SEC Vs Bitcoin And The Laws Associated With Classifying Cryptocurrencies Needs Further Clarity
The SEC has made huge efforts to understand crypto. This effort is praiseworthy. However, they have failed to grasp an important aspect of crypto. The aspect is that cryptosystems, most of the time, do not have any entities and do not represent a property. Thus, they are not analogous to the traditional fiat economy. As a result, the existing finance laws cannot regulate them.
Crypto Is Proof
In most cases, crypto acts as a type of proof that a given set of mathematical actions have occurred. Crucially, no one is performing the mathematical calculations. Property is ownership that is defined by laws. Crypto assets cannot be a property since no laws define them. In essence, the value is determined by math. This leads to issues when trying to regulate crypto.
Bitcoin Does Not Exist
Most people like to talk about BTC being transferred from A to B. However, there is no BTC and it is not moved from any point to any point. Instead, when BTC is moved from A to B, A is telling B that he or she has moved a secret knowledge and used it to perform a mathematical calculation.
However, A and B are not really persons. They are just addresses, which are outputs of a hash function. They might or might not be associated with a given entity. In some cases, A is a person and A creates a token and sells it to B as an investment. In such a case, the SEC can regulate that as a security.
The SEC does not stop at that, it regulates what will happen to the tokens as they encounter a smart contract. It claims that it offers a marketplace for securities to determine whether those activities are the defined standards of an exchange.
In this case, the entity is referring to a legal person. In the SEC’s statement, they give an example of EtherDelta. They say that EtherDelta smart contracts facilitate the trading of tokens. This is where the SEC goes too far.
They start to become vague and problematic at this point. EtherDelta offers various services and is the one that developed the smart contract. However, no one provides the smart contracts or performs its functions. The SEC could regulate the EtherDelta site, but trying to regulate the smart contract will lead to vagueness.
Things Get More Confusing
It gets even worse when the SEC explains secondary markets for securities tokens. The SEC has a view that since something was created as a securities offering, that definition cannot change. However, since there is no property, this is a wrong categorization.
The SEC would like to have jurisdiction over the crypto world. However, this can only be enforced when there is a legal contract between parties. If they fail to make clear definitions, it could lead to confusion and overreach.