Ethereum is Not a Security, SEC Makes Official Ruling

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  • SEC declares Ether to not be a security in groundbreaking ruling.
  • “Ether, the Ethereum network, and its decentralized structure, current offers and sales of Ether are not securities transactions,” said SEC Director of Corporate Finance William Hinman.
  • Hinman admits that other cryptos could become decentralized enough in the future to follow a similar path to Ether.

Ether is the second most popular cryptocurrency in the world, but it’s number one when it comes to making headlines right now. What’s thrust it into the limelight is a new ruling from the Securities and Exchange Commission (SEC). Last Thursday, in an announcement made by William Hinman (SEC Director of Corporate Finance), it was ruled that Ether – the currency that powers the Ethereum network – is not a security.

A Long Awaited Declaration

This ruling, which shouldn’t come as surprise given previous SEC statements, means that Ether should not be regulated in the same way as bonds and stocks. Hinman’s comments have given investors and traders a fascinating look at how the SEC views cryptocurrency. “Based on my understanding of the present state of Ether, the Ethereum network, and its decentralized structure, current offers and sales of Ether are not securities transactions,” said Hinman.

Taking Hinman’s words at face value means that securities are subject to the same regulations as normal stocks – Ether now functions outside of this. The agency’s view is particularly interesting because of what it means for the cryptocurrency market as a whole. The SEC assumes that when a cryptocurrency becomes sufficiently decentralized, as both Bitcoin and Ether have, it should no longer be viewed it as a security. Hinman added, “as with Bitcoin, applying the disclosure regime of the federal securities laws to current transactions in Ether would seem to add little value.”

Boosting Ether’s Value

The news has had a major impact on Ether, with its value jumping by over 10%. Joe Lubin (Ethereum Cofounder) has praised the SEC’s declaration, “We applaud the clarity provided by Director Hinman and the SEC today, Ether and other next-generation consumer utility tokens will continue evolving the web towards networks that are more fair, secure, and evenly distributed. ConsenSys looks forward to continuing to engage with regulators around the globe to promote responsible adoption of this transformative technology.”

Ethereum has become home to hundreds of developer-run applications, all which call the emerging network home. Speaking on Ethereum’s decentralized nature, Peter Van Valkenburgh (Coin Center Director of Research) said, “The network and the software development is sufficiently decentralized that there isn’t a discernible third party upon whom we would really expect investors to be reliant.”

Coin Center represents a leading Blockchain technology think tank, with it also praising the new distinction from the SEC.

Clamping Down on the ICO Market

This doesn’t mean that all coins and cryptos can evade US authorities. The SEC stands by its belief that most ICOs will need regulation, as they’re powering a product or service. ICOs of this nature are common, with such not carrying a tangible exchange value from a currency perspective. Hinman believes that other cryptos could become decentralized enough in the future, to the point where they could also not be deemed as securities.

Yet, there could be complications in the future too, as many coins run on top of Ethereum. This means that while trading and buying Ether won’t be classified as a traditional investment, buying and selling set tokens that run on the network could be a different story. The SEC has shown remarkable progress in the way that it’s approached the cryptocurrency market in recent months. This has included ramping up its policing efforts, as it attempts to crack down on questionable ICOs.

The agency’s cyber unit has been active since last year, with it shutting down illegal ICO operations – including the PlexCorps and AriseBank. What this shows is that the SEC is taking the ICO market seriously, with it not afraid to squash even the largest of proposed projects.

The Crypto Market Moves Forward

Owners of Ether and Bitcoin can now breathe a sigh of relief, as the SEC ruling means that they are exempt from such extreme scrutiny. That isn’t to say that this makes Ether or Bitcoin as an investment any safer, with it still having a strong risk factor due to associated volatility. What the SEC is saying is that is you’re now backing a crypto ecosystem – rather than a single security – whenever you acquire Ether or Bitcoin.

Whichever way you look at the situation, the recent declaration from the SEC can only seen as a step in the right direction for the crypto market.