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The writer is the co-founder of Ethereum and CEO & founder of Consensys, a blockchain software company
Imagine a scenario in which the US government — suddenly, arbitrarily and without any justifiable authority — outlawed a commodity like petrol. Now imagine this occurred in the early 1900s, right as Henry Ford emerged on the scene, creating a model for the automotive industry that has endured for over a century. A ban on petrol would have equated to a ban on driving altogether, crippling the burgeoning auto industry, allowing the rest of the world to pursue game-changing innovations and creating a lasting, depressive impact on the way Americans live.
This comparison may seem extreme but it is instructive regarding the potential impact of a US Securities and Exchange Commission ruling on the future of ether, currently under consideration. Ether is the digital commodity that, like petrol, powers programs running on the Ethereum network, the world’s largest programmable blockchain.
This network has the potential to usher us into the next phase of the internet, where content, identity, ownership, security and accessibility are, crucially, controlled by the user, not any big tech company. That’s why many companies, including BlackRock, Franklin Templeton, Nike, Adidas, Gucci and Publicis, are working on software applications that involve the tokenisation of physical and financial assets, loyalty and engagement systems and much more, using Ethereum.
Yet, in an unprecedented power grab, the SEC has recently waged war on digital assets like ether and, by extension, the entire Ethereum ecosystem — likely sparing no company, developer or user in its seeming attempt to recategorise ether as a security. This is a reversal from historical and recent statements made by the Commodity Futures Trading Commission, which defines ether as a commodity, as well as prior guidance from the SEC itself.
Reclassifying ether via a set of arbitrary enforcement actions would cripple our industry in the US, with a profound chilling effect elsewhere. The SEC has been unwilling to follow the fundamental principle of separation of powers in the US, where it is the job of Congress to legislate, not agencies. Instead, it is attempting to regulate by post facto punishment. In the process it will kill technology it doesn’t favour. The SEC has a mandate to regulate securities, not technology. As its commissioner Hester Peirce recently stated, “Congress did not design the SEC to be a merit regulator, and the resulting flexibility for market participants is an important contributor to create the dynamic market environment where entrepreneurs thrive.”
Make no mistake: if the SEC succeeds in defining ether as a security, the ensuing registration requirements would render it unusable — the modern-day equivalent of banning petrol. It may in effect outlaw all buying and selling of the digital commodity within the US except in very special circumstances. This would signal the end of Ethereum in the country, given that ether is vital for executing any transaction on the network. It would essentially disconnect the US from the next generation internet, leaving the rest of the world free to evolve it through unfettered innovation. Unless, of course, the US puts pressure on other nations to follow suit.
The implications would also extend far beyond the confines of digital asset trading. The SEC’s misappropriation of regulatory authority threatens to dismantle a sector that supports thousands of American jobs and also stands at the cutting edge of technology, the way we store our data and the future of how we interact digitally.
We at Consensys are choosing to use litigation to stand up to the agency. This is not merely about protecting our digital asset. It is about safeguarding the future of innovation in the US. An overzealous financial regulator must not hold game-changing technology hostage.
