[chrisco255]

Why does centralization of the holders have anything to do with whether Ethereum is a security or not?

There are four requirements for the Howey test: 1. It is an investment of money 2. There is an expectation of profits from the investment 3. The investment of money is in a common enterprise 4. Any profit comes from the efforts of a promoter or third party

Ethereum tokens are virtual commodities useful for purchasing computational services on the Ethereum network. The token's value increases as the value of the network increases...but this can only increase in part due to Ethereum holders themselves promoting and propagating the network and pluggable services into the ecosystem. By this point alone, number 4 is invalid. Another point is that Ethereum is forkable, which means that anyone is free to take the project in a different direction if they disagree with the governance or stewardship of ETH core devs. It has even undergone one major fork (ETC being a totally divergent blockchain at this point).

Even point #2 is debatable. There certainly are no expectation of profits in the classical sense with Ethereum. That someone is buying up limited supply in anticipation that demand will increase does not a security make. If that were the case, then dot com domains are securities, and all those savvy 90's speculators who snatched up desirable domain names are guilty.

[nivertech]

> Ethereum tokens are virtual commodities useful for purchasing computational services on the Ethereum network

Wrong, ETH isn't a virtual commodity, gas is. But gas isn't tradable, it's a virtual Unit-of-Account which uses ETH as the only accepted payment method.

IMO, ETH is a tokenized membership unit* in Stiftung Ethereum and by proxy a stake in the Ethereum mainnet.

*) Stiftungs not supposed to have memberships or shares, but that is the genius of Ethereum founders that they found a way to hack non-profit Stiftungs in order to use them for for-profit activities.

[pjbyrne]

I agree it's all debatable. This post deals only with the "common enterprise" prong as that appears to be the prong of the test that Coin Center and others are trying to challenge most assertively.

Centralization of holders makes it look like a more traditional scheme with a central promoter.

[chrisco255]

Well, what do you think about the forkable nature of blockchain technology and how that relates to the definition of common enterprise? Which "common enterprise" are we talking about at this point, Ethereum Classic or Ethereum? The presale tokens apply to both of these forks after all. At this point, the two chains are completely divergent, run by different devs, and have completely different directions. Anyone is free to fork ETH and take it in a third direction if they like.

[dnomad]

There is certainly an expectation of profits. Dot com domains are irrelevant. They are not investing in a common enterprise they are buying an asset they think will accumulate.

Decentralization is also a red herring. The courts don't care whether Ethereum was hosted on a million servers or on a box under Vitaly's bed.

All of this hinges on what is a "common enterprise." Some might argue that Ethereum is a loose collection of volunteers that have come together to work on an open source project for various reasons. The project itself is simply a coordination and collaboration mechanism, indeed as I've been told you could say that cryptocurrencies are not unlike an online game. There is no single server hosting this game, and certain actions in the game require real money, but the important part is that the game is free, created by open source volunteers, and these volunteers do not expect to generate profits in their capacity as volunteers. (The volunteers may on the side actually become players in the game and buy the tokens etc, but they are acting in a different capacity.)

The problem here is precisely point #2 in the article: not all players in the game are equal. Some players have very unique privileges that literally let them change the rules of the game! Sure they're acting in a different capacity, but it's still the same people either way. Now the defense of this is that in theory anybody can come along and fork Ethereum and if they can convince the majority of the network to use their client then they too can change the rules of the game.

But how exactly feasible is this?

And this is where things get very murky. Because when you actually dig into Ethereum and Bitcoin what you find are many shadowy organizations and individuals colluding together to ensure that they win at the game. If it can be shown that certain entities are able to guide the development and price of Ethereum for their own benefit then you could see a judge saying there is a common enterprise at work here. Once you have any kind of "beneficial ownership" due to "effective control" -- no matter what form these may take because the laws are intentionally vague here -- then you almost certainly have an enterprise and what could be considered mega-scale securities violations.

In the end it doesn't really matter. The SEC isn't going to proactively go out and try to settle these questions. It's not how they, or any other regulator for that matter, works. (It's very rare to find a proactive regulator. There is little upside and potentially huge downsides to being a proactive regulator.) So they're going to sit back and wait until people start dying. Only when that happens will they spring into action ito save the day. What will need to happen first is for many investors to file law suits against the Ethereum Foundation (or maybe just Vitaly). There'll also have to be a terrorism/North Korea connection or the like. When it's clear that people are dying or terrorists are winning will the SEC will step in under the guise of "protecting investors" or fighting terrorism.