Ethereum is under the scrutiny of the Securities and Exchange Commission (SEC), which has indicated it may be classified as a security. This move by the SEC sparked controversy, especially after he expressed a clear position in 2018 that Ethereum does not meet the standards for a security.
In light of these events, blockchain software company ConsenSys is firmly opposed to the SEC's review. Here are four compelling reasons why Ethereum should not be considered a security.
1. SEC’s previous stance on Ethereum
In 2018, then-SEC Director of Corporate Finance William Hinman gave an important speech suggesting that Ethereum was not considered a security.
“Aside from raising funds for the establishment, [Ethereum]Based on my understanding of the current situation, [Ethereum]the Ethereum network and its decentralized structure, current offers and sales [Ethereum] It’s not a securities transaction,” Hinman said.
This historic position by the SEC is the basis of its argument against current reclassification efforts. The SEC has not formally withdrawn this position, leading to strong presumptions in favor of Ethereum's current non-secure state.
“Based on Secretary Hinman’s points in 2018, there is no difference between now and 2018. Today, in terms of theory and openness, if anything, we are developing Ethereum, working on it, and adopting it. “The number of people is even broader than Ethereum's been before,” a ConsenSys spokesperson told BeInCrypto.
Therefore, absent substantial new evidence or changes in circumstances, a sudden change in perspective by the SEC is unwarranted and appears to challenge previous regulatory guidelines on a whim.
2. CFTC classification as a product
Another U.S. regulator, the Commodity Futures Trading Commission (CFTC), has consistently recognized Ethereum as a commodity. Most recently, the CFTC definitively classified Ethereum as a commodity in a civil enforcement case involving cryptocurrency exchange KuCoin.
“KuCoin is capable of soliciting and accepting orders, accepting assets on margin, Bitcoin (BTC), Ether (ETH), and Litecoin (LTC),” the compliance document states.
This classification supports a broader market understanding and regulatory response to Ethereum, further emphasizing its role and function as distinct from securities. Historically, dual approval by the SEC and CFTC strengthens the argument that Ethereum operates within a regulatory framework that applies to a commodity, not a security, according to a ConsenSys spokesperson.
“The SEC has unequivocally declared that Ethereum is a commodity for many years. Therefore, to reach the correct outcome in this case, we must go beyond what the CFTC has continually said and what the SEC has said in the past. I don't think there's really a need to consider it,” the ConsenSys spokesperson added.
3. Decentralization and open protocols
The essence of Ethereum's architecture is decentralization. Unlike securities, which are typically controlled by central authorities to benefit insiders with asymmetric information, Ethereum operates on a platform where all information is openly accessible.
The network's governance and operational protocols do not rely on any centralized group. Therefore, the main rationale for security classification, which is to protect investors from information asymmetry, is negated.
“There is no question that Ethereum is decentralized. There is no core problem or group, and there is no core development group with privileged insider information. It’s the kind of regular company that needs to exist in order to exist,” a ConsenSys spokesperson told BeInCrypto.
This fundamental characteristic of Ethereum is consistent with the principles that originally guided the SEC’s decision in 2018.
Four. Irrelevance of consensus mechanism changes
Ethereum’s recent transition from Proof-of-Work (PoW) to Proof-of-Stake (PoS) consensus mechanisms has been cited by the SEC as a potential reason for the reclassification. However, this change does not inherently impact the core nature of Ethereum's operations or non-security classification.
“If you look at Secretary Hinman’s speech in 2018 where he said Ethereum is not a security, he did not base it on PoW or PoS. The consensus mechanism is irrelevant,” a ConsenSys spokesperson concluded. Ta.
The move to PoS does not introduce securities-specific elements such as dividends or ownership in a centralized company. This is simply a technological evolution that enhances efficiency and sustainability without changing the fundamental decentralized nature of the platform.
Read more: Ethereum merging: everything you need to know
In conclusion, the SEC's reconsideration of Ethereum as a security is important, especially given the platform's historical regulatory treatment, classification by other regulatory bodies, decentralized nature, internal consensus mechanisms and unrelatedness to securities laws. Not subject to scrutiny.
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