Has Ethereum become a “security”?

Has Ethereum become a "security"?

The transformation of Ethereum into Proof of Stake his nature changed. So much so that Vitalik Buterin’s creation finds itself in the SEC’s crosshairs.

Ethereum is a security for Garry Gensler

The chairman of the SEC has said that Ethereum could pass the famous Howey test. He made the statements on September 15, the same day as the “merge” from Ethereum…

“Allowing ETH holders to stack them in a node is like anticipating profits based on other people’s efforts”, he sent to journalists from the Wall Street Journal.

While the miners Proof of Work perform demonstrable work, stakeholders willing to put their ETH in escrow, and their tons carved out. It looks a lot like a passive investment, so making ETH a security.

As a reminder, the US Supreme Court establishes four criteria for determining whether an asset is an investment contract (security):

  • Investment of money
  • In a common project
  • In anticipation of profit
  • Through the efforts of others

In short, the SEC could soon force Coinbase to delist Ethereum if its founders do not register it with the SEC.

The remarks came days after a carefully crafted speech at the Practice Law Institute conference. Gary Gensler gave his most direct comments yet.

The former MIT professor (where he taught courses on bitcoin) particularly reiterated his position that most cryptocurrencies, stable tires and there were other digital assets securities.

According to him, since most cryptocurrencies are created and sold by centralized entities to people hoping for potential profits, they therefore fall under the scope of the SEC.

In addition, although G. Gensler did not say so directly, the comment is not cryptocurrencies securities “they are probably only a small number, although they may represent a significant part of the overall value of the market”it was a nod to the idea that bitcoin is not.

He also said that Congress should give the CFTC more authority in regulating the commodities (commodities), a category in which bitcoin falls. In fact the CFTC regulates the markets where food, minerals, oil, gold, and thus, BTC are bought.

In summary, Ethereum is an investment (security) contract. Bitcoin is a commodity.

Why does ETH pass the Howey test?

According to the SEC, the “investment of money” test is easily met in the case of selling digital assets. In addition to the “joint venture” test.

However, the question of whether a digital asset can be considered a security is more sensitive to the criteria of “expectations of profit”, “drawn from the efforts of others”.

For example, cryptocurrency buyers may rely on the efforts of others if those cryptocurrencies rely on their creators to develop and manage the network.

This is the case with Ethereum since Vitalik Buterin and his cronies are constantly changing their money supply. Additionally, the Ethereum foundation created by Vitalik and Gavin Wood did a pre-sale in 2014. Sixty million ETH were sold to a few thousand insiders at a price of $0.30 cents each. 10% of ETH was also donated to the Ethereum Foundation for free.

Let’s also not forget that the handful of developers who participated in the creation of Ethereum were given an additional 10%. Including Vitalik, of course, which continues to influence the protocol today.

Nothing like Bitcoin offered to the world by an anonymous genius. Satoshi Nakamoto disappeared after two years, when BTC was not even $0.30.

The criteria are also met if the creators take action to support the price of their cryptocurrency. For example by deciding to burn some of it. What is the situation now with PoS Ethereum and the burning some of the transaction fees.

[Soit dit en passant, le « burning » d’ETH est similaire à la perte de BTC à tout jamais. Cela profite davantage à ceux qui ont beaucoup de BTC ou d’ETH étant donné que cette perte a un effet multiplicatif sur la valeur de l’ensemble des BTC restants. Ceux qui en possèdent le plus en profite donc le plus. Le burning est foncièrement injuste.]

In short, big black clouds are piling up over “ultrasound money”. But the question will probably be decided by Congress. Don’t miss our article: Ethereum throws in the towel in the hashrate race

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Nicolas Teterel avatar
Nicolas Teterel

Journalist reporting on the Bitcoin revolution. My papers deal with bitcoin through geopolitical, economic and libertarian prisms.

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