When the leaders of the American Revolution signed the Declaration of Independence on July 4, 1776, they had no guarantee of victory. The battle for independence was underway, and their prospects uncertain. Despite occasional victories, these intrepid freedom fighters were heavily outnumbered and had difficulty retaining the volunteer soldiers. Their commitment to the cause of freedom was their only fighting chance.
Cryptocurrency as an open source software industry is in a similar predicament. The US Securities and Exchange Commission and banking regulators are trying to dismantle this nascent industry, filing lawsuits and a frightening array of regulatory actions designed to make compliance impossible.
The opportunity to fight Crypto is embedded in the same legal words and principles that America’s founders laid out in the Constitution. They designed the constitution on the Enlightenment-inspired principle of separation of powers. Their vision was a system with three separate but equal branches of government, each serving as a safeguard against possible abuses of power by the others.
Coinbase is at the forefront of the modern cryptocurrency battlefield as it stares down a lawsuit filed by the Securities and Exchange Commission. In June, the company filed an announcement in response to the lawsuit, which is based on the Key Questions Doctrine. This basic legal principle holds agencies like the Securities and Exchange Commission (SEC) accountable when they circumvent Congress’ role in our constitutional structure and manipulate obscure and outdated laws for their own ends.
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In recent landmark cases that limited executive overreach in both the Obama and Biden administrations, the Supreme Court has emphasized the importance of the leading questions principle. This doctrine stresses the crucial point that when agencies attempt to regulate matters of great national or political importance, they must have express authorization from Congress.
This doctrine is neither new nor untested. When the Food and Drug Administration (FDA) attempted to regulate cigarettes, justifying the act of defining them under the FDA’s authority over drugs, the Supreme Court struck down the agency’s override. The court noted that nicotine, while technically a drug, does not fall into the class of palliatives that Congress intended when creating the FDA.
A similar ruling was reached in connection with the Environmental Protection Agency’s (EPA) attempt to regulate carbon emissions. The EPA was prevented from expanding its mandate on power plant pollution to develop a national policy on carbon emissions, which was outside its remit and would usurp the legislature’s role.
The Supreme Court’s decision to strike down Biden’s Student Loan Forgiveness Program is the latest invocation of the Key Questions doctrine. Coinbase General Counsel Paul Grewal astutely noted that one could substitute cryptocurrency for student loans in a court ruling and envision a similar outcome.
In fact, it is much worse. Not only is the “economic and political significance” of falsely claiming power over all digital assets other than BTC “staggering,” but it is not linked to the basic requirement that there be enforceable rights between the institution and the purchaser. 2/3
– paulgrewal.eth (@iampaulgrewal) July 4, 2023
Defenders of SEC Chairman Gary Gensler argue that securities laws from the 1930s have successfully adapted to the Internet age, and so they can adapt to crypto as well. This argument will carry weight if the SEC makes similar adjustments to cryptocurrencies as it has to the Internet.
Over the years, the SEC has demonstrated its ability to evolve, allowing online prospectus delivery and sanctioning executive communications via social media. But when it comes to cryptocurrency, the SEC adamantly insists that developers must abide by laws that are impossible to adhere to without careful adaptation.
This whiny approach of “come in and just sign up” while blatantly ignoring the many questions raised in Coinbase’s 2022 rulemaking request is exactly why the leading questions principle—as interpreted by Justices Neil Gorsuch, Brett Kavanaugh, and Amy Coney Barrett—is so important to the SEC’s approach to regulating cryptocurrency. The doctrine serves as a constitutional compass, directing the direction of authority, and constraining the overreach of the various agencies.
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The Framers of the Constitution left us with an arsenal of tools to wage a revolution for freedom within the design of the US Constitution. Legal and constitutional scholars, including Goresh, enliven the Founders’ vision of a delicate balance of power between the three branches with a doctrine of major questions.
Cryptocurrency defendants like Coinbase, Ripple, and Binance are leading their own revolution. They are at the forefront of a movement that aims to decentralize power, shifting it from centralized institutions into the hands of individuals. And they are armed in their struggle with the same tools our founders used to shape this nation.
There is a striking similarity between our founders’ fight for political freedom and the current fight for financial freedom in the digital world. The underpinnings of these two movements are deeply rooted in the quest for independence and freedom.
JW Verrett Associate Professor at the Antonin Scalea School of Law, George Mason University. He is a forensic accountant who practices cryptography and also practices securities law at Lawrence Law LLC. He is a member of the Financial Accounting Standards Board Advisory Board and a former member of the SEC Investors Advisory Committee. He also leads the Crypto Freedom Lab, a think tank that campaigns for policy changes to preserve the freedom and privacy of crypto developers and users.
This article is for general information purposes and is not intended and should not be considered legal or investment advice. The views, ideas and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
