On Monday, the US Securities and Exchange Commission (SEC) filed a federal lawsuit against Ian Balina for not registering a crypto as a security before he conducted an initial coin offering (ICO) in 2018.
At first glance, everything appeared to be standard because the securities regulator has been filing civil lawsuits against organizations and individuals for launching unregistered ICOs.
But, there was a lot more to discover in the fine print of the lawsuit against the crypto influencer.
The truth
The SEC made a rather unprecedented and bold move that it buried in the 69th paragraph of the lawsuit. It mentions that they can sue Balina because of the transactions he made in the United States.
But, there is another detail mentioned, which states that they can also go after Balina legally because essentially the whole of the Ethereum network is under the purview of the US government.
The regulator said in its complaint that a network of nodes on the Ethereum network was used for validating the ETH that Balina had received.
It added that these nodes were clustered in the US more than anywhere else. Therefore, it means those transactions occurred in the United States.
The Ethereum network
To put it simply, the SEC is implying that because a greater number of validating nodes for the Ethereum network exist in the US, then all global transactions involving ETH should be considered of US origin.
According to Etherscan, about 45.85% of all Ethereum nodes are operating in the US and Germany has the second-greatest density of nodes, which is around 10%.
Experts said that the SEC has claimed that doing business on the Ethereum blockchain is similar to doing business on a securities exchange in the US.
This makes it extremely convenient and simpler from their regulatory perspective.
If activity on the Ethereum network is classified as the same as an American securities exchange, then it would give the regulator jurisdiction on all activity taking place on it.
This would see the role of the SEC escalate in a major way in terms of Ethereum’s oversight, which is where most DeFi and NFT activity occurs, as well as crypto as a whole.
The significance
While it is unlikely that the court will weigh in on this phenomenon in the particular case associated with Balina, the statement has a lot of significance, especially for the crypto community.
It is possible that the SEC is trying to add its vision and understanding of Ethereum to the judicial ecosystem.
They are essentially implying that this financial activity is under their jurisdiction, so they will regulate all of it.
This kind of claim on the entire Ethereum network comes off as unprecedented. Gary Gensler, the SEC chairman, had implied last week that Ethereum’s transfer to the PoS protocol could bring it closer to security.
He had not mentioned Ethereum specifically, but he had asserted that all crypto tokens that are based on the proof-of-stake (PoS) protocol fulfill the definition of security in the eyes of the government.
