The idea of Bitcoin and other cryptocurrencies having to pass regulatory muster is a relatively new phenomenon. When Bitcoin was first conceived of 10 years ago, there was no thought of making sure it would be amenable to the rules and regulations of global regulators.
However, as Bitcoin has boomed and become more entrenched in our evolving financial economy, the notion of ensuring it is regulated and not illegal ahs become even more important. But, a bit of a chicken and egg question arises, if Bitcoin and Ethereum were proposed today, would they be allowed to thrive?
We have seen that bodies such as the SEC and CFTC are willing to accept that Bitcoin and Ethereum are not considered securities. However, other cryptocurrencies have not been so lucky as to get that stamp of approval. This would pose the question if these two giants of the cryptocurrency world were just lucky enough to be established before the regulators stepped in.
In fact, this is the viewpoint of one of the co-founders of Ethereum, Joseph Lubin. Lubin admitted that because of the time and space, both of these cryptocurrencies did not even have to consider complying with regulation.
“And this is something that Bitcoin in Ethereum didn’t have to deal with; you need to be regulatory compliant. And so any project hoping to aspire to being a massively decentralized based trust layer, an actual layer one, everything else is can be a layer 2 system. They would have to accomplish those four pillars.”
“The problem is the regulatory peace, in order to grow, keep growing a community, you generally have to promise that the token that you’re selling them will appreciate,” explained Lubin.
Lubin went on to explain how the evolving cryptocurrency landscape inevitably led to the SEC having to step in. Tokens, which emerged in the ICO boom, were positioned to be securities as they needed to attract investors. So, projects had to promise the growth in value of their tokens, and because this work is being done by developers, it falls into the category of a security.
“And so securities law is then implicated and now you can’t sell a utility token as it’s not a utility token, it’s a tokenized security. You can’t sell it broadly and equitably. And so it’s going to be very, very difficult. Not impossible, but very, very difficult for even a technically very strong project to challenge the early head start and the massive network effect that the Ethereum project has,” Lubin concluded.