When a crypto coin BECOMES a security
I like decentralization, it is useful, it works and it makes sense, however, this day I want to talk to you about securities, the other side of the economic coin, which are defined as follows:
“The term “security” refers to a fungible, negotiable financial instrument that holds some type of monetary value. It represents an ownership position in a publicly-traded corporation via stock; a creditor relationship with a governmental body or a corporation represented by owning that entity’s bond; or rights to ownership as represented by an option.”
Securities, which sometimes are stocks, mainly depend on a single entity to work out, which automatically makes them easy targets for manipulation, which is what happened for instance with the $GME stock saga, who was brutally shorted (134%) by Melvin capital, until it blew up in their faces thanks to r/wallstreetbets
Manipulation in price is not the only problem, but also the manipulation of the company, for instance, imagine that a company is creating amazing philosophical media content, they create books, movies, songs and other items based on good philosophy, changing lifes for the best, improving education and advancing civilization forward, now imagine that this company issues a security that is traded in the New York stock exchange, well, if that’s the case, a couple of things happend.
The company is public now, which means that all revenue and profit is publicly available, similar to crypto so that’s good with me.
Now, the problem arises when someone who hates that company can buy shares in order to make it change its policies, this has ocurred to dozens of large comglomerates who have submitted to the woke agenda, which is a real tragedy.
Now, this has also ocurred in crypto, for instance, with Justin Sun and the steemit debacle, which was a drama precisely about changing the policies of the project in a fundamental way through a token swap.
The steemit debacle meant that a crypto project can go from being somewhat decentralized to become more centralized and closer and closer to be a security, Justin Sun was even able to rob money out of other’s people crypto accounts through a hard fork: https://www.coindesk.com/steem-hard-fork-hive
“The Steem blockchain has just split, or hard forked, controversially seizing the tokens of key community members who opposed TRON’s recent acquisition of the ecosystem’s biggest dapp, Steemit.
At 14:00 UTC on Tuesday, Steem implemented hard fork 0.23, significantly codenamed “New Steem,” shunting some of the former Steem “witnesses” — blockchain validators — and stakeholders who created a splinter group called HIVE out of the ecosystem, it seems for good.
New Steem, which was only announced on Monday, will “seize some user accounts that participated in criminal activities by actively contributing to the threat against the Steem blockchain and/or to the theft of STEEM holders’ assets,” said a Steemit blog post, announcing the fork.”
The Hive community also seized the tokens that otherwise would go to Justin Sun, which is understandable, but still, probably not a good precedent within the Hive community.
Now, if being a security means that is centralized and powerfull individuals can change policies in a disruptive way, does that mean that bitcoin itself is a security since the majority of bitcoin is owned by few wallets?
No, not the same.
A crypto coin that is a security is centralized in its wealth, but also the effort to make the project works depends primarily on one entity, in the case of bitcoin, millions of individuals and thousands of entities are pushing for its success, which makes it a non-security.
Now, why you should care about this, why this is relevant to you?
Well, because of the following, a crypto coin that is a security is more vulnerable to:
Attacks from adversaries
Devastating effects of procastination in the core team
Pump and dumps
Liquidity Rug Pulls
Identifying what cryptos are securities due to the ecosystem of fans imploding is critical in order to place your bets in another coin, since decentralized coins and decentralized projects are in general:
More resilient against attacks
More secure against regulators
More capable of pumps that become new price floors
More fun, with more exciting news, memes, etc
So far the mentality is that if a crypto is not CURRENTLY a security, then it will never be one, but I hope you know see that that’s not the case, coins can start as decentralized experiments full of potential can end up as securities worth 0.0000000075 USD per coin.
In fact, even regulators in the USA have said that ethereum possibly STARTED as a security, since the ethereum core team was a critical piece of the initial puzzle, but now is so decentralized and so many different entities and companies work on ethereum that it cannot be legally classified as a security at the moment.
Well, the same process can happen backwards, so you need to be aware.
Invest in decentralized projects, not stonks 2.0.
P.S: XRP is a security and I hope that Brad Garling-bread goes to jail for being so greedy and dump on retail investors for years.
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Originally published at https://ecency.com on April 7, 2021.