Robert Steinadler, 5 months ago

The SEC claims authority over Ethereum

After the Merge happened, reality snapped back in and to everybody’s surprise, the Security and Exchange Commission went against Ethereum. According to Gary Gensler, proof of stake brought Ethereum closer to the status of a security. It seems that Mr. Gensler isn’t finished quite yet with the world’s biggest smart contract platform.

Why is the SEC claiming authority over Ethereum and is this even possible?

SEC is going against an influencer

The good news is that the SEC is not going against Ethereum itself and is not making a case on its own by claiming that the US has authority over the Ethereum blockchain. The reason is more complicated. Currently, the SEC is going after an influencer called Ian Balina. Balina became quite popular in both 2017 and 2018. Eventually, he started an ICO at that time.

In order to make a case against him, the SEC argues that his ICO falls under its authority because Ethereum is mainly hosted in the US. That’s right, according to SEC the US has authority because the majority of Ethereum nodes are running on US soil. Therefore, the SEC concludes in its complaint that the transactions of Balinas ICO were conducted on US territory.

It seems absurd to try to argue like that, but that’s exactly what the SEC is doing in this specific case. Of course, there are a lot of things on the internet that mainly exist because there is infrastructure situated in the US. At this point, it is still open if the SEC can even make that move and succeed in court.

Will Ethereum be centralized?

There are currently a lot of rumors about how this will play out for Ethereum. It is true that regulation is coming for decentralized apps as well as DeFi protocols. The crucial point here is, that this isn’t exactly news. The SEC started last year to make inquiries with bigger companies that run protocols like Uniswap.

Another case that shows that US authorities are watching DeFi very closely is Tornado Cash. Of course, a tumbler is not a typical dApp, but the case shows that authorities are interested in holding protocols and their inventors to the same standard as everybody else.

Ethereum will not be centralized by regulation that demands validators to restrict the network. What will happen is the attempt of claiming authority over all these ecosystems to make sure that nobody can escape by simply claiming that the company behind the dApp exists outside the US. It remains to be seen if this strategy is successful or if courts will reject the idea that Ethereum falls under US authority.

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