Ethereum is a security based on the SEC 3 golden standards, but really?
Based on the security act, a security includes an investment contract which is an investment of money in a common enterprise with a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others. This definition embodies a flexible rather than a static principle, one that is capable of adaptation to meet the countless and variable schemes devised by those who seek the use of the money of others on the promise of profits. In analyzing whether something is a security, form should be disregarded for substance and the emphasis should be on economic realities underlying a transaction, and not on the name appended thereto.
There Golden standards used by SEC Chairman Jay Clayton to tell if the token a security or not:
Standard 1: Investor invested money, the investment of “money” need not necessary take the form of cash
There is no doubt that Ethereum development team took the money from investor in the form of Bitcoin. The Ethereum ICO happened from 20th July to 2nd September 2014 for a total of 42 days. 31.5k BTC (Bitcoins) or equivalently $18.4 million fiat money was raised during the ICO. And the money raised is clear stated for developing Ethereum protocol.
Standard 2: Investor with a reasonable expectation of profits
Investors who participate the Ethereum crowdfund expected to be profitable in the future. The Ethereum ICO investors absolutely expects to make the profits from the success of Ethereum blockchain when they contribute money to the development team.
Standard 3: Profit derived from the managerial efforts of others
Investors’ profits were to be derived from Ethereum development team’s managerial efforts. Profits include dividends, other periodic payments, or the increased value of the investment. Prevailing view that Ether is not a security because there are no dividends or any other payments received for Ether holders. The way to profit from ether is the increased value. However, here, SEC clear stated that even the profit comes from the increased value it is also meets the criteria of profit derived from managerial efforts of others.
Ethereum is a security
Therefore, based on SEC standards, Ethereum is absolutely a security token. However, does these 3 standards really make sense. Jay Clayton stated that Bitcoin is a pure medium of exchange and doesn’t take investors’ money to develop. The key difference is Ethereum did a crowd funding with pre-mined coins to develop as Bitcoin did not.
But do these three golden standards really make sense? Want to leave it as an open discussion question. As Senior SEC and CFTC officials are also scheduled to discuss the matter on Monday, May 7th,2018. Let them also really hear the voice of people.
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Original articles:https://medium.com/@JasonWuDefiner/ethereum-is-a-security-based-on-the-sec-3-golden-standards-f03eb86c0751