Thread by @DamelonBCWS

Let's do a very cursory reading of the Hinman speech: sec.gov/news/speech/sp…

Let's see if it REALLY says "Ethereum is not a security"

I'll quote Hinman directly and add some comments.

"To start, we should frame the question differently and focus not on the digital asset itself, but on the circumstances surrounding the digital asset and the manner in which it is sold."

"To that end, a better line of inquiry is: 'Can a digital asset that was originally offered in a securities offering ever be later sold in a manner that does not constitute an offering of a security?'"

This sets the scene for a continuing inquiry, really.

Digital Assets might conceivably be securities at some time, and not at others, depending on the network and players.

This is going to be a hornet's nest, I think.

"In cases where the digital asset represents a set of rights that gives the holder a financial interest in an enterprise, the answer is likely “no.”

This sentence is basically saying "ICOs are mostly in big problems".

In relation to the Howey Test, Hinman says: "In articulating the test for an investment contract, the Supreme Court stressed: “Form [is] disregarded for substance and the emphasis [is] placed upon economic reality.”"

In other words: it's what you do that counts, not what you call it.

Sorry.

"Just as in the Howey case, tokens and coins are often touted as assets that have a use in their own right, coupled with a promise that the assets will be cultivated in a way that will cause them to grow in value, to be sold later at a profit."

See above on ICO troubles.

"Central to determining whether a security is being sold is how it is being sold and the reasonable expectations of purchasers."

This should be mandatory teaching by anyone teaching anything about blockchains.

"But this also points the way to when a digital asset transaction may no longer represent a security offering."

"If the network on which the token or coin is to function is sufficiently decentralized – where purchasers would no longer reasonably expect a person or group to carry out essential managerial or entrepreneurial efforts – the assets may not represent an investment contract."

This one is what people are so excited about. It's also damn hard to prove either way. Define "decentralised" and how you would measure this. By the way, this is also opening up Ethereum Foundation to scrutiny. Did they influence the fork after the DAO, for instance?

On a personal note, I'd like to say it's also likely impossible. We've all seen oodles of projects that started out centralised, and never achieved decentralisation because of the simple fact that people will not give up control.

There is no incentive to do so, so they won't.

"And putting aside the fundraising that accompanied the creation of Ether, based on my understanding of the present state of Ether, the Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions."

Here is the statement everyone is excited about.

But it's not saying a lot, and what it says is both very guarded ("based on my understanding": personal opinion!) and still dangerous.

There is a huge comment on the initial distribution to be made here.

"I would like to emphasize that the analysis of whether something is a security is not static and does not strictly inhere to the instrument."

NOT off the hook.

"Let me emphasize an earlier point: simply labeling a digital asset a “utility token” does not turn the asset into something that is not a security."

Again for the ICOs: labels mean nothing.

Fun anecdote:

"Or in my favorite example, the Commission warned in the late 1960s about investment contracts sold in the form of whisky warehouse receipts. Promoters sold the receipts to U.S. investors to finance the aging and blending processes of Scotch whisky."

"The whisky was real – and, for some, had exquisite utility. But Howey was not selling oranges and the warehouse receipts promoters were not selling whisky for consumption."

" They were selling investments, and the purchasers were expecting a return from the promoters’ efforts."

In short: it's just a short sentence on Ethereum, which very much reads as a personal assesment.

Of course important, but far from an official statement.

Even given this statement, it is rather devastating to any ICO and still leaves ETH itself in murky waters.

By the way: almost anyone can do this kind of quick analysis.

There's nothing overly legal about it.

What does someone say, in the end?

In this case, much less than was projected on to it, according to me.