The topic of ether's legal status as a commodity (or not) is one of the most debated topics in crypto.
We can think of the question as the Schrödinger's cat of cryptography: ether is both a commodity and not a commodity. In this sense, the debate on the commodity is analogous to that famous paradox of quantum mechanics about the well-being of Schrödinger's cat, which seems to be both dead and alive.
But how can Schrödinger's cat be both dead and alive, you ask? In Copenhagen, the answer to this paradox interpreted by many is that it depends on circumstances and probabilities. Ether is a commodity until it isn't, or ether isn't a commodity until it is – whichever you prefer.
For crypto-quantum aficionados, I have to admit that as a Dane, I prefer the Copenhagen Interpretation of Schrödinger's paradox, because it lends itself well to this problem. The Copenhagen Interpretation asserts that the world is not deterministic – a view that has been almost as controversial as the question of whether or not ether is a commodity (probably more so!).
The Counterfactual Definition of Aether
Value creation on Ethereum is threefold, meaning the native token, ether, can be considered a store of value, a consumable product, and an interest-bearing asset.
As a store of value, Ethereum saw approximately $1.2 trillion in DeFi transaction volume in 2022 and will have an estimated smart contract economy of $5 trillion by 2030, according to ARK Investment Management.
With EIP-1559, ETH has become a consumable product and, like gasoline, it is consumed to pay for network usage. Used in this way, ether exhibits the characteristics of a combustible gas, as ether is burned when used to pay for transactions – which is far from acting as an investment contract or a reserve of value. Finally, staking ether makes it an interest-bearing asset, where stakeholders can actively participate in the management of the network for the benefit of consumers. Betting on Ethereum today represents a saving of 90 billion dollars.
The definition of ether is based on the circumstances and likelihood of ether being used as a security, commodity, or currency. The ability of any market participant to meaningfully define ether – without clear and meaningful crypto regulation – will rely on assumptions that we are unsure of. This is the counterfactual finality of the ether that American policymakers must resolve.
The real issue is how the US is going to regulate ether.
While the United States is still undecided on how to regulate crypto, permissionless innovation continues to occur on Ethereum and the associated use of ETH.
The real issue is whether or not US crypto regulations will allow ether to exist simultaneously as a commodity, thereby resolving the paradox. This will not be a miracle solution, but rather one closely linked to the growing maturity of the market. You don't have to look deep to find other paradoxes. Soon, liquid staking and restocking of derivative tokens representing a share of ownership in a staking pool or similar could spark the next big legal debate.
Outside the US, Swiss regulator FINMA issued guidelines based on the Swiss DLT 2021 law's narrow definition of crypto as a payment token, i.e. staking providers had to be licensed bank to provide staking services. Although they supposedly have it since I followed the advice back as of the end of last year, the regulations and legal interpretation have not changed.
The European Union (EU) is the first economic area in the world to regulate crypto and has opted for a broader definition of crypto that allows interpretation of the asset itself, but it still has a long way to go. browse to solve the ether paradox. .
For American legislators, like Schrödinger's cat, everything will depend on interpretation.
Jesper Johansen is the founder and CEO of NORTHSTAKE, a regulated custodial company specializing in creating regulation-compliant crypto staking products for institutional investors and financial institutions. The team has experience in financial institutions, pension funds, large investment companies, consulting, technology and audit firms, such as Accenture, Deloitte, PwC, as well as project management. blockchain and cryptography, e.g. DAI Foundation (MakerDao), Ethereum and L1/L2. Prior to joining NORTHSTAKE, Jesper held leadership roles at Accenture Strategy and Deloitte Consulting, advising clients in highly regulated industries in implementing new technologies and transforming their businesses. He holds an MBA from Copenhagen Business School and a B.Sc. in International Business.
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