Ethereum co-founder says ether not a security, compares it to oil after regulator claims
Joseph Lubin, co-founder of Ethereum and CEO of blockchain firm ConsenSys.
Riccardo Savi | Getty Images for Concordia Summit
The co-founder of Ethereum, Joseph Lubin, hit out at regulators likening the ether cryptocurrency to a security, saying it was more akin to a commodity like oil.
In an interview with CNBC’s Arjun Kharpal at Paris Blockchain Week Thursday, Lubin said he was “very confident” ether was not a security.
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If it were treated as such, ether would need to be registered with regulators and subjected to much stricter requirements around pre-clearance and reporting.
“Anyone can say anything, it doesn’t make it true,” Lubin told CNBC.
The concerns that ether may be deemed a security stem from a lawsuit filed by the New York Attorney General Letitia James against Seychelles-based cryptocurrency exchange Kucoin, which alleged the firm failed to register as a securities and commodities broker-dealer and falsely represented itself as an exchange.
In the lawsuit, the NYAG’s office listed ether among several tokens listed on Kucoin that the regulator viewed as securities, stating it was a “speculative asset” that relies on the efforts of third-party developers to provide holders with a profit.
“It’s unfortunate that that sort of side swipe was made, but I don’t think it’s all that relevant,” James said.
Ether is different from bitcoin in that it fuels an ecosystem of applications where users can make trades, loans, or buy nonfungible tokens.
It is the second-largest token globally, with a market capitalization of $212.8 billion.
Ether was trading 2% lower Thursday in the last 24 hours, according to data from CoinGecko.
Previously, the U.S. Securities and Exchange Commission also suggested ether may be classed as a security due to its switch to a new verification system known as “proof of stake.”
In a proof of stake model, a blockchain’s validators lock up some of their tokens in return for ensuring the security of the network. By doing so, they can gain interest-like yields.
Some regulators believe that model means it fulfils the Howey Test, which states that an investment contract exists if there is an investment of money in a common enterprise and the expectation of profits derived from the efforts of others.
In September, SEC Chair Gary Gensler told reporters that any cryptocurrency or intermediary that allows holders to “stake” their tokens may pass the Howey Test.
Lubin said ether should instead be viewed as a commodity. “People buy barrels of oil with the expectation of profit,” he said.
When asked again whether he thinks ether might be a security, Lubin said: “I don’t think there’s any point to speculate on something that is extremely unlikely.”
The SEC has ramped up its enforcement of the crypto industry lately, clamping down on companies and projects it alleges have offered users unregistered securities.
On Tuesday, the SEC issued crypto exchange Coinbase a notice warning the company that it had identified potential violations of U.S. securities law.
Lubin said crypto industry participants are “generally frustrated” with actions from the regulators.
“I think some of us believe that many of the actions are right and reasonable,” he said, adding “more clarity” was needed. “We’ve seen focus on things that should see real scrutiny and we’ve seen misunderstandings.”
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Tik Tok creators gather before a press conference to voice their opposition to the “Protecting Americans from Foreign Adversary Controlled Applications Act,” pending crackdown legislation on TikTok in the House of Representatives, on Capitol Hill in Washington, U.S., March 12, 2024.
Craig Hudson | Reuters
The Supreme Court on Friday will hear oral arguments in the case involving the future of TikTok in the U.S., which could ban the popular app as soon as next week.
The justices will consider whether the Protecting Americans from Foreign Adversary Controlled Applications Act, the law that targets TikTok’s ban and imposes harsh civil penalties for app “entities” that continue to carry the service after Jan.19, violates the U.S. Constitution’s free speech protections.
It’s unclear when the court will hand down a decision, and if China’s ByteDance continues to refuse to divest TikTok to an American company, it faces a complete ban nationwide.
What will change about the user experience?
The roughly 115 million U.S. TikTok monthly active users could face a range of scenarios depending on when the Supreme Court hands down a decision.
If no word comes before the law takes effect on Jan. 19 and the ban goes through, it’s possible that users would still be able to post or engage with the app if they already have it downloaded. However, those users would likely be unable to update or redownload the app after that date, multiple legal experts said.
Thousands of short-form video creators who generate income from TikTok through ad revenue, paid partnerships, merchandise and more will likely need to transition their businesses to other platforms, like YouTube or Instagram.
“Shutting down TikTok, even for a single day, would be a big deal, not just for people who create content on TikTok, but everyone who shares or views content,” said George Wang, a staff attorney at the Knight First Amendment Institute who helped write the institute’s amicus briefs on the case.
“It sets a really dangerous precedent for how we regulate speech online,” Wang said.
Who supports and opposes the ban?
Dozens of high-profile amicus briefs from organizations, members of Congress and President-elect Donald Trump were filed supporting both the government and ByteDance.
The government, led by Attorney General Merrick Garland, alleges that until ByteDance divests TikTok, the app remains a “powerful tool for espionage” and a “potent weapon for covert influence operations.”
Trump’s brief did not voice support for either side, but it did ask the court to oppose banning the platform and allow him to find a political resolution that allows the service to continue while addressing national security concerns.
The short-form video app played a notable role in both Trump and Democratic nominee Kamala Harris’ presidential campaigns in 2024, and it’s one of the most common news sources for younger voters.
In a September Truth Social post, Trump wrote in all caps Americans who want to save TikTok should vote for him. The post was quoted in his amicus brief.
What comes next?
It’s unclear when the Supreme Court will issue its ruling, but the case’s expedited hearing has some predicting that the court could issue a quick ruling.
The case will have “enormous implications” since TikTok’s user base in the U.S. is so large, said Erwin Chemerinsky, dean of Berkeley Law.
“It’s unprecedented for the government to prohibit platforms for speech, especially one so many people use,” Chemerinsky said. “Ultimately, this is a tension between free speech issues on the one hand and claims of national security on the other.”
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