Ethereum – Security or Currency?

Ethereum is the second largest cryptocurrency in circulation, and the total value of the tokens is estimated to be around $72 billion.

But the ether tokens themselves are only scratching the surface of the value Ethereum provides to the crypto-community around the world.

A huge number ICO (Initial Coin Offerings) founders and development teams are using the Ethereum platform to issue their own brands of cryptocurrencies as part of their respective platforms and projects.

Tallying the tokens from these smaller projects together adds $10 billion to the value of Ethereum. With new ICOs being created on an ever-larger scale, this number is set to increase faster than you can say blockchain.

Why is all this important? US regulators have, since Ethereums conception in 2014, not known how to approach the cryptocurrency. Is it money? Is it an asset? Is it a security? It would seem that their minds are about to be made up on the matter.

Is ether a security?

What determines whether or not something is a security? According to Gary Gensler, a former chairman of the Commodities Futures Trade Commission (CFTC), it is the Howey Test.

The Howey Test asks some questions in relation to the item being tested. The first one is if the profits from that item depend on the actions of a third party or not. The second question is if the item is an investment in a common commercial project. The third question is if the item has any inherent utility, like a barrel of oil or a bar of gold.

If the answer to the two first questions is “yes”, then Ethereum is indeed a security and will have to be subject to the same regulations as any other security. If the answer to the third question is “yes”, then it is not. However, whilst Ethereum could be said to have an inherent utility now, it did not have that at the time of the ICO in 2014.

Not everyone agrees

Peter Van Valkenburgh of the advocacy outfit Coin Center argues that precisely because the nature of Ethereum has changed since 2014, the tokens cannot be considered to be a security today. Whether or not they had any inherent value at the time of their creation is irrelevant, according to him.

Another one of the Howey Test arguments is taken apart by Aaron Wright, an associate professor at Cardozo Law School. He claims that the people who invested in Ethereum back in 2014 did not expect to make a profit. The reason they invested was that they wanted the ability to make and use smart contracts, which the platform is known for.

What are the consequences?

If Ethereum is deemed to be a security, then cryptocurrency exchanges will most likely stop trading in it, in order to avoid dealing with the regulators. If the cryptocurrency exchanges stop trading in Ethereum, then the price will undoubtedly drop drastically.

The selling of unregistered securities is also a crime that is punishable by fine or even prison. Whilst it is unlikely that anyone will go to prison in this case, it is still a serious issue that needs to be addressed.

What do you think? Leave your comments below!

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