Nah, the answer is all of them except Bitcoin. I think all parties to this Wells-based conversation know that and Coinbase is just posturing for the court of public opinion.
[edit] I should say, Coinbase has been preparing for this forever. They acquired a broker-dealer license years ago, back in 2018. [1]
Yep, Gensler has outright said that “everything else other than bitcoin is a security.”[1] There's no chance Coinbase isn't aware of this. I don't know what they hope to accomplish by pretending otherwise.
Predominantly, from my understanding, it’s because:
1. Bitcoin was classified as “currency” by Clayton.
2. It’s the closest to being decentralized so no “organization will benefit from the work of others”.
3. Growth of Bitcoin wasn’t initially speculative but as a use of currency, which is different from whatever token you fork as its goal would be for speculative trading, failing the Howey test.
That was when Etherium was proof-of-work. I imagine it gets complicated now that you can earn staking rewards on your ETH, even though by default you earn 0% because by default you are not staking. So one major feature of “banking” your ETH at an exchange would be so the exchange provides a way to earn the “interest” on your deposit.
This creates a regulatory risk, and is one reason for owning BTC instead of ETH. Note I own a few ETH and 0 BTC, and ETH has dropped 10% compared against BTC recently (normally they seem to be highly correlated (even long-term) which implies to me that the market is somewhat driven by generic crypto sector investing).
Nothing you said here makes a fork of the bitcoin code with a completely different genesis block (or ANY fork at ANY block of the bitcoin chain) a security.
The other reply to you is wrong. The answer is because a chain whose direction is controlled by a single entity in practice is probably a security as its value depends on the performance of that entity. Bitcoin's value as an asset is not contingent on some other party with control of it, unlike say Ethereum, Binance Coin, etc.
Dogecoin is arguably in the same category as Bitcoin. So forks don't have to be securities. They do have to be actually decentralized, as in one entity does not decide which fork is the true fork (like with Ethereum, Bitcoin Satoshi Vision, etc).
I was under the impression it was due to the initial distribution mechanism. It was all open mine, no presale. Basically everything else has had a presale or premine. I could be wrong, because if that were the justification forks should qualify too by virtue of inheriting the chain history.
> The COINBASE address shall be warm at the start of transaction execution, in accordance with the actual cost of reading that account.
> The COINBASE address should also be always be loaded because it receives the block reward and the transaction fees.
Looks like Coinbase currently makes up 10% of Eth staking.
Would this give special privileges to Coinbase over other exchanges?
>In the Ethereum pre-sale they explicitly state it is not intended to be a security or investment offering:
I'm not sure if ETH was completely in the clear even with this approach. Vitalik and other founders seemed to have created expectations of profit in their ICO presentations to US investors in a few 2014 videos.
>Yep, Gensler has outright said that “everything else other than bitcoin is a security.
>Why is Bitcoin not a security but if I fork Bitcoin it is a security?
You are right. Gensler was either misquoted or mispoke.
If somebody forks Bitcoin, distributes the majority of coins for free and renounces control; then random people (not connected to the founder) start voluntarily improving and giving it value, it probably wouldnt be a security.
This begs the question of what differentiates Bitcoin?
Besides being the first, there aren’t really any structural differences for the functionality or the development and marketing of BTC than other coins.
The only sufficient argument I see is the naivety around the distribution method which implies a metric of decentralization. To me that implies other coins should not be considered securities if they pass some decentralized metric threshold.
Now I’m also of the radical opinion that securities are actually a type of token (tokens being a general class of financial instruments like coins, securities, currency, or any asset) - not the other way around, and the law needs to be rewritten to accommodate this.
It's different in that nobody can control it. Everything since bitcoin has had some form of leadership, including Ethereum, that can reasonably consistently get the network to fork and cause things to happen.
Bitcoin struggled for years to get a change adopted that most of the community thought was a good one, because nobody, not even Satoshi if they are still around, could change it.
This is a silly argument. A community forks, not 'leadership'. The mechanism for forking the project is literally the same in both cases. Please describe what mechanism, ETH for example, includes that differentiates it from BTC in some way. This is just typical crypto tribalism and not rooted in a technical basis in any way.
I don't think it's silly. Network effects are why Parler failed and Twitter succeeded (thus far at least!), or betamax failed, etc. These things don't succeed or fail for technical reasons, and develop into distinctly different complex systems as a result of in some cases trivial technical differences (or even none) when the people using them are taken into account. And in the case of cryptocurrency in particular, the network effects (even outside of simple success or failure) are ultimately what make it secure/trustworthy or not. Some of the network effects are incentivized by technical measures, like mining rewards, but the stuff I'm talking about here is incidental.
The point is that the community/network/whatever that formed around bitcoin isn't centralized, so even for relatively "tame" changes like taproot, nobody could agree and it took years to merge regardless of technical merit. For better or worse and for a wide number of reasons I can speculate about, the equivalent social structure around Ethereum is far more centralized around the will of Vitalik and a handful of others, and they've demonstrated repeatedly (except around the ETC debacle which has mostly fizzled) that they can get the whole network to adopt even fairly complex and risky changes. Monero regularly forks, and even though it doesn't have a formalized leadership structure, is able to get changes rolled out. Same with ZEC and the electric coin company. Be it a single person, a pseudonym, an organization, or whatever, everything but bitcoin has forked repeatedly, which indicates a degree of central control (and thus central benefit, from the POV of regulators). In most cases outside of bitcoin, the founders have also enriched themselves enormously by remaining in control.
