Why the Internet is So Interested in Ethereum’s SEC Security Hearing
What Does the Internet's Interest in Ethereum's SEC Security Hearing & Ruling Stand For
The online cryptocurrency community was buzzing earlier this week after reports of a Securities and Exchange Commission (SEC) hearing on Ethereum.
The meeting was related to Ethereum’s status as an asset. Specifically, the SEC was debating whether or not ETH constituted a security. Is Ethereum unlawfully selling securities by selling ETH? Did Ethereum’s crowdsale in 2014 constitute an illegal sale of securities? How will ETH’s status as a security affect other major cryptocurrencies?
The much-anticipated meeting was expected to answer all of the above questions.
Here’s the crazy thing: the SEC meeting on Ethereum never actually happened.
The meeting was supposed to take place on Monday, May 7. That morning, the online cryptocurrency community was buzzing with news of the impending decision.
Unfortunately, the meeting never took place. The SEC never publicly announced the meeting, nor did the Ethereum Foundation. Instead, the only source for the meeting was The Wall Street Journal.
One Redditor, /u/Skimanner2, actually called the SEC to verify whether or not the meeting took place. He claims there was never a meeting scheduled. Furthermore, even if the meeting was private, the meeting would still be disclosed to the public:
“I called the SEC and the secretary stated that even if a meeting was closed door it would have to be made public that the meeting was taking place.”
It’s unclear if or when the SEC meeting on Ethereum will take place. However, if the meeting ever does take place, it will be a huge event in the crypto community.
Why the Meeting is a Big Deal
If the SEC ever makes a decision on Ethereum’s status as a security, then it could have reverberating effects across the crypto industry.
Of course, the meeting is also a big deal for a simple reason: ETH is the world’s second largest cryptocurrency by market cap, and any decision regarding ETH will affect millions of ETH holders.
If ETH is declared to be a security, however, then it could affect other major cryptocurrencies. If Ethereum is declared to be a security, then it’s likely that hundreds of other digital assets are also securities. For those who care, there was a Congress blockchain hearing this week that actually did happen and seemed to be a positive step forward.
What is a Security?
A security can be a stock you purchase from a company. It can also be a piece of paper that has certain legal rights. A security can be just about anything that meets a certain set of requirements.
The Howey Test defines a security like this:
“…a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party.”
In other words, something – even a digital token – can be a security (see ICO vs IPO). If the buyer invests money in an enterprise with the expectation of earning profits based on the work of someone else, then that investment can be considered a violation of the Howey Test, which means that investment is considered a security.
The Ethereum Foundation Claims Ether Is Not a Security
The Ethereum Foundation maintains that their token is not exactly a security. As proof, they mention a number of different reasons why Ether isn’t a security.
First, they claim Ether is like “the gas in a vehicle that is relied upon for every action performed by thousands of independent applications, developers and users who themselves will determine the success and value of the Ethereum platform.”
The Ethereum Foundation also emphasizes the fact that they don’t control the supply of Ether, nor do they have any way of issuing ETH.
Finally, the quantity of Ethereum held by Ether constitutes less than 1% of all ETH. Many participants in the Ethereum ecosystem hold more ETH than the Ethereum Foundation.
For all of these reasons, Ethereum’s team insists their digital token isn’t a security.
This Weekend’s Ethereum Development Conference Largely Ignored the SEC Meeting
The Ethereum Foundation clearly wasn’t fazed by the impending (alleged) SEC meeting. The Ethereum Development Conference took place this past week in Toronto. The three-day gathering emphasized scaling and security of the platform.
As Bloomberg reported, dancing badgers drew more attention than the SEC meeting at the conference. The conference, at one point, featured coders dancing to a video of bouncing badgers and mushrooms.
Ethereum co-founder Joseph Lubin attended the conference. When asked about the SEC decision on naming Ether as a security, he maintained that ETH is the fuel in Ethereum’s ecosystem and does not constitute a security.
Ultimately, the SEC decision on Ethereum is expected to have major impacts across the crypto industry. However, it’s unclear if or when the meeting will occur. Stay tuned for more information.