The terms cryptocurrency and crypto tokens are used interchangeably today, contributing to understandable confusion when it comes to differentiating the two. Thanks to a recent crypto shut-down courtesy of the SEC, more startups are paying attention to the differences and how to distinguish between a cryptocurrency, otherwise known as a crypto asset based on “securities” or gains for investors, and a crypto token, mainly used as a “utility token.”

The SEC came out in full force declaring that utility tokens cannot carry any monetary or investment value, establishing the community and the token functionality long before the crowdsale. On the other hand, cryptocurrencies are allowed to pander to investors during and after crowdsales, basing the value of the currency in security moving forward.

Using the Howey Test, a new way to break down classifications for cryptocurrencies versus crypto tokens, we’re going to look at what’s known as the thumbs up and thumbs down practice for declaring a crypto token-based venture today:

1. THUMBS DOWN: If the token is described as a currency that is used as such in either the platform or off the platform, that is classified as a cryptocurrency. A cryptocurrency has ulterior motives to the platform use, which is what the SEC says is unacceptable today.

THUMBS UP: For utility tokens, if there is no mention of decreased tokens or appreciation in value, instead focusing on the real-life value of the token and the purpose it serves within the platform, then the SEC will let it slide as a crypto token.

2. THUMBS DOWN: Now it’s time to look at the sensitivity of timing considered when launching a crypto token. If the crowdsale occurs long after the community and users are signed up, that constitutes a crypto token. But, if investors start pouring in during and post crowdsale, that indicates a cryptocurrency that carries security value.

THUMBS UP: Crypto tokens need to be open to any and everyone, with no inclusivity underwritten into the platform. Additionally, the platform users must be able to vote on changes to the platform as a true community, working together for the greater good instead of individual actors after monetary gain.

3. THUMBS DOWN: Finally, selling a to crypto-investors and implying that the token is going to “appreciate” in value over time, or be made “more scarce,” that immediately flags the token as a cryptocurrency to the SEC.

THUMBS UP: For a utility token, there is no listing in the exchange. If any token is listed on exchange, then that immediately flags the SEC.

GCN — three provisional patents pending

Here at the Good Citizen Network, we’ve created a crypto token, the Good Citizen Token, that is strictly a utility token, used to foster collaboration and good deeds among individuals and organizations today. As opposed to a cryptocurrency, we are amassing our starting community of 10,000 users before we will even consider a crowdsale, diminishing the security value of our token and promoting its social good in the long run. We want to change the world with a crypto token, one that is purely and uniquely rooted in utility for our users.

We follow the best practices and have SEC expert legal counsel guiding us to ensure to we are complying with SEC rules.

Here is our Howey self-assessment result:

Our platform is built for everyone’s usage (without any restriction) and everyone is encouraged to buy Good Citizen Tokens to recognize good deeds, log volunteer and community service hours, and log awards for things like spelling bees, high school debates, employee of the month, and so forth. The awards will follow the person throughout their lifetime.

Please visit us at https://goodcitizen.network, and follow us in the social networks. We will push out more lessons learned / good practices as we march down the blockchain/crypto token journey.