Virtual currencies are digital currencies that use encryption techniques for governance and security and operate independent of any central bank. A token is a digital asset that can be used in many ways—for example, as a unit of value (e.g., Ethereum tokens can be used to purchase goods or services) or as means of providing access to and transactional value inside a particular blockchain system (e.g., Siacoin allows access to electronic data storage space in Sia’s blockchain ecosystem). Tokens are built on top of blockchain technology, a form of distributive ledger technology (a shared and synchronized digital database).

In 2017, initial coin offerings (ICOs), a fundraising tool that offers digital tokens or coins of future value in exchange for traditional fiat money (e.g., dollar, euro, yen) or virtual currencies of immediate, liquid value (e.g., Bitcoin, Ethereum) raised approximately $4 billion. The advent of this new fundraising mechanism brought increased scrutiny by regulators into the world of virtual currencies. The Commodities Futures and Trading Commission (CFTC), the Department of Justice (DOJ), the Financial Crimes Enforcement Network (FinCEN), the Internal Revenue Service (IRS), and the Securities and Exchange Commission (SEC) have all exercised jurisdiction over tokens to varying degrees in differing circumstances. There has yet to be a consensus on whether any particular virtual currency is a “commodity” (according to the CFTC), “money” or “funds” (according to DOJ and FinCEN), “property” (according to the IRS), or whether certain virtual currency-related offering activity constitutes the purchase and sale of a “security” (according to the SEC).