This appears to be an obvious appeal to authority. An individual's qualifications have no bearing on the soundness of their arguments.
Further, the term "lawyer" doesn't mean that someone is entitled to practice law; merely someone educated in the law. A lawyer is typically (but not always!) someone who has attended a law school. An attorney is someone who has passed the bar exam and is therefore entitled to practice law in that jurisdiction.
All attorneys are lawyers, but not all lawyers are attorneys.
Note that a lay person who has devoted the time necessary to know and understand the law can be termed a "lawyer". I would argue, based on the quality of the article the author is in fact a lawyer despite their assertion that they are not.
Full disclosure: I am also a lawyer, and I work in markets trading at a bank. That's not an endorsement of Coin Center's conclusions, but it's my informed opinion their arguments are sounder than the idle speculation of the author.
If there's anything that Ether is similar to, it's a currencies (my area), collectibles, or commodities (adjacent to my area). There's no underlying business that's being invested in or paying dividends to you. It's 100% a speculation on appreciation.
I'll give you an example. Say Vitalik owned a oil exploration company, and he also owned oil rights to a big patch of oil in Texas somewhere. Instead of selling shares in his company to raise money, he pre-sells the oil. "You give me money for the oil, and I'll go dig it up for you."
You don't own shares in his company. You own oil. Oil isn't a security.
I respectfully disagree. As a fellow lawyer, I think it’s the standard legal answer...maybe.
Oil is a commodity and as described by you that transaction wouldn’t be a security. However, the way you frame it:
>There's no underlying business that's being invested in or paying dividends to you.
>You don't own shares in his company.
You make it sound that only equity/shares are securities, which isn’t the standard.
>It's 100% a speculation on appreciation.
While there is massive speculation, that’s not the standard either, and I don’t think your factual conclusion is accurate either. The investors are relying on the efforts of others for their profits. The article you link concludes Ether isn’t a security because the investors aren’t relying on the issuer/promoter rather 3rd party developers. But case law doesn’t limit the reliance to the promoter it specifically uses the word “others”, but even so, I think it’s easily argued investors are relying on the foundation to bring 3rd party developers to the table.
At the end of the day...the SEC could have done a Howey analysis on Ether itself, which in my opinion would have been much more interesting and informative than the SEC retroactively doing an analysis on the DAO.
> The investors are relying on the efforts of others for their profits.
Are investors in gold relying on the efforts of others for their profits? After all, there are people out there making gold exchanges, developing gold mines, marketing gold jewelry, minting coins and bars for vaults, etc. etc. There's your efforts of third parties which drives up value of gold.
Of course the answer is "maybe" until the law is written or the case decided, but let's not lose sight of the fact that the law already has categories that are a closer fit.
Who's the third party in a decentralized ecosystem? Everyone who's ever contributed a line of code? Everyone who has developed a DAPP that feeds the demand side of the market?
Where's the common enterprise that's being invested in?
Well as lawyers we know why gold isn’t a security according to case law, and that logic definitely doesn’t apply to Ethereum/Ether.
>Where's the common enterprise that's being invested in?
The DAO was a decentralized ecosystem and yet the SEC issued an opinion. So what in your mind distinguishes Ether from the DAO tokens and makes Ether deserve to be treated like gold or another commodity like oil?
Flashing back to Seg Reg class over a decade ago, I could not have imagined we'd talk about such a scenario -- granted, I didn't know what a pointer was, and that hashing in my vernacular did not involve cryptography.
What was presold in Ethereum's "software crowdsale" was $ETH, not gas. Since it was used to fund the development of Ethereum, it was (and maybe still is) a security.
$ETH is a stake in a network with an artificially limited supply of units, which grants you a write access rights to Ethereum's mainnet.
Gas is a non-tradeable Unit-of-Account, which uses $ETH as the only approved/possible method of payment. The relationship between $ETH and gas is similar to the one between petrodollars and oil.
