, they’re receiving fiat from BitPay, who received BTC from consumers and exchanged it for USD.
If a platform existed through which bitcoin could be used as the transfer medium but the offering entity receives fiat in return for equity issue, the SEC (probably) couldn’t have an issue with the process. There’s probably a developer or three staying up late as we speak building exactly this platform.
Which brings us to the blockchain. The ASX is building out a blockchain for securities settlement. NASDAQ is doing the same. The same technology could easily be applied to this crowdfunding model, and likely will be at the forefront of the concept going forward.
Again, if there’s no one working on this technology at this moment, I’d be very surprised. You read it here first.
Here’s the S-1 Registration form.
Here’s the final rules note.