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Ethereum Foundation faces probe from 'state authority' over undisclosed reasons

The Ethereum ecosystem's recent Dencun upgrade and the prospects of an Ether ETF coincide with the mysterious probe.

Ethereum Foundation faces probe by state authority

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The Ethereum Foundation, a Swiss non-profit organization working for central to the Ethereum ecosystem, is currently under investigation by an unnamed “state authority,” according to a recent update on the group’s GitHub repository. However, further details on the scope of the investigation and the reasons behind it remain undisclosed.

A GitHub commit logged on February 26, 2024, on the Ethereum Foundation’s repository revealed that the organization received a voluntary enquiry “from a state authority” that included a confidentiality requirement. The issue was first raised by an investigative report conducted by the crypto media platform CoinDesk.

The report from CoinDesk refers to a lawyer familiar with the situation, whose statements speculate that a Swiss regulator may have served a document request to the Ethereum Foundation. The same lawyer also extended the speculation by saying that the request in question may also point to a collaboration between the named entity (ostensibly, the Swiss government, in this case) and the US Securities and Exchange Commission (SEC).

“I also think it’s fair to say the Ethereum Foundation is not the only entity that they are seeking information from,” the lawyer said, implying that other overseas entities might have received a similar method of scrutiny based on documentary requests.

The investigation comes at a time of significant technological changes for Ethereum, the second-largest blockchain by market capitalization. Following its initial coin offering in 2015, Ethereum recently implemented the Dencun upgrade, designed to reduce transaction costs for users of Ethereum-based layer-2 platforms.

On the regulatory front, the SEC is also currently evaluating multiple applications for an Ether ETF, with a final deadline for some applications approaching on May 23. However, analysts following the process have expressed skepticism about the likelihood of approval, citing a lack of engagement between applicants and SEC officials.

“The Ethereum Foundation (Stiftung Ethereum) has never been contacted by any agency anywhere in the world in a way which requires that contact not to be disclosed. Stiftung Ethereum will publicly disclose any sort of inquiry from government agencies that falls outside the scope of regular business operations,” says a disclosure on the Ethereum Foundation’s website.

This statement is a warrant canary, and it has since been removed from the website, coinciding with the aforementioned GitHub commit.

By definition, a warrant canary is a form of text or visual warning that companies include on their websites to indicate they have never been served with a secret government subpoena or document request. The removal of the canary suggests that the Ethereum Foundation may have received such a request without explicitly stating so.

The SEC recently requested for public comment on proof of stake, the consensus algorithm employed by Ethereum and other blockchains.

UPDATE: According to a report from Fortune, the SEC is pursuing an “energetic legal campaign” to classify Ethereum as a security, confirming the investigation’s links to the US government.

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