SEC Director Says Ethereum Is Not A Security

During the Yahoo Finance All Markets Summit: Crypto, William Hinman, head of the Division of Corporation Finance at the SEC spoke about securities and the characteristics needed to be classified as one. He stated that Bitcoin was not a security due its decentralized core, which he added, was perhaps one of the most important reasons. According to Hinman, the primary issue in determining whether cryptocurrencies and ICOs are securities is the expectation of a return by a third party; specifically whether there is a person or group sponsoring the creation and sale of the asset; and who play a significant role in its development and maintenance. For purchasers of the asset, the key is whether they are seeking a return on the investment. If there is a centralized third party, along with purchasers with an expectation of a return, then it is more than likely a security.

With Bitcoin being a decentralized entity, there is no main party who is a key determining factor in the enterprise. The SEC representative also commented on Ether, stating that it was not a security because the Ethereum network was also decentralized. It appears that decentralization is key to determining the classification of an ICO or cryptocurrency. As for Ripple, Hinman did not make any specific comments about it but stated that there may come a time, with sufficiently decentralized networks and systems, where regulating the tokens or coins that function on them as securities may not be required.

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Regarding ICOs, Hinman also acknowledged that some digital assets could be structured more like a consumer item than a security, particularly if the asset is purchased for personal use and not intended as an investment. He seemed to imply that these types of offerings — an investment in a book club, or a golf club membership, for example — were not securities as there was no expectation of a return. It is important to note that this was not an official statement from the SEC, but rather a personal opinion from the head of the Division of Corporation Finance, although it seems like they’re coming close to determining where cryptocurrencies and ICOs fit into the SEC regulations.

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