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51 Fla. St. U.L. Rev. Online 1 (2024)

handle is hein.journals/fsuon51 and id is 1 raw text is: CRYPTO CLASSIFICATION CONFUSION: A RECOMMENDATION TO NOT REGULATE ETHEREUM UNDER SECURITIES LAWS MAXWELL HOLLEMAN* INTRODUCTION............................................................................................................................................... 1 I. AN OVERVIEW OF SECURITIES LAWS ........................................................................................................2 A . Securities A cts and H ow ey .................................................................................................. 2 B . Com m on Law D evelopm ent ................................................................................................ 3 II. BLOCKCHAIN TECHNOLOGY AND CRYPTOCURRENCIES ........................................................................ 6 A. Blockchain Technology...............................................................................................................6 B . P roof-of-W ork P rotocol ...............................................................................................................7 C. Proof-of-Stake Protocol...............................................................................................................8 III. THE DEBATE OVER REGULATING ETHEREUM ................................................................................. 10 A. BlockFi's BIAs and the SEC's Response .................................................................................10 B. The Argument for Regulating Ethereum as a Security..........................................................12 C. Why Ethereum Should Not Be Regulated as a Security ........................................................14 1. There is No Common Enterprise .........................................................................................14 2. Validators Do Not Rely Solely on the Efforts of Others .....................................................15 3. Encourage Environmentally Sound Cryptocurrency Activity............................................17 4. Recommendation to Courts and the SEC............................................................................18 CONCLUSION ................................................................................................................................................ 19 INTRODUCTION The Information Age has produced previously unimaginable advances in entertainment, commerce, research, communications, currency, and almost every other aspect of life. The technological advances of the Information Age have allowed humans to become more interconnected than ever before, yet there are members of society who have used this interconnectedness to take advantage of those who are inexperienced or uneducated in the newest technological developments. A recent example of this unlawful and unethical behavior is the cryptocurrency exchange FTX and its CEO Sam Bankman-Fried. Bankman-Fried is currently under house arrest following the largest bail payment in United States history after he was accused of stealing billions of dollars from FTX users to pay the debts of his other firm, Alameda Research.1 The uncertainties surrounding cryptocurrency combined with its increasing popularity have caused securities regulators and experts to take a closer look at the cryptocurrency market. After making the switch to an environmentally conscious staking consensus mechanism, the world's second-largest cryptocurrency, Ethereum, is under the microscopic lens of securities regulators who are bringing their best arguments to the table in favor of regulating the cryptocurrency as a security.2 This note cautions securities regulators and experts to take a step * Taxation LL.M Candidate, Northwestern University Pritzker School of Law, Class of 2025; J.D., Florida State University College of Law, 2024; B.A., Evangel University 2020. 1. Peter Hoskins, FTX Collapsed Crypto Exchange Says $415m Was Hacked, BBC NEWS (Jan. 18, 2023), https://www.bbc.com/news/business-64313624. 2. Robert A. Schwinger, What's at Stake in Proof of Stake'?, NEW YORK LAW JOURNAL (Nov. 21, 2022, 11:00 AM), https://www.law.com/newyorklawjourna/2022/11/21/whats-at-stake-in-proof-of-stake/. SEC Chairman

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