The United States Securities and Exchange Commission has again sparked controversy in the crypto world after making the bold claim that the U.S. government has jurisdiction over all Ethereum (ETH) network transactions.
In a civil lawsuit against crypto influencer Ian Balina, the SEC stated: “The U.S.-based investors in Balina’s pool irrevocably committed to the transaction when, from within the United States, they sent their ETH contributions to Balina’s pool. At that point, their ETH contributions were validated by a network of nodes on the Ethereum blockchain, which are clustered more densely in the United States than in any other country. As a result, those transactions took place in the United States.”
According to Etherscan, currently, 45.85% of all Ethereum nodes are operated from the U.S..
The SEC’s Claims Could Be Detrimental to the Ethereum Network
Ethereum’s decentralization has come into question since the Merge, which has been a huge success by all accounts, transitioning the Ethereum network from Proof of Work (PoS) to a Proof of Stake (PoS) consensus mechanism, thereby reducing its power consumption by 99.9%.
Recently, Chairperson of the U.S. SEC Gary Gensler, stated that cryptocurrency issuers and intermediaries which allow holders to “stake” their coins, might meet key criteria used by courts to determine whether an asset is a security. With Ethereum completing its transition to PoS, the SEC may well consider Ether to be a security.
Gensler, has been criticized for his approach to crypto companies and crypto assets. It was recently highlighted that, since its inception in 2017, the SEC’s Crypto Assets and Cyber Unit has lodged some 200 lawsuits, with at least 80 fraud investigations numbered among them. Gensler has also famously called the crypto market “a Wild West”, asserting greater need for regulation.
On the Flipside
The SEC’s supposition has led to ambiguity, and it is unclear whether such a claim would hold up in court, as there is no such legal precedent at the current time.
Why You Should Care
If the SEC were to justify its claim to jurisdiction over the activity of the decentralized Ethereum network, it would constitute a major escalation in the SEC’s role in overseeing Ethereum, thereby thwarting the very purpose of a decentralized system.
Find out more about the SECs position on Ethereum:
SEC Chair Gary Gensler Hints At PoS Coins As Potential Securities
Read about the aftermath of Ethereum’s merge:
Is PoS Ethereum More Centralized? Two Platforms Add 42% of Ethereum Blocks Post-Merge