The Securities and Exchange Commission is looking to use Ethereum's recent switch to proof-of-stake to regulate it. Jakub Porzycki—NurPhoto/Getty Images
The risk of a fierce war between the Securities and Exchange Commission and the crypto industry is increasing.as luck Reports on Wednesday said authorities are going after Ethereum, issuing subpoenas to U.S. companies to provide all records of their transactions with foundations that oversee the blockchain. This is a big problem because much of the crypto industry is built on top of Ethereum, not just applications but even entire secondary blockchains like Polygon. If the SEC moves forward with its plan to declare all Ethereum subject to securities laws, it will have far-reaching and unpredictable ramifications.
The most interesting thing about the SEC's maneuver is not so much why the SEC does it, but why it does it. now. Putting aside the hypocrisy of Gary Gensler, who stated in 2018, before becoming SEC Chairman, that Ethereum is not a security (you can watch the video here). Instead, the Ethereum network will be celebrating its 10th anniversary next year, and the time to regulate it will be similar to his 2017 anniversary, when fraudsters used the Ethereum network to launch various scams. Let's consider that it would have been the period of ICO mania. Every year since then, the network has grown and spent more, and the SEC's control of it today is like repacking the proverbial toothpaste in a tube.
People familiar with the investigation said the timing may be related to Ethereum switching to a proof-of-stake model in late 2022. For those not familiar with cryptocurrencies, this required switching to another mechanism for validating blockchain transactions. It relies on a decentralized network of validators. Previously, Ethereum relied on the Bitcoin model, which required consuming huge amounts of energy to solve random math problems. The change meant Ethereum would reduce its carbon emissions by more than 99%, but it appeared to invite legal trouble as proof that no good deed goes unpunished. The new argument is that the validator model means that Ethereum is an investment contract like a series of stocks. Or something.
This argument is not a strong argument and does not help the agency's argument that many people relied on the SEC's previous signals that Ethereum was fraudulent. do not have Security. If pushed too far, the agency will almost certainly lose in court. Yet rather than walk away or help devise a new regulatory framework for decentralized blockchains, the SEC is heating up its investigation. why?
The best answer is politics. Justin Slaughter, one of Washington, D.C.'s most astute crypto watchers, says Gensler is taking heat from hard-core progressives, who are every bit as enthusiastic as the worst crypto lunatics. It pointed out.massacre point to Left-handed touchstone editorial Outlook The company took the unusual step of criticizing Gensler for authorizing the introduction of a Bitcoin ETF in January. Even though the appellate court almost unanimously ordered the SEC to approve the ETF. Outlook Gensler said he should have “kept fighting and let the chips take their place.”
Although such language suggests ideological attachment, these are important allies of Gensler. de facto Boss Sen. Elizabeth Warren (D-Mass.). Some of their concerns about cryptocurrencies are valid, but trying to control Ethereum is a losing battle. That horse left the barn a long time ago.
jeff john roberts
jeff.roberts@fortune.com
@jeffjohnroberts
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