ConsenSys hits back at the SEC point by point, why Ethereum is not a security

Original title: Four Reasons Why Ethereum Is Not a Security: ConsenSys

Original source: BeInCrypto
Original translation: Blockchain Knight

Ethereum has come under scrutiny from the SEC (U.S. Securities and Exchange Commission), which has hinted that it will classify Ethereum as a security.

The move has sparked controversy, especially since the SEC made it clear in 2018 that Ethereum does not meet securities standards.

Given these events, blockchain software company ConsenSys has strongly opposed the SEC's decision to classify Ethereum as a security. Here are four reasons:

First, the SEC's historical stance on Ethereum

In 2018, William Hinman, then director of the SEC's Division of Finance, delivered an important speech in which he made it clear that Ethereum is not considered a security.

Hinman once said: "Putting aside the fundraising at the birth of Ethereum, based on my understanding of the current state of Ethereum, the Ethereum network and its decentralized structure, the current offer and sale of Ethereum should not be classified as securities transactions."

The SEC has not officially retracted this position, which has led to a strong presumption of Ethereum's current "non-security" status.

A spokesperson for ConsenSys added: "Based on Director Hinman's views in 2018, there is no difference now."

"If there is any difference, it is that there are more people developing and working on Ethereum than before."

Therefore, the SEC's sudden change of view without sufficient new evidence is unfounded and a willful challenge to previous regulatory guidance.

Second, it is the classification of commodities by the CFTC (Commodity Futures Trading Commission)

The CFTC, another US regulator, has always recognized that Ethereum is a commodity. Recently, in a civil enforcement action involving the Crypto asset exchange KuCoin, the CFTC explicitly classified Ethereum as a commodity.

The compliance document reads: "KuCoin solicits and accepts orders, accepts property margin, and operates futures, swaps, and facilities for leveraged, margined, or financed retail transactions involving digital assets such as BTC, ETH, and LTC."

This classification supports Ethereum's broader market understanding and regulatory treatment, further emphasizing its role and function as distinct from securities.

According to a ConsenSys spokesperson: "The dual recognition of the SEC and CFTC historically reinforces the argument that Ethereum is more suitable for commodities than securities."

The ConsenSys spokesperson also added: "The SEC has clearly declared Ethereum to be a commodity for many years. Therefore, I think that in this case, you only need to look at what the CFTC has been saying and what the SEC has said in the past to get the right result."

Third, it is decentralized and open protocol

The essence of Ethereum's architecture lies in decentralization. Unlike securities, Ethereum runs on a platform and all information is public.

The management and operation protocols of the network do not rely on a central group. Therefore, it negates the main reason for the security classification, which is to protect investors from information asymmetry.

A ConsenSys spokesperson explained: "Ethereum is undoubtedly decentralized. There is no core problem or group on Ethereum, nor is there a core development group with privileged insider information, which is the common enterprise that must exist for security."

This fundamental property of Ethereum is consistent with the principles that originally guided the SEC's decision in 2018.

Fourth, it is the irrelevance of the consensus mechanism transition

Ethereum's recent transition from Proof of Work (PoW) to Proof of Stake (PoS) consensus mechanism was listed by the SEC as a potential reason for reclassifying Ethereum.

However, this change does not inherently affect the core nature of Ethereum's operation or its non-security classification.

A ConsenSys spokesperson concluded: “Looking at Director Hinman’s speech in 2018, when he said Ethereum was not a security, he did not make the case for PoW or PoS, and the consensus mechanism was irrelevant.”

The transition to PoS does not introduce typical elements of securities, such as dividends or ownership of a central enterprise. It is simply a technological evolution that improves efficiency and sustainability without changing the fundamental, decentralized nature of the platform.

In short, the SEC’s re-classification of Ethereum as a security does not stand up to scrutiny. Especially considering the SEC’s historical regulatory approach, classifications by other regulators, the decentralized nature of Ethereum, and the irrelevance of its internal consensus mechanism to securities laws.

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