According to a Wall Street Journal (WSJ) report, Ethereum’s recent software update might have caught the Securities and Exchange Commission’s (SEC), chair’s attention and led them to categorize the second largest cryptocurrency as a security.
After Ethereum’s successful update known as The Merge (which shifted its framework away from proof of work), Chair Gary Gensler shared his comments. Demonstration of stake.
Gensler mentioned the Howey test. This is a test that courts use to determine whether an asset is a security. He stated that cryptocurrencies and intermediaries that allow holders to “stake” their coins might have to pass that test.
According to the WSJ the Howey test is also used to determine whether investors are expecting to receive a return from third-party work.
“From the coin’s perspective…that’s another indicia that under the Howey test, the investing public is anticipating profits based on the efforts of others,” Gensler told reporters after a congressional hearing.
He did not offer any firm clarification. Gensler claimed that he was not referring specifically to any cryptocurrency according to the WSJ.
Under the laws passed in the 1930s, securities — assets such as stocks and bonds — issuers must file extensive disclosures with the SEC. The WSJ states that securities trading brokers and exchanges must adhere to strict regulations to protect investors from conflicts of interest.
Because of the unpredictable nature of cryptocurrencies, traders and issuers face severe liabilities if they try to sell any assets that the SEC or courts consider securities.
One method cryptocurrency networks, including Solana can be accessed is through Solana Cardano Ether – verify transactions has been added as of this week. This allows investors to secure their tokens for a set amount of time and receive a return.
Gensler commented about crypto exchange offering staking services, saying it “looks very similar—with some changes of labelling—to lending.”
Gensler repeatedly reiterated over the past year that companies offering crypto-lending products must register with the agency. BlockFi Lending had to pay $100 Million in February for failing to comply with the SEC’s request.
The Merge has shifted Ethereum into a more environmentally sustainable framework by reducing Ethereum’s energy consumption. According to Blockchain.News, it will open the door to future improvements that will make the platform more user-friendly and less expensive.
Although the Merge is complex in technical terms, it boils down to one thing: a change in the way that cryptocurrency transactions are verified.
The Merge also saw Ethereum move from a verification system called Proof of Work (PoW), to “proof–of-stake”(PoS). It consumes less energy, and does not require an energy-guzzling computation race, unlike its prior system. PoS also deposits (or “stakes”) a certain amount in crypto savings, which is then entered into a lottery. A reward system is also part of the new system. Every time a crypto transaction needs approval, a winner will be selected to verify it and receive a reward.
Popular estimates show that Ethereum’s shift to proof of stake will reduce its energy consumption by more than 99%.
Merge developers have stated that switching from PoW to PoS makes it easier and more friendly to design future updates. This will lower gas fees, which are the costs associated with executing a cryptocurrency transaction on the Ethereum platform, Ether.
After years of intensive study and debate, the Merge was completed. Ethereum was founded by Vitalik Buterin in 2013. It is currently managed by a loose network coders from all over the globe. They spent months streaming video calls on YouTube to discuss the Merge’s details.