This article provides an overview of the rise and development of Ethereum. From its launch until it was brought to market, Ethereum has gone through countless events and regulations from international government agencies.
The emergence of Ethereum
In 2013, the concept of Ethereum was first born thanks to a page describing Vitalik Buterin. In 2014, the concept was officially announced at the North American Bitcoin Conference in Miami. It was not until 2015 that the Ethereum coin officially launched.
However, in 2016, the Decentralized Autonomous Organization (DAO) was hacked, causing investors to suffer a huge loss of up to 50 million USD.
In the recovery effort, the majority of the Ethereum community has decided in favor of a hard ford that invalidates transactions. This led to a split in the Ethers. Ford advocates use Ethereum (ETH) while older blockchain enthusiasts use Ethereum Classic (ETC). To this day, both ETH and ETC are still being used.
How was Ethereum recognized?
After years of development, Ethereum officially hit its first growth in 2017 when a successful ICO and simultaneously launched Enterpise Ethereum Aliiance – the organization that develops Blockchain specifications.
On July 25, 2017, the US Securities and Exchange Commission (SEC) released an investigative report on the DAO and concluded that all cryptocurrencies are subject to comply with regulations. At the same time, this organization also officially released the Investor Newsletter about ICO to help investors specifically aware of the potential risks of ICO.
Not long after, in October 2017, the CFTC announced that tokenizing a digital token could be a commodity or a derivative contract, depending on the circumstances. At the same time, the Uniform Law Commission issued the Uniform Law of the Virtual Currency Business Act, which stipulates that users can use digital currencies to buy goods and services. digital service.
Not stopping there, FinCEN also requires crypto exchanges to be registered and compliant with regulations. The IRS also introduced a tax classification for cryptocurrencies that added complexity to the Ethereum circulation statutes.
Strict regulation in SEC’s ICO
Since the release of the Breakthrough DAO Report 2017, the SEC has enforced more than 30 actions against ICO issuers as well as countless ICO-related information requests.
On November 8, 2018, the Foundation settled charges against Zachary Coburn (founder of EtherDelta), he violated federal securities laws by operating an unregistered national stock exchange. sign.
November 16, 2018. The SEC explained that both CarrierEQ Inc. (Airfox) and Paragon Coin Inc. conducted ICOs in 2017, and the organization also warned that ICOs could be a new form of security. Airfox, and Paragon are both companies with huge amounts of digital assets. Started in Boston (USA), Airfox’s digital assets are up to 15 USD, while Paragon’s is about 12 USD.
Both companies negotiated and decided to register tokens as securities with the SEC. The SEC has made it clear that companies that issue securities through an ICO must comply with applicable statutes and the rules governing the registration of securities.
Most recently, in September 2019, ICOBox and its founders were sued by the Commission for not having registered in relation to the platform’s operations to conduct a securities transaction.
What does the Howey test show?
A formula created by the U.S. Supreme Court, the Howey test is used to determine whether a transaction qualifies as an investment contract under federal securities laws.
The Howey test originated in the 1946 Supreme Court case SEC v. WJ Howey Co. The test itself consists of 4 parts, one is having an investment, two is in a business, three is a reasonable profit expectation, and finally the efforts of a promoter or a third party.
Ethereum is not a security
On June 14, 2018, SEC Group Chief Financial Officer William Hinman stated that Ethereum is not a security. According to him, if the token or coin network operates sufficiently decentralized, the assets do not necessarily have to be investment contracts because buyers would not expect someone to perform essential management functions.
Specifically, Mr. Hinman stated that the Ethereum network has a decentralized structure, and therefore, the current offers and sales of Ether are not securities transactions. Outlining the reasoning behind his statement, Hinman clarified that the economic quality of a transaction is always determined by legal analysis, not by sight.
For the first time, SEC approves registration that does not fully meet Howey test
On July 25, 2019, the Pocketful of Quarters reply letter from the SEC marked another step forward in regulation for Ethereum as well as ERC-20 tokens. The SEC has granted Pocketful of Quarters (PoQ) inaction relief for its ERC-20 token Quarters. This means that the Commission will not take enforcement action based on the specific facts and circumstances set forth in the request. It is the first token built to the ERC-20 standard to receive regulatory approval.
PoQ is a blockchain startup designed to create a universal game token redeemable on any video game platform. In particular, PoQ is run by father and son George Weiksner (12 years old) – chief executive officer and Michael Weiksner – chief technology officer.
PoQ explained that gamers-investors of the company do not have reasonable expectations of returns, which goes against the content of the Howey test and requires the SEC to review the company’s case. Approving the PoQ case, the Commission sent a green letter symbolizing the organization’s consent to the PoQ token release.
Ethereum’s development advantage in front of a complex legal system
To date, the US government has not exercised its constitutional right to regulate blockchain technology and cryptocurrencies. Therefore, the states of this country are still free to design and enforce their own laws such as Arirona, Vermont, Delaware.
Along with that, cryptocurrency regulations also vary between federal institutions. For example, the SEC treats digital currencies as securities if they meet the Howey test, while the CFTC treats digital currencies as commodities and is taxed by the IRS as property.
However, Ethereum is an exception, the proofs of Mr. Hinman and the green letter of PoQ make clear about the regulation and degree of freedom required for the development of Ethereum. Thanks to this, Ethereum has also become the choice of big brands like Amazon, Coinbase, Fidelity, Google, Microsoft and Samsung in various applications.
Google is also pushing to build decentralized applications (Dapps) on the Ethereum blockchain. At the same time, Microsoft is partnering with the Enterprise Ethereum Alliance to create cryptographic tokens, and ConsenSys to offer the Ethereum blockchain as a service on Microsoft Azure.
With regulatory clarity and institutional support, Ethereum is considered by experts to have limitless potential for growth in the crypto space.