Many are now blindly accepting that the SEC is regulating the cryptocurrency space and that this kind of regulation is necessary for institutional investors who can assist in both price and adoption levels. But these assumptions are false for a variety of different reasons. Writing on the Coindesk media platform, Edan Yago outlines why SEC crypto regulation constitutes a legal overreach without precedent.
SEC crypto regulation a flawed approach
Edan Yago is the CementDAO and Epiphyte founder, and he raises some interesting points as to why the SEC has no legal basis for interfering in the decentralized marketplace. On multiple levels, the regulatory authority has no grounds for any kind of action, and many cases are ensuing in jurisdictions across the globe for clarification.
One reason why the SEC has no basis for intervention is that a smart contract is not “owned” by anybody, and neither is a wallet address. Additionally, bitcoins do no actually “move” anywhere. Cryptocurrency assets are essentially a form of proof, not a form of ownership. They are not even a claim to anything. The bitcoin blockchain is a set of mathematical proofs, completed by nobody in particular.
For an asset to be considered a security, there must be a contract between two legal entities. Further, the contract itself must be governed by law. There is no “contract” between two wallet addresses when a token is sent from wallet A to wallet B. Additionally; there is no legal entity tied to a wallet address.
This neatly explains SEC fanaticism about KYC and AML checks. Once these documents are uploaded, then you have just linked your name and identity to a particular wallet address. Constant emphasis is being placed on the importance of KYC and AML to combat “terrorism” and “money laundering.” This is in spite of the fact that infinitely more criminal activities are facilitated through the current fiat paradigm as opposed to the cryptocurrency market. One recent AML scandal was worth more than the entire cryptocurrency market capitalization. On all possible fronts, SEC crypto regulation is illegitimate. The cryptocurrency communities do not want it, and the asset itself does qualify as something the body should govern.
Property v crypto assets v smart contracts
Property, in contrast to crypto-assets, is owned by a legal entity, who has a right to that property. Property is regulated so that the rights of the beneficial owner are protected by the law. Crypto-assets have nothing to do with the law, and this is how they were initially designed. Cryptocurrencies fall outside of any regulatory jurisdiction. The first large-scale example of this was the DAO, an investment vehicle without ties to any nation-state. Nevertheless, the SEC indicated that the DAO token could be considered a security, though the organization had no ties to the USA or any kind of entity.
The SEC crypto overreach does not stop at cryptocurrencies but is extending to smart contracts, the innovation of the future. The regulatory authority is holding code writers responsible for how tokens and smart contracts interact with other smart contracts. The SEC recently fined the EtherDelta decentralized exchange code creator for operating a securities token offering, despite having little to do with the autonomous code. Tokens held by smart contracts fail all historical tests for a security. US judges have been siding with the SEC when it comes to these kinds of issues, yet European judges are proving far more resilient.
Yago is not alone in his analysis. According to one Hacker Noon blog post, the only way that Bitcoin could be legally regulated is if the first amendment was removed entirely. Under the current legal system in America, there is no basis for SEC crypto regulation or any kind of third-party interference.
The genius of Satoshi Nakamoto
Satoshi Nakamoto was far more brilliant than given credit for, and likely had a deep understanding of how legal norms were designed specifically to reinforce inequality. Nakamoto did much more than simply create a new form of money but provided an alternative means of exchange that circumvented the existing infrastructure in a completely legitimate way. Additionally, the creator was clever enough to remain anonymous. The project was left in the hands of the community instead of a single figurehead. Revealing the identity would also mean the personage was a legal person for the purposes of prosecution.
Other cryptocurrencies, despite many technical benefits, struggle heavily with their governance models. EOS has constitution issues, a centralized dispute resolution forum, and centralized block producers. Many others have expensive ICOs or revolve around key figures. Key figures and centralized bodies (even if remarkably effective or borderline genius) are liable to intimidation, manipulation, bribery, and prosecution.
In any case, cryptocurrencies were designed to be antifragile and censorship resilient, not to acquiesce to the SEC or any kind of third-party. A new paradigm is to be created that is self-sustainable with minimal reliance on large centralized bodies. This can easily be done by autonomous contracts, artificial intelligence, and DLT, once the SEC allows intelligent coders do their jobs in creating a more efficient and transparent society.
Digital Nomad with an interest in Zen and Blockchain technology.
Law graduate with 3 years experience as a consultant in the capital markets industry and 4 years experience freelancing on UpWork as a Creative Writer.