Assuming $ETH transforming from security into something else, it can not become commodity, since gas is already a non-tradeable underlying commodity with spot prices determined on Ethereum mainnet.
It can only transform into an exotic commodity derivative of gas.
Or it may stay a security (which is even more likely with transition to PoS).
Also, don't forget about secondary sales by Stiftung Ethereum. Those who bought in ICO have no reason to sue, but those who bought in secondaries and lost - do.
ether is not a consumable. that is backed by a promise to deliver if delivery is requested.
ether is a platform maintained by developers and serviced by miners.
a platform, that requires ownership of tokens to access it.
access (membership) is represented by token possession , which is priced in a market and fluidly tradeable.
just because something is tradeable doesn't make it a security, the real definition of a security is that you derive benefit passively from the active efforts of others.
in this case, ethereum was conceived of as a programming project financed by a select few people , all accredited investors.
if it walks like a duck , quacks liek a duck, and smells like a duck , it's a duck.
then again, the sec and regulators can say the sky is down and blue is red. the law is a complete construction.
only when you assume the law isn't a construction can you in earnest begin 'debating' about some legally 'objective' reality.
no such thing will ever exist outside of this assumption.
the reality is that while some people are actively working on changing the laws to suit their own needs, the existing laws on the books are sufficient to protect INVESTORS from being burned by all these ico's , inclusive of bitcoin and ether.
that said, it's clear the regulators are happy with bubbles, and not terribly interested in creating any bright line rules, or meaningful protections for investors. what value is a market without speculation? that's the perspective of the 'regulators'.
lawyers are making it up they go along. even the heads of the SEC have admitted to as much. and then , they've also said, 'everything' is a security.
the problem is that you have to many different regulatory agencies all trying to avoid blame for an obvious and immanenet burn mode, where implosion of speculative assets leads to an investor outcry against thee regulators. in the end, it won't matter.
no one at the sec got fired for the bernie madoff scandal. the only guy who actually got punished was the one who was ignored for blowing the whistle on him years prior.
18 comments
[ 3.3 ms ] story [ 52.0 ms ] thread"I’m not a lawyer, and not the right person to be making this argument". Case closed.
Further, the term "lawyer" doesn't mean that someone is entitled to practice law; merely someone educated in the law. A lawyer is typically (but not always!) someone who has attended a law school. An attorney is someone who has passed the bar exam and is therefore entitled to practice law in that jurisdiction.
All attorneys are lawyers, but not all lawyers are attorneys.
Note that a lay person who has devoted the time necessary to know and understand the law can be termed a "lawyer". I would argue, based on the quality of the article the author is in fact a lawyer despite their assertion that they are not.
Full disclosure: I am also a lawyer, and I work in markets trading at a bank. That's not an endorsement of Coin Center's conclusions, but it's my informed opinion their arguments are sounder than the idle speculation of the author.
If there's anything that Ether is similar to, it's a currencies (my area), collectibles, or commodities (adjacent to my area). There's no underlying business that's being invested in or paying dividends to you. It's 100% a speculation on appreciation.
I'll give you an example. Say Vitalik owned a oil exploration company, and he also owned oil rights to a big patch of oil in Texas somewhere. Instead of selling shares in his company to raise money, he pre-sells the oil. "You give me money for the oil, and I'll go dig it up for you."
You don't own shares in his company. You own oil. Oil isn't a security.
Oil is a commodity and as described by you that transaction wouldn’t be a security. However, the way you frame it:
>There's no underlying business that's being invested in or paying dividends to you.
>You don't own shares in his company.
You make it sound that only equity/shares are securities, which isn’t the standard.
>It's 100% a speculation on appreciation.
While there is massive speculation, that’s not the standard either, and I don’t think your factual conclusion is accurate either. The investors are relying on the efforts of others for their profits. The article you link concludes Ether isn’t a security because the investors aren’t relying on the issuer/promoter rather 3rd party developers. But case law doesn’t limit the reliance to the promoter it specifically uses the word “others”, but even so, I think it’s easily argued investors are relying on the foundation to bring 3rd party developers to the table.
