The quantum mechanical properties of Ether
Superposition is a quantum property that effectively refers to the ability to simultaneously be in multiple states.
Ether (“ETH”) appears to be in superposition as commentary suggests it is and isn’t a security at the same time.
In 2018, William Hinman, then Director of the SEC’s Division of Corporation Finance, implied that Ether was initially offered through a securities offering but was no longer a security at the time.
Typically, a product that begins as a security remains a security so I see issues with Hinman’s analysis, which I will refer to as Hinman’s puzzle. Issues with the Hinman puzzle have recently been highlighted by former SEC Commissioner Joseph Grundfest in the context of the SEC’s complaint concerning XRP. Grundfest has stated that the SEC has not adequately delineated the difference between ETH and XRP in coming to the conclusion that XRP is a security and ETH is not. For example, both issuances were centrally issued, included premines and had continuing issuances.
As stated by Michael Novogratz, former partner at Goldman Sachs and founder of Galaxy Digital, “…$BTC and $ETH seem to have an SEC pass.”
I do find it strange that Clayton waited years to do this.
— Mike Novogratz (@novogratz) December 22, 2020
Hinman’s reasoning seemingly hinged on his understanding of there no longer being any central enterprise being invested in, and thus purchasers no longer reasonably expect a person or group to carry out essential managerial or entrepreneurial efforts. In other words, Hinman’s position is that assets can transition out of security state through sufficient decentralization. As stated by Hinman, “…when the efforts of the third party are no longer a key factor for determining the enterprise’s success, material information asymmetries recede.”
…when I look at Bitcoin today, I do not see a central third party whose efforts are a key determining factor in the enterprise…. Applying the disclosure regime of the federal securities laws to the offer and resale of Bitcoin would seem to add little value. 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. And, as with Bitcoin, applying the disclosure regime of the federal securities laws to current transactions in Ether would seem to add little value.
…And of course there will continue to be systems that rely on central actors whose efforts are a key to the success of the enterprise. In those cases, application of the securities laws protects the investors who purchase the tokens or coins.
Ethereum 2.0: Securities analysis
The last part of Hinman’s…