As a smart contract newcomer, I read through some spec stuff and this was my takeaway question/concern - the choice of word that you call ‘asset’ . The word in my view is loaded with legal and regulatory definitions with securities and tax implications. It seems that people might want to create a thing that is not an asset in those terms, specifically that there is a service being provided associated with the contract. It seems that if somebody finds themselves in a legal forum arguing that their thing they have created is not an asset, that this semantic choice has painted them into a box. Do you have any thoughts on this? Thanks
- a useful or valuable thing or person.
- an item of property owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies.
Assets can be anything of value, including extremely low-value digital collectors items like items in a game. The contract and asset metadata will spell out what the asset means and what the rights/duties are. The contract can also state that the ownership of the digital token implies no rights or duties, legally innocuous. It’s like going to a website and reading the terms and conditions. It doesn’t have to have securities or tax implications.
Can you please describe a use case that you are interested in that conflicts with the term ‘asset’?
I was thinking if I were to generate a smart contract that represents providing some future service, I’d like to invoke language ‘service’ rather than ‘asset’, due to the meaning of ‘asset’ in a financial context.
In considering the recent US SEC clarification on definition of a security, the key feature is that it is bought not to receive a good or service, rather as investment. For an ordinary person, a single SEC letter of inquiry is pretty much a life-ruining event in terms of legal costs. I was looking to see if there was high wall in definition of a smart contract that would clearly affirm that distinguishing feature. I wouldn’t want to get mixed into a case where the SEC is digging through a commingled pool of contracts where the purpose of services and investments are ambiguous or conflated. In accounting, assets/liabilities (equity/debt) and revenue/expenses are in different realms. In US tax code, exchange of assets implies taxable gains/losses, as opposed to other forms of income. Services are genrally in the revenue/expense realm. In a financial context (i.e. balance sheet), I’d say ‘asset’ implies investment (capital allocation) , and therefore could be tagged as a suspected security. My point is to avoid ever needing to disprove something to a regulator.
Thanks James for your response. I shared my input mostly so you are aware what is going through the mind of a newcomer to this area while reading the material. Beyond that, I’m all set. Cheers.
I appreciate the feedback, Kent.