Contrast with the attempted forks of bitcoin: BCH was a huge mess and has been slowly fizzling out for years. BSV is a joke. Yes you could create a new fork today, but the whole point is that the difference isn't technical, it's a network. The network is partially technical (there are still lots of miners that won't mine your new fork) but is also cultural, and bitcoin users/miners/exchanges don't look up to the "dev team" as an authority. That's the key difference IMO. If you just focused on the technical you'd still be arguing that betamax was a better format.
Why would that be relevant? It happened, that’s all that matters.
Edit: the context of this is the question of whether Ethereum is a security. The SEC has already ruled that it is, and the ruling came down to the fact that it had a presale (via the Howey test).
It's not clear yet that the SEC has any jurisdiction over cryptocurrencies. At this point, their rulings are empty, and perhaps it will be decided in court.
They have jurisdiction over securities. Things like the Howey test are used to determine if something is a security. Ethereum meets that bar. Whether bitcoin is a security isn’t so clear. Not by the Howey test at least.
> That will need to be determined in the courts or congress, not by a regulatory bully.
The SEC was set up by congress, the Securities Act of 1933 and the Securities Exchange Act of 1934 and several others [1]. The Howey test was made by the courts and at least finalized by the supreme court [2].
I dont see how posting trivia about the SEC's origin take away from it now being moat protecting, outdated entity. It needs to get back to what it was designed for - 20th century regulation, they are clearly showing their uselessness in the 21st.
> I dont see how posting trivia about the SEC's origin take away from it now being moat protecting, outdated entity.
You argued that "courts or congress" should determine whether Ethereum meets the bar for being a security. My links point out that the the courts and congress has already put a process in place, as you seem to be requesting in your your comment:
> That will need to be determined in the courts or congress...
It sounds like you have additional complaints/issues about the SEC outside of those you put in your comment. My reply was not to address SEC as a whole, only that the "courts or congress" are the wellspring for the procedures and processes currently in place like you seemed to request.
Maybe they don't have jurisdiction over crypto, but they definitely have jurisdiction over business entities with American presence. If they decide that you're accepting cash dollars for something security-like, it doesn't particularly matter what the underlying assets are, I don't think.
> Ok…do you have some other proposal by which we can judge systems that use mechanisms to do things?
The way we tend to judge whether things fit into legal categories is by the criteria specified in the controlling law (including relevant statutes, administrative regulations, and case law.)
While cryptocurrency enthusiasts are fond of an approach where the mechanism is all that is relevant, mechanisms may be all, part, or none of what is relevant in law. While only tangentially relevant here, an amusing example in securities law is what something is commonly called can be relevant, even decisive, because the definition of a ‘security’ in statute includes (but is not limited to) ‘any interest or instrument commonly known as a “security”’. 15 U.S. Code § 77b(a)(1)
As I understand it, it’s because for whatevwr reason, they (well, not THEY, the then leadership) said years ago that Bitcoin was not a security, so they’re kinda stuck with that exception even if the current SEC disagrees with it.
> This begs the question of what differentiates Bitcoin?
I don't agree with the thrust of the argument either, but I think it's a genuine assertion and not begging the question.
> Now I’m also of the radical opinion that securities are actually a type of token (tokens being a general class of financial instruments like coins, securities, currency, or any asset) - not the other way around, and the law needs to be rewritten to accommodate this.
I broadly agree with this view! However, I think the law is better suited to get out of the way and gracefully allow the inevitable separation of token and state.
it goes much deeper than that, despite the parasocial relationships that crypto purchasers have with the founding teams, they are purchasing products. the product sales are booked as revenue, not capital-in like a primary market investment/security would have.
a product can simultaneously be a security, and many organizations in the collectibles market go out of their way to avoid that, organizations that sell physical goods with perceived scarcity and a vibrant aftermarket. within the crypto space, creators of digital assets go out of their way to avoid it too, and in this regard, I've never been surprised at any specific SEC enforcement action against any crypto team. The ones that behave one way, so far have not been sanctioned, the ones that behave another way have been. Its not arbitrary, but it does still leave uncertainty.
but where we are now, where the SEC pretends like "every digital asset is a security and we just haven't gotten to it yet", what we're left with are the behavior of the purchasers of digital assets. they buy tokens with the expectation of profit and rely on the issuing team to realize that. theoretically that logic could make anything a security, are sneakerheads trading nike-themed securities just because they're getting into it to make a profit?
at this point, I would be inclined to agree only if nike has to register their artificial scarcity shoe lines as securities and can only sell them to accredited investors. otherwise, the logic fails and a different capital markets structure needs to be considered.
[edit] I should say, Coinbase has been preparing for this forever. They acquired a broker-dealer license years ago, back in 2018. [1]
[1] https://brokercheck.finra.org/firm/summary/151143