Consensys sues SEC, supports Ethereum, clarifies "four reasons" why ETH is not a security

With the staking services of Ethereum and MetaMask under investigation by the U.S. Securities and Exchange Commission (SEC) to determine whether they are considered securities, the parent company of the wallet, ConsenSys, has filed a lawsuit against the SEC and issued a statement expressing their determination to defend Ethereum.

SEC Targets ETH and MetaMask Wallet as Developer ConsenSys Countersues SEC

Consensys Points Out Four Reasons Why Ethereum Is Not a Security

Amid Consensys' strong opposition to SEC enforcement actions, the company has listed four reasons in an official statement why Ethereum should not be considered a security.

If the SEC succeeds in designating ether as a security, companies and developers would see years of work squandered and billions of dollars of economic value destroyed that could potentially lead to widespread layoffs of American workers.

For more:https://t.co/DKhQDSKOhT

— Consensys (@Consensys) April 28, 2024

SEC in 2018 and Gary Gensler: Ethereum Is Not a Security

As early as 2018, the SEC made it clear in a public speech that Ethereum is not a security. At that time, William Hinman, the director of the SEC's Division of Corporation Finance, stated:

Excluding the initial coin offering (ICO) activities associated with Ethereum's creation and based on my understanding of the current state of the Ethereum network and its decentralized structure, the sale and purchase of Ethereum are not securities transactions.

Consensys believes that the SEC has not disavowed or deleted that statement or position to date, which reinforces the conclusion that Ethereum should maintain its non-security status.

Furthermore, last year, the crypto community unearthed Gary Gensler's lecture at MIT, which sharply contrasts with his current position:

Whatever Ethereum was in 2014, it is sufficiently decentralized now. We do not believe it is a security anymore.

CFTC's Firm Position on Ethereum

In contrast to the SEC's stance, the U.S. Commodity Futures Trading Commission (CFTC) has always considered Ethereum a commodity.

In a recent case involving the CFTC and the exchange Kucoin, the CFTC reiterated its view, further supporting Ethereum's non-security status:

Bitcoin, Ether, and Litecoin (LTC) are commodities falling within the CFTC's jurisdiction.

The U.S. Department of Justice and the CFTC sue Kucoin and its founders, reaffirming Ethereum as a commodity

The Essence of Decentralization vs. Centralization

As an open-source blockchain platform, Ethereum's core feature is decentralization, with all information being publicly transparent.

Consensys emphasizes that its decentralized product nature is fundamentally different from typical securities managed by central entities:

Undoubtedly, Ethereum is decentralized, with no core team, no privileges, no non-public insider information, and it allows users to avoid information asymmetry.

Changes in the Consensus Mechanism Are Not the Focus

Finally, given Ethereum's official shift from Proof of Work (PoW) to Proof of Stake (PoS) last year, this move was considered by the SEC as a reason to classify it as a security; however, Consensys disagrees:

The change from PoW to PoS does not affect Ethereum's core nature. This change is merely a technological advancement and does not introduce elements that constitute a security.

It is also noted that "If you look at Director Hinman's speech in 2018, he did not discuss whether Ethereum is a security based on PoW or PoS consensus mechanisms."

Previously, as Ethereum's staunchest advocate, Consensys also approached the issue from a technical perspective last month, implying that an Ethereum ETF should be approved over a Bitcoin spot ETF.

Consensys Explains Why Ethereum ETF Should Be Approved from a Technical Perspective to the SEC

Consensys Concerns: Potential Losses of Billions of Dollars

Finally, facing increasing regulatory pressure from the SEC, Consensys expressed concerns about the case through a tweet stating:

If the SEC successfully categorizes Ethereum as a security, the years of work by companies and developers will turn into bubbles, resulting in economic losses of billions of dollars.

The statement mentioned that as of July last year, the cryptocurrency industry employed 190,000 people, with 29% of them in the United States:

If the value and belief in Ethereum as a decentralized platform are destroyed, this could potentially lead to massive layoffs in the U.S. cryptocurrency industry.