Last week, Consensys, the parent company of the Metamask wallet, filed a lawsuit against the U.S. Securities and Exchange Commission (SEC) in an attempt to prevent the SEC from classifying Ethereum as a security. A spokesperson for Consensys presented four key reasons on the 28th to support the argument that Ethereum should not be considered a security.
Reasons why Ethereum should not be classified as a security:
1. SEC’s historical stance on Ethereum
William Hinman, former director of the Division of Corporation Finance at the SEC, stated in 2018 that Ethereum is not a security. The SEC has not officially retracted this position, and changing their viewpoint without substantial new evidence or changes in the environment would be baseless and conflicting with their previous regulatory guidance.
2. CFTC’s classification of Ethereum as a commodity
For a long time, the U.S. Commodity Futures Trading Commission (CFTC) has regarded Ethereum as a commodity. In a recent civil enforcement action against the cryptocurrency exchange KuCoin, the CFTC explicitly classified Ether as a commodity. This classification solidifies the market’s understanding and regulatory treatment of Ethereum, further demonstrating its distinct role and function from securities.
3. Decentralization and open protocols
The nature of the Ethereum network is decentralized, unlike typical securities that are managed by centralized entities and allow insiders to profit from information asymmetry. Ethereum operates on a platform where all information is publicly accessible.
4. Irrelevance to the transition to a consensus mechanism
Although Ethereum recently transitioned from Proof of Work (PoW) to Proof of Stake (PoS) as a consensus mechanism, this transition does not affect the core nature of Ether or its classification as a non-security. The spokesperson for Consensys emphasized that the shift to PoS does not introduce typical elements of securities, such as dividends or ownership rights in central entities. It is merely a technological evolution that enhances efficiency and sustainability without altering the fundamental decentralized characteristics of the platform.
If Ethereum were to be classified as a security, it could have a significant impact. Consensys warned that the achievements of many companies and developers over the years would go to waste, billions of dollars in economic value would be destroyed, and there could be a large-scale unemployment crisis in the United States.
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– Standard Chartered Bank: Low Probability of Ethereum Spot ETF Approval, But ETH Could Reach $8,000 by the End of the Year, SEC Delays Decision Until June)