Consensys: 4 reasons why Ethereum is not a security?

‍Ethereum has come under scrutiny from the SEC (U.S. Securities and Exchange Commission), which has hinted that it will classify Ethereum as a security.

The move sparked controversy, especially since the SEC made it clear in 2018 that Ethereum did not meet securities standards.

In light of these events, blockchain software company Consensys firmly opposes the SEC’s decision to classify Ethereum as a security. Here are four reasons:

First, it is the SEC’s historical stance on Ethereum.

In 2018, William Hinman, then Director of the SEC’s Financial Department, gave an important speech, making it clear that Ethereum was not considered a security.

Hinman once said: "Leave aside the fundraising when Ethereum was born, based on my understanding of the current status of Ethereum, the Ethereum network and its decentralized structure, the current quotation and sales of Ethereum are both Should not be classified as a securities transaction.”

The SEC has not officially retracted this position, which has led to a strong presumption of Ethereum’s current “non-security” status.

A spokesperson for Consensys added: "Based on Director Hinman's views in 2018, there is no difference between now and before."

"If there is any difference, That is, there are more people developing and working on Ethereum than before.”

Therefore, the SEC’s sudden change of view without sufficient new evidence is unfounded and is a violation of previous regulations. Guide to the Wayward Challenge.

The second is the classification of commodities by the CFTC (Commodity Futures Trading Commission).

The CFTC, another U.S. regulatory agency, has always recognized Ethereum as a commodity. Most recently, in a civil enforcement action involving crypto-asset exchange KuCoin, the CFTC explicitly classified Ethereum as a commodity.

The compliance document reads: “KuCoin solicits and accepts orders, accepts property margin, and operates facilities for futures, swaps, and leveraged, margined, or financed retail transactions involving digital assets such as BTC, ETH, and LTC. .”

This classification supports Ethereum’s broader market understanding and regulatory treatment, further emphasizing its role and functions as distinct from securities.

According to a Consensys spokesperson: “The dual recognition by the SEC and CFTC has historically strengthened the argument that Ethereum is more suitable for commodities rather than securities.”

The Consensys spokesperson also added: “The SEC has been clear for years that Ethereum is a commodity. So I think in this case you just have to look at what the CFTC has been saying and what the SEC has said in the past to come to the right result.”

Third, it is decentralization and open protocols.

The essence of the Ethereum architecture is decentralization. Unlike securities, Ethereum operates on a platform where all information is public.

The network's management and operating protocols do not rely on a central group. It therefore negates the main rationale for safety classification, which is to protect investors from information asymmetries.

Consensys spokesperson explained: "There is no doubt that Ethereum is decentralized. There is no core issue or group in Ethereum, nor is there a core development group with privileged inside information, which is A common enterprise that must exist for security to exist.”

This fundamental attribute of Ethereum is consistent with the principles that originally guided the SEC’s decision in 2018.

Fourth is the irrelevance of consensus mechanism changes.

Ethereum’s recent transition from Proof-of-Work (PoW) to Proof-of-Stake (PoS) consensus mechanism was cited by the SEC as a potential reason for reclassifying Ethereum.

However, this change does not inherently affect the core nature of how Ethereum operates or its non-security classification.

The Consensys spokesperson concluded: “If you look at Director Hinman’s speech in 2018, you will understand. At that time, he said that Ethereum was not a security. He did not use PoW or PoS as a basis, and the consensus mechanism was irrelevant.”

The transition to PoS does not introduce the typical elements of securities, such as dividends or ownership rights in central enterprises. It is simply a technological evolution that increases efficiency and sustainability without changing the fundamental, decentralized nature of the platform.

In short, the SEC’s approach of re-treating Ethereum as a security cannot withstand scrutiny. Especially given the SEC’s historical regulatory approach, the classification of other regulatory agencies, the decentralized nature of Ethereum, and the irrelevance of its internal consensus mechanism to securities laws.

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