Regulating cryptocurrencies is challenging due to the difficulty of categorizing them as commodities or securities. Their decentralized nature and unique requirements make placing them in a single category hard. As digital currencies are intended to operate independently of government control, the debate on their classification continues to spark controversy.
This is what happens to Ethereum, too, as the asset wasn’t created to be only a commodity like Bitcoin is. Although ether can be used for transactions, the blockchain is much more than a simple network for digital exchanges. It includes learning and creating opportunities for developers who want to deploy dapps, non-fungible tokens (NFTs), and more.
A recent debate about what Ethereum exactly is arose recently, and the co-founder of Ethereum spoke up about it.
In a recent interview with CNBC, Joseph Lubin, the co-founder of Ethereum and CEO of ConsenSys discussed how cryptocurrency is a commodity. This aspect was already stated by the US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).
Lubin’s response came into context after the former SEC director said about Ethereum that he didn’t consider it security then.
Other similar figures had controversial opinions about Ethereum, which is why the regulation by enforcement appeared in the US regarding the crypto industry.
A regular security asset can be defined as regulated and must be disclosed regarding investing risk.
Although it’s more challenging to standardize all digital assets this way, the SEC decided that Bitcoin can be a security, despite its lack of a central entity.
Still, the CFTC chairman stated that while most cryptocurrencies are securities, Bitcoin (BTC), Ethereum (ETH), and USDT should be regulated as commodities.
Other similar figures recognized only Bitcoin as a commodity. All these opinions don’t provide a certain take on Ethereum, so governments are not that sure about its adoption.
In comparison, Bitcoin is easier to classify.
Whether a cryptocurrency is a commodity or security is important to settle because, without a legal approach, these assets can’t correctly operate in the real world.
That’s because the government expects people dealing with securities to make profits. At the same time, commodities are traded based on their market value.
It’s important to note that issuers and exchangers must handle cryptocurrencies considered securities with proper licenses from securities regulators, which is not easy to do.
However, issuers can avoid trouble through decentralization since no regulator can identify a central influence that affects the token’s value. This is why exchanges may not list cryptocurrencies as securities, because they can be fined since they don’t register them. At the same time, there are also risks of state-by-state regulations that can interfere in this case.
On the other hand, the argument for considering Bitcoin and Ethereum commodities is that they’re interchangeable on exchanges, so each Bitcoin has a similar worth.
This is why Bitcoin, Ethereum, USDT, and even Litecoin (LTC) have been classified as commodities since 2021 in a filing sent from the CFTC.
Although the US is trying to regulate spot trading of non-securities tokens, it’s hard to tell what will happen in the future with these regulations.
Currently, only Bitcoin is officially agreed upon by the CFTC and other institutions. However, a more complex landscape is required to include crypto securities and commodities.
Some take proposed to include a special asset class of cryptocurrencies that would approach the legal terms in which crypto issuers, wallet providers, and exchanges can operate.
However, this already leads to legally gray areas that need to settle things on non-fungible tokens (NFTs) and other emerging decentralized assets.
Regulatory institutions need to broaden their view to put a legal label on cryptocurrencies, which is what has happened in 2023 so far.
Many more countries allowed transactions and blockchain-based solutions.
However, the CFTC is limited in cryptocurrencies since the institution has exclusive authority over commodity assets, but things are different for spot transactions.
The institution has made significant changes since 2022, then a considerable part of its enforcement actions involved crypto assets.
Unfortunately, these actions are also spurring controversial opinions. For example, the lawsuit against Ooki decentralized autonomous organization (DAO) made investors question how these unincorporated associations can be noticed through a simple chatbot and forum since there’s no centralized contacting manner.
The future of crypto regulations is still uncertain, but what’s important is that measures are taken into account.
We know that Bitcoin is close to getting certified as legal tender since it has proven more reliable and has been on the market for a while. However, other cryptocurrencies will have to wait a little more, especially Ethereum, a commodity at the moment with different features than Bitcoin.
Usually, the SEC regulates crypto with the help of the Howey test, which has four criteria for a transaction to be considered a security. It includes aspects like the investment of money, the expectation for profit, and how it is generated. It also approaches the definition of common enterprises, but this is where things get complex.
Regulating cryptocurrencies is still a struggle for many institutions, as it is for investors and crypto users to use digital assets freely.
Still, as some describe it, digital money has many benefits compared to fiat money, from deflationary to providing more safety through decentralization. Therefore, they deserve to be regulated and properly included in real-world finance.
After many discussions, the co-founder of Ethereum gave his final statement on classifying cryptocurrency as a commodity rather than a security.
On the other hand, some say that Bitcoin, Ethereum, and USDT must also be seen as commodities.
Regardless, regulating these assets is a real challenge, and it will take some time until financial institutions properly control them.
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