Using a blockchain doesn’t exempt you from securities regulations

Enlarge / Ethereum founder Vitalik Buterin. (credit: Techcrunch)

The DAO, a blockchain-based organization created last year, was supposed to demonstrate the potential of Bitcoin competitor Ethereum. Investors pumped $150 million of virtual currency into the project. But then in June 2016, hackers found a bug in the DAO's code that allowed them to steal $50 million from the organization, creating a crisis for the Ethereum community.

A Tuesday ruling from the Securities and Exchange Commission makes clear that security flaws were not the problem with the DAO. The agency says the DAO's creators broke the law by offering shares to the public without complying with applicable securities laws. Though luckily for the DAO's creators, the SEC isn't going to prosecute them.

"There's nothing surprising here," says Patrick Murck, a legal expert at Harvard's Berkman Klein Center. "It's very commonsensical."

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