Following rumors that prominent members of the sector have been receiving requests for information from the US Securities and Exchange Commission (SEC), members of the crypto 2.0 segment of the bitcoin community are now stepping forward to deny these claims.

The reports first surfaced on 27th October via bitcoin blog Coinfire, which claims to have received a copy of a letter allegedly sent from the SEC to a number of open-source platform providers such as Counterparty and crowdfunding platforms like Cryptostocks. Together, such technologies and services, enable users to invest in a wide range of products that progress beyond financial assets to more experimental applications of bitcoin.

Crypto 2.0 protocol providers such as Mastercoin and Counterparty, which use protocols built on top of bitcoin to enable asset trading, told CoinDesk that they have not received any letters or communications from the SEC, a sentiment that was echoed by the industry’s business community.

Craig Sellars, CTO of the Mastercoin Foundation, the organisation that advocates for the use of the mastercoin protocol, said:

“The foundation has not had any communication with the SEC, and has not received any communication (letters, subpoenas, etc) from them. To my knowledge, none of the projects using the Master Protocol have received anything from the SEC, either (and we’ve received confirmation from several).”

Adam Krellenstein, co-founder and chief architect of Counterparty, added simply: “None of [the Counterparty team] has gotten any letters at all like that.”

Members of the business community that is building on top of crypto 2.0 protocols also reported that they have not received letters from the SEC. This included MaidSafe, the decentralized storage system that raised $7m through a Mastercoin crowdsale; bitcoin startup incubator Seedcoin, which raised capital for a seed-stage startup fund through fundraising company Havelock Investments; and decentralized crowdfunding startup Swarm.

The SEC told CoinDesk it had “no comment” on the veracity of the reports.

Nonetheless, the rumors have created a storm of controversy across social networking platforms such as Reddit and Twitter, as news came just hours after a FinCEN ruling aimed at defining bitcoin processors and exchanges as money transmitters.

Protocol providers encourage appropriate use

Counterparty and Mastercoin both used the reports to emphasize that they offer open-source software platforms, and therefore are not responsible for how others may use the asset trading platforms that they provide.

“The software that we develop, like all capable software, may be used for both legitimate and illegitimate purposes,” Krellenstein said. “We do not condone the creation of unregistered securities on the Counterparty network, but we have no control over their issuance.”

Krellenstein also noted that he does not consider Counterparty’s protocol-specific currency, XCP, to be a security. A small amount of XCP must be used to create a new asset on the platform, while all bets must be placed in XCP.

Sellars went on to encourage mastercoin platform users to focus on creating tokens with functional components and to refrain from using them merely to represent ownership in any entity. “The Master Protocol as an open-source platform is not intended for securities issuance,” he added.

NXTorganization, an informal community body representing the NXT protocol, did not immediately respond to requests for comment.

Crypto 2.0 businesses react

Companies built on top of crypto 2.0 platforms, likewise, stressed that they are based outside the US and have no intention of offering securities.

Swarm founder Joel Dietz said that while his platform would like to offer securities at some point, this would be contingent on US regulation allowing such issuances.

“We are not offering securities, [and] we have no intention of offering securities in the near future,” he said.

MaidSafe said it has received no letters, stressing that it is based in Scotland, falling under laws set by the UK, not the US, while Havelock commented only that it is located and regulated in Panama.

Storj founder Shawn Wilkinson said that his decentralized storage company, which raised more than 900 BTC in a crowdsale earlier this year, has not received a letter, and reiterated that he believes his business is not operating in conflict with US laws.

“We are staying far away from securities, equity, investments,” Wilkinson said. “If you look in our crowdsale terms we were very clear about that.”

Appcoins, not equities

Lawyers representing the sector have been keen to stress that crypto 2.0 projects seek to frame any investment offerings in specific ways that avoid common terminologies associated with the sale of securities.

Perkins Coie’s Jacob Farber, speaking last week about Overstock’s decentralized stock exchange platform Medici, moved to distance the project from the past ICOs (initial coin offerings) that have been conducted in the space.

“As far as I’m concerned this is an entirely different offering than the coin raises that have occurred to date,” Farber said. “These for one reason or another have all been predicated on the view that the coin being sold is not a security. So it wasn’t within the SEC’s jurisdiction, or that was the rationale.”

Sellars stressed that Mastercoin encourages those who use its platform to create appcoins, not equities, meaning tokens that allow for the access of a network as opposed to ones that represent the share of any company.

“The problem with tokens is they are so flexible, it’s how you treat them,” he said.

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