Charles Hoskinson, the founder of Cardano, recently criticized the U.S. Securities and Exchange Commission (SEC) for its apparent leniency towards Bitcoin. In a livestream, he accused the SEC of giving Bitcoin a “complete pass” over its decentralization status, which exempts it from being considered a security.
Hoskinson argued that Bitcoin is not as decentralized as claimed. He suggested that targeting a few entities could lead to a 51% attack on Bitcoin due to how its hash power is structured. He challenged the SEC to apply the Howey Test to Bitcoin and demonstrate how it differs from Ethereum and Cardano. According to Hoskinson, Bitcoin investors, whom he refers to as “orange pill moonboys,” have an expectation of returns, a key consideration in determining a security.
Hoskinson accused the SEC of engaging in a costly and ineffective legal war against the crypto industry, predicting that the SEC will continue to lose court cases. He believes this regulatory struggle will eventually cease without any formal recognition of error or compensation from the SEC.
Hoskinson expressed support for libertarian lawmakers, who he believes are working to improve the situation by reducing government influence. He stated that the primary purpose of cryptocurrencies is to rebuild the social contract, which he views as “horrifically broken.”
Despite Hoskinson’s criticisms, the SEC has maintained its position that Cardano (ADA) is a security. This stance has been featured in lawsuits against Binance and other crypto exchanges. Input Output Global (IOG), one of the three organizations behind Cardano, has disputed the SEC’s claims, arguing that ADA is not a security under U.S. laws and pointing out factual inaccuracies in the SEC’s complaints against Binance and Coinbase.
One of the people that tried to explain to Hoskinson why the SEC is not going after Bitcoin was Adam Back, a prominent figure in the cryptocurrency world known for his invention of Hashcash and role as CEO of Blockstream.
Back asserted that Bitcoin is distinct from other cryptocurrencies like Cardano and Ethereum due to its origins. He noted that Bitcoin did not undergo an Initial Coin Offering (ICO), was mined from zero value, is decentralized, lacks a CEO or a foundation with a significant reserve, and was not incorporated. These factors, according to Back, exempt Bitcoin from being classified as a security under the Howey Test, instead categorizing it as a commodity.
Hoskinson countered by clarifying that Cardano did not have an ICO. Instead, there was an airdrop and subsequent trading of ADA on various exchanges by independent parties. He also mentioned a voucher sale of a different asset outside the United States, priced in Yen, to further differentiate Cardano’s approach from a traditional ICO.
Back responded by suggesting that despite Hoskinson’s claims, the presence of an airdrop, premine, and market making in Cardano’s case could still be interpreted as an ICO. He also pointed to the reliance on a management team for the expectation of profit, a key criterion in the Howey Test for defining a security.
In a broader comparison, Back likened Bitcoin to commodities like gold and diamonds, which are not considered securities despite market influences. He asserted that Ethereum, Cardano, and similar cryptocurrencies are securities, both unregistered and unregisterable, in his view.