Why Ether May Not Be a Security
A recent article published by CoinCenter, a non-profit lobby group for the application of Blockchain technologies, discusses former CFTC Chairman Gary Gensler's comments on Ethereum, and how he distinguished between the "Ethereum Foundation" in 2014, and the "Ethereum network" as it exists today.
The general point that the article's author makes, is that a key distinguishing factor of a security is having a promoter. Ethereum's network as it exists today is a decentralized participation network not inherently tethered to the "Ethereum Foundation" itself.
The general rule of thumb for securities is the "Howey Test", which is basically a four-pronged approach to deciphering a security. If I've got this right, Howey was this guy who owned an orange grove and sold people "shares" of the grove with the expectation that they would receive a certain amount of payouts from the sales of oranges.
This has come to be known as the Howey Test because it had a promoter, namely "Howey", and he made a promise, "give me money and I'll give you money from my oranges", which is essentially a security, and something that Howey was not authorized to do without approval from the Securities and Exchange Commission (since the Securities Act of 1933).
Now the author's point, Peter Van Valkenburgh, is that if you bought one of those oranges from Howey's farm at the local supermarket, you'd simply be holding an orange and not a security, and he believes that this is analogous to what it is like to own ETH today. The ambiguity of a security is being better defined in light of these new gray areas (which I believe is something to be grateful for), and since ETH seems to be primarily used in a utility-based manner, that is to buy things, etc., holding it does not really constitute a security.
Moreover, the disconnect between the Ethereum Foundation and the decentralized cryptographic ledger that ETH exists on, suggests a lack of promotion. In other words, there is no "Howey" promising you money from orange sales, and since that is true, simply holding oranges (or holding Ethereum) isn't like holding a security.
Granted, this is Peter Van Valkenburgh's opinion, and at that his assessment of Gary Gensler's comments, and forgive me if I have miscategorized either, in any way, but I thought it was interesting and worth discussing. Another way that Valkenburgh puts it, goes as follows:
“Just because Apple uses invested money to build iPhones doesn’t mean that the iPhones are securities.”
I'm inclined to agree with this assessment, although my opinion is merely my own, and nothing more. Just wanted to draft a short post highlighting this new event, and to share with my readers. I'll leave you with the thoughts of Representative Emmer speaking to the SEC.
Frank America is a blockchain researcher. You can follow him on Twitter.