If Ethereum Isn’t a Security Then Nothing Is | Hacker News Reader

If Ethereum Isn’t a Security Then Nothing Is

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25 pointschollida115 comments

Coin Center isn't an unbiased source, but they do have the advantage of actually being lawyers: https://coincenter.org/entry/no-ether-is-not-a-security

Full disclosure: I am also a lawyer, and I work in markets trading at a bank. That's not an endorsement of Coin Center's conclusions, but it's my informed opinion their arguments are sounder than the idle speculation of the author.

If there's anything that Ether is similar to, it's a currencies (my area), collectibles, or commodities (adjacent to my area). There's no underlying business that's being invested in or paying dividends to you. It's 100% a speculation on appreciation.

I'll give you an example. Say Vitalik owned a oil exploration company, and he also owned oil rights to a big patch of oil in Texas somewhere. Instead of selling shares in his company to raise money, he pre-sells the oil. "You give me money for the oil, and I'll go dig it up for you."

You don't own shares in his company. You own oil. Oil isn't a security.

Being a lawyer is irrelevant. that article cites Gary Gensler who is NOT a lawyer despite being Chairman of the CFTC.

I respectfully disagree. As a fellow lawyer, I think it’s the standard legal answer...maybe.

Oil is a commodity and as described by you that transaction wouldn’t be a security. However, the way you frame it:

>There's no underlying business that's being invested in or paying dividends to you.

>You don't own shares in his company.

You make it sound that only equity/shares are securities, which isn’t the standard.

>It's 100% a speculation on appreciation.

While there is massive speculation, that’s not the standard either, and I don’t think your factual conclusion is accurate either. The investors are relying on the efforts of others for their profits. The article you link concludes Ether isn’t a security because the investors aren’t relying on the issuer/promoter rather 3rd party developers. But case law doesn’t limit the reliance to the promoter it specifically uses the word “others”, but even so, I think it’s easily argued investors are relying on the foundation to bring 3rd party developers to the table.

At the end of the day...the SEC could have done a Howey analysis on Ether itself, which in my opinion would have been much more interesting and informative than the SEC retroactively doing an analysis on the DAO.

> The investors are relying on the efforts of others for their profits.

Are investors in gold relying on the efforts of others for their profits? After all, there are people out there making gold exchanges, developing gold mines, marketing gold jewelry, minting coins and bars for vaults, etc. etc. There's your efforts of third parties which drives up value of gold.

Of course the answer is "maybe" until the law is written or the case decided, but let's not lose sight of the fact that the law already has categories that are a closer fit.

Who's the third party in a decentralized ecosystem? Everyone who's ever contributed a line of code? Everyone who has developed a DAPP that feeds the demand side of the market?

Where's the common enterprise that's being invested in?

Well as lawyers we know why gold isn’t a security according to case law, and that logic definitely doesn’t apply to Ethereum/Ether.

>Where's the common enterprise that's being invested in?

The DAO was a decentralized ecosystem and yet the SEC issued an opinion. So what in your mind distinguishes Ether from the DAO tokens and makes Ether deserve to be treated like gold or another commodity like oil?

Flashing back to Seg Reg class over a decade ago, I could not have imagined we'd talk about such a scenario -- granted, I didn't know what a pointer was, and that hashing in my vernacular did not involve cryptography.

Believers should really read the Howey decision: https://www.law.cornell.edu/supremecourt/text/328/293

It's fairly short, and it will give people an appreciation of the discussion. There is a lot to consider in the analysis.

What was presold in Ethereum's "software crowdsale" was $ETH, not gas. Since it was used to fund the development of Ethereum, it was (and maybe still is) a security.

$ETH is a stake in a network with an artificially limited supply of units, which grants you a write access rights to Ethereum's mainnet.

Gas is a non-tradeable Unit-of-Account, which uses $ETH as the only approved/possible method of payment. The relationship between $ETH and gas is similar to the one between petrodollars and oil.

Assuming $ETH transforming from security into something else, it can not become commodity, since gas is already a non-tradeable underlying commodity with spot prices determined on Ethereum mainnet.

It can only transform into an exotic commodity derivative of gas. Or it may stay a security (which is even more likely with transition to PoS).

Also, don't forget about secondary sales by Stiftung Ethereum. Those who bought in ICO have no reason to sue, but those who bought in secondaries and lost - do.

EDIT:

IANASL, IANASA, IANA{S,C}*

I’m not a securities lawyer

I’m not a securities attorney

I’m not a securities/crypto anything

This is thorough and useful research, thanks for posting it here. Too often people weigh in without reviewing the relevant material.

I have X-Posted it to https://www.reddit.com/r/ethlaw/comments/8hpjbx/if_eth_isnt_... for feedback.

(I started this subreddit last year to encourage those who have a legal education or experience to comment on issues emerging in the community.)

i think this post is idle speculation, as the author himself admits:

"I’m not a lawyer, and not the right person to be making this argument". Case closed.

Being a lawyer is not a requirement for being the Chairman or a Commissioner of the SEC or the Chairman of the CFTC.

sure, but it's the lawyers at SEC that pursue cases.

This appears to be an obvious appeal to authority. An individual's qualifications have no bearing on the soundness of their arguments.

Further, the term "lawyer" doesn't mean that someone is entitled to practice law; merely someone educated in the law. A lawyer is typically (but not always!) someone who has attended a law school. An attorney is someone who has passed the bar exam and is therefore entitled to practice law in that jurisdiction.

All attorneys are lawyers, but not all lawyers are attorneys.

Note that a lay person who has devoted the time necessary to know and understand the law can be termed a "lawyer". I would argue, based on the quality of the article the author is in fact a lawyer despite their assertion that they are not.

This is not how people use the terms "lawyer" and "attorney" in practice — at least in for a lay audience, they're equivalent.

Title of article is misspelled. Its 'Ethereum'.

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