Up until 2009, paper and coin currency were only issued by the government and backed by the government’s guarantee. These currencies are known as “fiat currencies.” Fiat currencies are not backed by gold or any other commodity. They are merely government-issued money. The year 2009 marked the birth of digital or programmable money. The first digital currency created was called Bitcoin. Bitcoin was unique in that it did not require a government to issue or oversee it—it is decentralized. Digital currencies place the power of trading in the hands of the people, like the practice during the bartering system. The term “token” was introduced on the Ethereum blockchain. There are three types of tokens organized based on their application, features, and function: (1) Security tokens; (2) Utility tokens; and (3) Non-fungible tokens (NFTs). NFTs are especially growing in popularity. Each token is a unique one-of-a-kind digital asset that can be sold to collectors, enthusiasts, devoted fans, and the entire public. Imagine you could buy an interest in your favorite football team, musical artist, book, TV show, and so forth. Virtually anything can be tokenized, creating endless possibilities. Trading is an inherent human activity that has been with us since the old ages and will continue to be with us in the future—regardless of the forms it may take. As society evolves into a digital trading age, the terms “money,” “value,” and “trust” will also change.
But with this new excitement in tokens and tokenization comes increased scrutiny. In August 2021, the SEC charged a decentralized finance lender and its top executives for selling two types of digital tokens using smart contracts through an unregistered offering, which raised over $30 million. When the company encountered operation issues from price volatility, rather than notifying investors, Defendants made multiple misrepresentations. We can expect an increase in government investigations over the next few years.