In November, last year, the U. S. Securities and Exchange Commission has brought charges against the founder of EtherDelta Zachary Coburn, accusing him of maintaining a securities exchange without registering it with the SEC as the regulations required. Coburn settled the charges without commenting on their validity. The reasoning employed by the SEC was that some of the ERC20 tokens that the exchange had facilitated trading in were found by the SEC to qualify as securities.
This decision is certainly controversial but it did not get reviewed by the courts because of the settlement. Now, the Electronic Frontier Foundation (EFF), the U. S. nonprofit association working to protect civil liberties in the Internet has taken the SEC to task for the its stated reasons for pursuing EtherDelta.
According to EFF, the SEC’s claim that even an entity that merely provides an algorithm for facilitating trading in securities can be held liable is not merely questionable but unconstitutional:
The SEC’s broad language about “an entity that provides an algorithm” could include cryptographic researchers and coders who are publishing ideas or code for debate and discussion, and working to develop systems that could benefit the public. Even if the individuals never deployed the code and never actively maintained or promoted a decentralized exchange, this overly broad language implies the SEC could well expect people merely writing and publishing code to register as a national securities exchange or face liability.
This isn’t just dangerous because it could quell research; it’s unconstitutional. The free speech protections enshrined in the First Amendment and upheld through court cases across decades include the rights of individuals to publish their ideas without preemptively obtaining a license. And code itself is speech.
It is certainly encouraging for the blockchain space’s prospects to see organizations of EFF’s caliber attempting to rein in the SEC. Along with Kik’s recent stated intention to contest the SEC’s qualification of its ICO as a security offering, this may be the beginning of a promising trend.