The way in which digital tokens operate is complex and can maintain multiple characteristics – from an investment contract, to a consumable necessary for utilizing a digital platform, to a form of payment or exchange.
This complexity poses a challenge to regulators who attempt to apply legacy regulatory frameworks for securities, commodities, currencies, or perhaps something else. Likewise, innovators are challenged to build viable business models without knowing which regulatory framework will apply. The current financial regulatory framework in the United States is highly complex and fragmented. Often businesses in this industry are regulated at the federal level by FinCEN, the SEC, the CFTC, and others, as well as on the state level, as money transmitters. This decades-old system creates compliance challenges when addressing numerous regulators and exams, for example.
Having an uncertain regulatory environment is a significant impediment to investment and innovation in the blockchain industry, scuttling projects before they begin or forcing them offshore to more established and clear regulatory systems.