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SEC says Ethereum (ETH) trading “takes place in the United States”

by Patricia

In its complaint against a crypto influencer, the SEC has taken a daring shortcut, claiming that due to the high concentration of its validation nodes, transactions on Ethereum take place in the US. We clarify these comments, which reignite the debate on the centralization points of a blockchain.

SEC takes shortcut on Ethereum transactions

In a complaint filed Monday in an Austin, Texas court, the Securities and Exchange Commission (SEC) made some surprising remarks about Ethereum (ETH). According to the US financial regulator, the blockchain’s transactions would take place in the US.

To put this in context, this statement was made in the context of a legal action against Ian Balina. A crypto influencer who allegedly promoted an ICO in 2018, without complying with securities laws. The latter would have hidden from his community, his commercial link with the project he promoted.

Thus, the SEC brings, in its complaint, elements to support its argument. The purpose of these elements is to justify the fact that the defendant’s actions violate the laws of the United States. With this in mind, paragraph 69 reads as follows:

“ The US investors in the Balina pool irrevocably committed themselves to the transaction when, from the US, they sent their ETH contributions to the pool. Moreover, their ETH contributions were validated by a network of nodes on the Ethereum blockchain, which is more densely concentrated in the US than in any other country. As a result, these transactions took place in the U.S. “

Do Ethereum transactions take place in the US?

Of course, this is not about taking the situation out of context. This is nothing more or less than a legal argument against a crypto influencer, and in no way an attack on Ethereum. Nevertheless, such statements raise questions about the way our ecosystem is perceived by the regulatory authorities.

Indeed, in addition to the legal aspect, it highlights flaws caused by geographical centralisation. According to Etherscan, the United States is the country with the most nodes, with 4,365 nodes, or 46.19% of the network:

Figure 1: Ranking of countries with the most nodes

Figure 1: Ranking of countries with the most nodes


While in a proof-of-work blockchain we can, outside the use of a VPN, rely on geographical location, this is less relevant for a proof-of-stake chain, as Ethereum is now.

And for good reason, many nodes can be hosted on virtual servers, for example through Google or Amazon. The latter’s map shows the location of the company’s servers, which looks suspiciously like the ranking below:

Figure 2: Amazon Web Services (AWS) servers

Figure 2: Amazon Web Services (AWS) servers


The only exception will be Russia, because while AWS has no servers in the Netherlands or Finland, Google does.

So, validators may well be scattered all over the world, but their choice of hosting may still lead to centralisation.

This is one of the areas of improvement that Ethereum will need to focus on in the future. The next major upgrades, especially through sharding, are expected to alleviate the hardware requirements to run a node.

Through such improvements, this could encourage validators to dispense with virtual servers by doing the maintenance themselves, thus increasing decentralisation. Such an awareness will be necessary to reduce the pressure points of different states in the future.

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