Lets start with the DAO and move slowly toward the concept of a smart contract which in fact means a smart cow. Smart cow since you can milk it for profit , yet you buy it in the market as a tangible asset . Not in the livestock market since it is a virtual cow yet not a security too .
First lets review the meaning of the word stock
Acording to Investopedia A stock is a type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings.
But dictionary.com said that a stock is
- a supply of goods kept on hand for sale to customers by a merchant, distributor, manufacturer, etc.; inventory.
- a quantity of something accumulated, as for future use: a stock of provisions.
- livestock.
- Theater. a stock company: a job in summer stock.
- Finance:
the outstanding capital of a company or corporation.
the shares of a particular company or corporation.
the certificate of ownership of such stock; stock certificate.
(formerly) a tally or stick used in transactions between a debtor and a creditor.
As you may noticed too it seems that the SEC acts as if all tokens are financial stocks while in fact they often are better described under section 1, 2 and 3 of the dictionary definition.
Maybe the name Smart contract is the main culprit to blame.
Let me now go down the SEC document and highlight the mistakes made in understanding the reality of the emerging virtual world. Just allow me one more note before we continue:
I believe that in a very short time we will see tangible assets traded as a virtual asset based on our technological abilities to express any smart asset as data, thus if attached to a cryptographic key, can be transact safely using the blockchian technology. This means that much of the money supply in the world will be tangible assets's data stored on the blockchain using a private key.
So to the DAO Donkey now:
"The DAO was created by
Slock.it and Slock.it’s co-founders, with the objective of operating as a for-profit entity that
would create and hold a corpus of assets through the sale of DAO Tokens to investors, which
assets would then be used to fund “projects.” The holders of DAO Tokens stood to share in the
anticipated earnings from these projects as a return on their investment in DAO Tokens. In
addition, DAO Token holders could monetize their investments in DAO Tokens by re-selling
DAO Tokens on a number of web-based platforms (“Platforms”) that supported secondary
trading in the DAO Tokens."
Unlike the cow, the person holding a donkey don't expect to make profit directly from it but as a secondary means. for the sake of our argument lets say that the donkey is acquired in the market to work in the fields and help the farmer create future profits from that field.
Now lets apply that to the statement above Exchanging ( ops don't press charges against me for being an exchange now) the word DAO with the word Donkey :
The Donkey was created (raised), by Slock.it and Slock.it’s co-founders, with the objective of operating as a for-profit entity that would create and hold a corpus of assets through the sale of Donkey Tokens to investors (the farmers )which
assets would then be used to fund “projects.” ( such as a corn filed) The holders of Donkey Tokens stood to share in the
anticipated earnings from these projects as a return on their investment in Donkey Tokens. In
addition, Donkey Token holders could monetize their investments in Donkey Tokens by re-selling
Donkey Tokens on a number of web-based platforms (“Platforms”) that supported secondary
trading in the Donkey Token.
Now the next thing that we have to pay (....this currency thingi again)....close attention too is the transformation of the "DAO" to "DAO tokens" which is indeed the crucial moment on this donkey life. And also that the farmer is the one selling the Donkey to "investors". I must agree that there is a confusion as of who is who thus we will need some further investigation into that report yet before we do that you must all to pay (...free of charge of course) very close attention to this :
The fact that I can sell a donkey in parts yet have it do its work is the magic of this new virtual world.
I do not sell you a contract regarding the earnings from the donkey I practically sell you the donkey itself though with some unique quality named "divisible". That unique quality is new to the commerce life of a livestock as we knew in until now. but it is a fact now. a fact that the law can not ignore.
"The investigation raised questions regarding the application of the U.S. federal securities
laws to the offer and sale of DAO Tokens, including the threshold question whether DAO
Tokens are securities. Based on the investigation, and under the facts presented, the Commission
has determined that DAO Tokens are securities under the Securities Act of 1933 (“Securities
Act”) and the Securities Exchange Act of 1934 (“Exchange Act”).
The Commission deems it appropriate and in the public interest to issue this report of investigation (“Report”) pursuant to Section 21(a) of the Exchange Act2 to advise those who would use a Decentralized Autonomous
Organization (“DAO Entity”), or other distributed ledger or blockchain-enabled means for
capital raising, to take appropriate steps to ensure compliance with the U.S. federal securities
laws. "
Back to our donkey assuming the farmer raised it and sell it in pieces as tokens to new owners who do not use the donkey but let the framer work with it .....Then the donkey is stolen.....Well that kind of end our story.
But for the SEC and for all future tokens ICO we must let the story go on and assume that the donkey was not stolen and that the farmer (Slock.it) still have it and now start farming with it.
So now we need to introduce another new concept of our virtual farm. In our farm the donkey actually comes with a unique harvest tool which allow only his owner to reach his portion of the harvest using a spacial key (lets call that key private key....just as a matter of easy visualization of ownership)
So now each owner of a part of that donkey (donkey token) is also an owner of a private key to unlock the harvest linked directly to his portion of the donkey (donkey token) that he own now after paying to slock.it using money (if we can call Ether that ...as the commissioner did in this report)...
OK guys that was the first chapter only but since had to includes many new and emerging definitions is becoming long and heavy. thus I will publish that and will continue tomorrow.
...and pleas excuse all my misspelling and grammar mistakes... may fix it one day soon. but now i need to go do some other things.