Home Ethereum Why Ethereum Is “Obviously a Security,” Says Michael Saylor

Why Ethereum Is “Obviously a Security,” Says Michael Saylor

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Why Ethereum Is “Obviously a Security,” Says Michael Saylor

Bitcoin bull and CEO of MicroStrategy Michael Saylor spoke about Bitcoin, Ethereum, Cardano and their US asset classification. This topic has gained prominence over the past month as Securities and Exchange Commission (SEC) Chairman Gary Gensler asserted that only Bitcoin is a commodity.

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Other cryptocurrencies, such as Ethereum and Cardano, are at risk of being classified as securities, according to these statements. This could have negative effects on their respective ecosystems, as users, developers, and projects would have to comply with stricter regulations.

In a interview with popular YouTube channel Altcoin Daily, Saylor said Ethereum is “obviously” a security. Saylor claims that Ethereum’s “constant” changes, the fact that it was released after an initial coin offering (ICO), and the difficulty bomb made ETH a safe bet.

The latter is a mechanism to be implemented on the Ethereum mainnet that will gradually increase the difficulty of mining ETH. The network is migrating from a Proof-of-Work (Pow) consensus protocol to a Proof-of-Stake (PoS) consensus protocol and the difficulty bomb will prevent miners from maintaining the old blockchain.

Saylor said the following about why Ethereum is “obviously a security”:

There is a pre-mine (Ethereum), there is a hard fork, you know, there are continuous hard forks, there is a difficulty in repelling the bomb. The hard bomb is going to wipe out the entire ETH mining industry (…) The fact that someone is able to murder an entire industry and then they keep changing their mind about doing it or not to do so (…).

A commodity, according to the definition given by Saylor, is resistant to change. A security is constantly evolving and there are entities capable of controlling critical decisions (the difficulty bomb). Saylor concluded: If you can change an asset, it’s a security.

Ethereum ETH ETHUSD
ETH price trends down on the 4-hour chart. Source: ETHUSD Tradingview

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In this sense, the executive said that most cryptocurrencies fall under this category and are able to pass the Howey test, the mechanism used by the SEC to determine if an asset functions as a security.

On the other hand, Saylor explained, there are no entities capable of changing the fundamentals of a commodity, such as gold. The exec explained that if you can change its characteristics, then it’s not a commodity.

In the coming months, as Ethereum completes its migration, the SEC and other regulatory agencies may lean towards classifying it as a security. ETH holders will be able to stake their assets and generate returns. Saylor explained:

The head of the SEC has said six times that if you generate the staking of a crypto asset, that makes it a security. You cannot generate a return and not be a security (…).

The governance that supports most decentralized finance (DeFi) protocols is another craft that these projects exploit as securities. “Voting on something doesn’t make it decentralized” and voting cannot change the properties of the underlying asset.

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Saylor underscored his point by stating that products do not change and should not change or upgrade in the case of digital assets. He concluded :

That’s the challenge in the crypto space, really, it’s all headlines. And the problem with that is that these are all securities that are traded on exchanges that do not have a license to trade securities (…). What will happen (with crypto) nobody knows? (…).

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