During a congressional hearing last week on the $2.5 trillion blockchain crypto business, we got a small glimpse of how little the government knows about technology that could change the way we do business.
A more complete picture of this absolute powerlessness appears in federal court in Lower Manhattan in a case titled Securities and Exchange Commission v. Ripple Labs.
It will likely determine how much regulation there will be over the burgeoning crypto industry, and at least for now, the SEC is making clear why it shouldn’t be close to policing something reasonably described as the next internet.
The SEC case hinges on some of the alleged bad things Ripple has done. The Securities and Exchange Commission says Ripple execs have sold an unregistered cryptocurrency called XRP to get rich and fund the building of its blockchain-like platform that handles cross-border payments. The Securities and Exchange Commission says that XRP sales were no different from a company selling stocks or bonds, and were illegal because they were not registered with the commission.
Ripple notes that the Securities and Exchange Commission (SEC) is creating a legal double standard. The XRP sales were legal because XRP is not much different from other unregistered cryptocurrencies, industry heavyweights such as Ether and Bitcoin.
If the creators of the first blockchain don’t have to record their Bitcoin sales, why should Ripple? The same for the men who created Ethereum.
The Securities and Exchange Commission (SEC) appears to have officially declared Bitcoin and Ethereum a compatible cryptocurrency in a 2018 speech by Bill Henman, the former head of SEC’s finance division. Ripple’s defense hinges in part on the use of Hinman’s words against the commission; XRP was used in the same way people used Ethereum to fund the initial creation of their platform. So what is meat?
This is where it doesn’t make sense on the part of the Securities and Exchange Commission. The commission now argues that whatever Hinman said, his speech meant nothing. It is simply his opinion, nothing more. In court, the Securities and Exchange Commission (SEC) is telling the cryptocurrency world that it has not in fact issued a formal ruling whether Bitcoin or Ethereum’s Ether is in compliance with the securities laws.
“I don’t want to be overly technical but… there is no procedure [the SEC] The SEC lawyer said that Bitcoin is not a security, and Ether is not a security.”
So the words of a senior official – reviewed at the time by Securities and Exchange Commission Chairman Jay Clayton – do not reflect commission policy? Does this really mean that SEC head Gary Gensler is going to track down the elusive Satoshi Nakamoto (whatever he or she is) to do with Bitcoin what he does with Ripple?
The Securities and Exchange Commission declined to comment.
Big Media Vs. age
The popular explanation for Gigi Sohn’s collapsed nomination as FCC commissioner is ideological: Sohn – a progressive troublemaker – is the victim of a violent partisan debate over who can regulate the $22 trillion US economy.
Yes, there’s a lot of that coming into play in the wake of the Senate Commerce Committee’s move to delay the vote on Sohn’s nomination until probably next year, possibly forever. But Sohn Imbroglio’s situation is more of a right fight versus a left fight; It pits a major part of the Democratic donor base against the party’s progressive wing.
While Sohn is at odds with the conservatives and their allies in the Senate, she is not the darling of Big Media, which has a direct line in the party’s ruling elite that includes the FCC: Senate Majority Leader Chuck Schumer, Chairman of the Senate Commerce Committee Maria Cantwell, and of course House Speaker Nancy Pelosi.
You see, as much as the media and Hollywood types like to sound awake, their cues of virtue have limits when money is on the line. Sohn has a long record questioning two issues they keep near and dear to the end result: extremely restrictive copyright protection and something called “consent to resubmit.”
Copyright protection is easy to understand. Media companies own the materials they create and the copyrights. If you pirate the content, you have to pay. The concept of agreeing to resend is a bit more complex but leads to the same place: money and a lot of it.
In the past, cable operators could take a local network signal and broadcast it without a second thought. Congress put an end to this in 1992, so cable operators now have to strike deals to get “retransmission approval” with the big media companies to broadcast their local network programming.
Sohn has a long record that both issues give too much power to the big media at the expense of consumers. She has called for the FCC to put a stop to the amount of networks and their powerful parents, such as ABC (Disney), NBC (Comcast), CBS (ViacomCBS), and Fox (the employer) that can squeeze out of these lucrative revenue sources.
Sources tell me that broadcasting networks through their lobby group, the National Association of Broadcasters, have put Schumer & Co. aware that Sohn’s nomination is thus far barred without certain conditions. That’s one reason why it’s being delayed so Cantwell can work on a plan to bail it out, perhaps by having Sohn disqualify herself from these two issues when they are put to a vote by the FCC.