Michael Saylor Says Ethereum Can Be Categorized as Security

In a recent interview, MicroStrategy CEO Michael Saylor discussed a variety of subjects, including cryptocurrencies like Bitcoin and Ethereum. He went into great detail on the two assets’ classifications and whether he thought they were securities or commodities.

Saylor talked extensively about Ethereum during the interview and explained why he thought it was security rather than a commodity. He said in his comment,

“I think it’s pretty obvious it’s a security. It was issued via an ICO [initial coin launch]. There’s a management team. There was a pre-mine. There’s a hard fork. There are continual hard forks. There’s a difficulty bomb that keeps getting pushed back.”

The difficulty bomb that the developers designed to make it harder to mine ETH might destroy the Ethereum mining sector, according to the CEO of MicroStrategy. Additionally, he thinks that Ethereum’s ability to postpone the difficulty bomb turns it into security rather than a commodity.

“For it to be a commodity, there can’t be an issuer, and the truth is you can’t really make decisions. One of the fundamental insights in the crypto industry is the fact that you can change it is what makes it a security. Suppose you look at most of these cryptos, where they have hard fork after hard fork after hard fork. In that case, the problem with a hard fork is changing the protocol means that some development team is making a decision. If you can change the protocol in a material way, you can change the monetary protocol. A hard fork can change the issuance pattern, or it can change the value of something. So that makes an investment contract under securities law.”

A financial instrument that is tradable, fungible, and has monetary worth is referred to as security. A publicly traded company, a bond receivable, or the ownership rights represented by an option are examples of assets that it can also represent as belonging to the owner.

To evaluate whether an asset satisfies the definition of security, the Howey test is employed in the United States of America. The majority of ICO-launched tokens and cryptocurrencies conform to the Howey test’s definition of securities.

Saylor claims that Ethereum, which was released through an ICO in 2015, may qualify as an “investment contract.” If this is true, ETH would not be considered a commodity but rather security, subject to far stricter regulations.

Saylor said that, unlike Bitcoin, Ethereum has its own management and was partly pre-mined. He added that the protocol frequently goes through hard forks and modifications. Any digital asset, in Saylor’s opinion, must be maintained by a wholly decentralized system that cannot be altered arbitrarily to be referred to as a commodity.

Since all of Bitcoin is mined by miners, Ethereum has issuers, whereas Bitcoin does not and never will.

Although Saylor is not the only one who views Ethereum in this manner, the SEC disagrees with his viewpoint. According to the Securities and Exchange Commission, which regulates the securities market in the United States, Ethereum is a commodity similar to Bitcoin.

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