At the end of the day...the SEC could have done a Howey analysis on Ether itself, which in my opinion would have been much more interesting and informative than the SEC retroactively doing an analysis on the DAO.
Are investors in gold relying on the efforts of others for their profits? After all, there are people out there making gold exchanges, developing gold mines, marketing gold jewelry, minting coins and bars for vaults, etc. etc. There's your efforts of third parties which drives up value of gold.
Of course the answer is "maybe" until the law is written or the case decided, but let's not lose sight of the fact that the law already has categories that are a closer fit.
Who's the third party in a decentralized ecosystem? Everyone who's ever contributed a line of code? Everyone who has developed a DAPP that feeds the demand side of the market?
Where's the common enterprise that's being invested in?
>Where's the common enterprise that's being invested in?
The DAO was a decentralized ecosystem and yet the SEC issued an opinion. So what in your mind distinguishes Ether from the DAO tokens and makes Ether deserve to be treated like gold or another commodity like oil?
Believers should really read the Howey decision: https://www.law.cornell.edu/supremecourt/text/328/293
It's fairly short, and it will give people an appreciation of the discussion. There is a lot to consider in the analysis.
$ETH is a stake in a network with an artificially limited supply of units, which grants you a write access rights to Ethereum's mainnet.
Gas is a non-tradeable Unit-of-Account, which uses $ETH as the only approved/possible method of payment. The relationship between $ETH and gas is similar to the one between petrodollars and oil.
Assuming $ETH transforming from security into something else, it can not become commodity, since gas is already a non-tradeable underlying commodity with spot prices determined on Ethereum mainnet.
It can only transform into an exotic commodity derivative of gas. Or it may stay a security (which is even more likely with transition to PoS).
Also, don't forget about secondary sales by Stiftung Ethereum. Those who bought in ICO have no reason to sue, but those who bought in secondaries and lost - do.
IANASL, IANASA, IANA{S,C}*
I’m not a securities lawyer
I’m not a securities attorney
I’m not a securities/crypto anything
I have X-Posted it to https://www.reddit.com/r/ethlaw/comments/8hpjbx/if_eth_isnt_... for feedback.
(I started this subreddit last year to encourage those who have a legal education or experience to comment on issues emerging in the community.)
ether is a platform maintained by developers and serviced by miners.
a platform, that requires ownership of tokens to access it.
access (membership) is represented by token possession , which is priced in a market and fluidly tradeable.
just because something is tradeable doesn't make it a security, the real definition of a security is that you derive benefit passively from the active efforts of others.
in this case, ethereum was conceived of as a programming project financed by a select few people , all accredited investors.
if it walks like a duck , quacks liek a duck, and smells like a duck , it's a duck.
then again, the sec and regulators can say the sky is down and blue is red. the law is a complete construction.
only when you assume the law isn't a construction can you in earnest begin 'debating' about some legally 'objective' reality.
no such thing will ever exist outside of this assumption.
the reality is that while some people are actively working on changing the laws to suit their own needs, the existing laws on the books are sufficient to protect INVESTORS from being burned by all these ico's , inclusive of bitcoin and ether.
that said, it's clear the regulators are happy with bubbles, and not terribly interested in creating any bright line rules, or meaningful protections for investors. what value is a market without speculation? that's the perspective of the 'regulators'.
lawyers are making it up they go along. even the heads of the SEC have admitted to as much. and then , they've also said, 'everything' is a security.
the problem is that you have to many different regulatory agencies all trying to avoid blame for an obvious and immanenet burn mode, where implosion of speculative assets leads to an investor outcry against thee regulators. in the end, it won't matter. no one at the sec got fired for the bernie madoff scandal. the only guy who actually got punished was the one who was ignored for blowing the whistle on him years prior.