Security or Commodity, why do digital assets have to be either?

I raised this question at a Web 3 conference recently, which was in response to a question that had been posed to SEC Commissioner Gary Gensler recently. While the crowd enthusiastically applauded my response, this is an answer I have given many times in response to similar questions, and that may benefit from some additional context. I have spent much of my career in industry and academia entrenched in what has come to be known as “FinTech” so new technology is something I’ve always embraced, and given the opportunity, I believe most people will do this as well.

However, “most people” are clearly not regulators, as regulators seem to use the past (sometimes a very distant past) to address everything they come in contact with. As ridiculous as the question “how many angles can dance on the head of a pin?” may seem to us today, in a near future the “security or commodity?” question will likely be viewed in a similar fashion. But the question continues to be raised ad nauseum, as if there could be no other answer.

For a little context, the most often quoted regulatory statutes when considering digital assets are the Securities Act of 1933, the Securities Exchange Act of 1934 and the Howie Test of 1946, as if the world hasn’t changed in the last century. Consider that in 1930 less than ¾ of the US had electricity, less than half of homes had telephones, and in 1940 (the first year statistics were available) just a little over half of US homes had complete plumbing. Things like television had yet to be available to consumers, much less any type of automated computing machine, yet this is the period that regulators are using to frame a technology that was only invented a little over a decade ago. Is this problematic, I believe it is.

FinTech has changed the way that people around the world access financial services, and at the same time have brought more people services and products that in the past were either not available or at least not readily available. These new solutions were primarily developed by companies outside of the mainstream, e.g. Rocket mortgage, that have forced the industry stalwarts to adopt some of this technology to just keep up. By redefining what a mortgage is, the benefits are not only enjoyed by the FinTech customers, but also traditional financial services customers. Digital assets offer similar consumer opportunities, if they don’t fit into a century old definitions (which they clearly do not) perhaps it is time to reassess how they might be overseen as a new and unique asset, to encourage the new services, development and promise.