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Ethereum ‘no longer’ a security, confirms SEC

Ethereum is not a security

The clarification was long expected, though elements of the crypto community have always disagreed with the assessment.

Jay Clayton, the Chairman of the US Securities and Exchanges Commission (SEC), has confirmed that Ethereum (ETH) is not a security under US law.

Coin Center, a non-profit cryptocurrency research organisation, had asked for confirmation on the SEC’s stance after comments made by another representative last year.

In June 2018 the SEC’s Director of Corporate Finance, William Hinman, stated in a speech that the SEC does not consider Ether (ETH), the native token of the Ethereum network, to be a security. ‘Based on my understanding of the present state of Ether, the Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions.’

Clayton’s comment was more nuanced than the earlier opinion. He entertains the idea that an instrument may start out life as a security but later evolve so that it no longer meets this definition – as may arguably have been the case with Ether:

I agree that the analysis of whether a digital asset is offered or sold as a security is not static and does not strictly inhere to the instrument. A digital asset may be offered and sold initially as a security because it meets the definition of an investment contract, but that designation may change over time if the digital asset later is offered and sold in such a way that it will no longer meet that definition.

I agree with Director Hinman’s explanation of how a digital asset transaction may no longer represent an investment contract if, for example, purchasers would no longer reasonably expect a person or group to carry out the essential managerial or entrepreneurial efforts. Under those circumstances, the digital asset may not represent an investment contract under the Howey framework.

The clarification will be welcomed by the Ethereum and wider cryptocurrency community. It also offers a definitive opinion on the matter, after criticism from some quarters that ETH would indeed meet the criteria for a security. Perhaps even more significantly, it could open the way for ICO tokens to escape categorisation as securities, even if they met the relevant definition when they launched – a topic of hot discussion in the community. For example Craig Wright, who claimed to be Bitcoin creator Satoshi Nakamoto in 2016, has stated his opposition to Ethereum and various other platforms:

‘Any use-case for ETH no longer exists following the confirmation by the @SEC_News on ICOs. All as I have been trying to say for years. Next target, XRP. Another illegal unregistered security platform to take down.’


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