The SEC suggests USA has authority over Ethereum

? Did the SEC just claim authority over Ethereum?

Decentralization is a powerful notion for many reasons, but especially for its unique capacity to reshape the balance of power from a clustered pyramid hierarchies to a borderless network of peers.

Decentralization is the main strength of a blockchain, which can make it almost invulnerable: the absence of a central authority means the only law applicable to the blockchain is the law of its code, to which all of its nodes agree.

⚖️ That last bit, however, did not sit well with the American Securities and Exchange Commission, and it made sure everyone knew that.

Yesterday, in a rather casual lawsuit SEC v Balina, targeting a 2018 undisclosed paid promotion of tokens recognized as unregistered securities, the SEC dropped a phrase that instantly caused a massive outrage in the crypto space:

“… their ETH contributions were validated by a network of nodes on the Ethereum blockchain, which are clustered more densely in the United States than in any other country. As a result, those transactions took place in the United States.”

Wait, what ? ?

We believe that blockchain is by nature beyond jurisdictions, and even if almost 43% of Ethereum nodes are indeed run out of the US, that does not make Ethereum transactions American. Ethereum is being run from over 70 countries across the globe, from Germany (12%) to Japan (3%), Ukraine (0.4%) or Pakistan (0.1%). If tomorrow every American node goes off, the blockchain will still go on processing transactions and stacking blocks.

It is understandable, though, how a stateless piece of software could be a nuisance to the authorities, especially if the said software is rapidly gaining ground as a platform for building the new web. A rising opinion in the crypto space attributes the SEC’s phrase – quite unnecessary for the “easy” lawsuit it was used in – to the agency’s desire to create a precedent.

Very bad precedent for the crypto industry and especially for Ethereum, which is already raising controversies as to the centralization of its staking services, which could become a breach, through which the blockchain’s censorship-resistance could be compromised ?

After the US Treasury sanctioning a piece of software (Tornado Cash smart contracts), the SEC claims jurisdiction over a headless worldwide network of nodes running another piece of software. ?

This is definitely to follow.