Is the Ethereum Blockchain a platform on which cryptos are created and traded that qualify as securities? According to Gary Gensler, Chair of the U.S. SEC, the answer to this question is YES. The discussion about this is not new, but after the difficult crypto year 2022 with the collapse of FTX and other crypto schemes, crypto regulation takes on increased urgency.
Gensler said that he wants to categorize Ethereum and other proof-of-stake cryptocurrencies as securities. However, the U.S. Commodity Futures Trading Commission (CTFC) believes Ethereum (ETH) is a commodity. This conflicting view does not deter Gensler. He is doubling down on his opinion that proof-of-stake tokens could meet the definition of securities under the Howey Test. Gensler suggested that the returns token holders see from staking indicate that those tokens are securities.
Ever since the Ethereum Merge, which changed the consensus mechanism from proof-of-work to proof-of-stake, Gensler has tried convincing the public that the cryptocurrency is a security paper.
It would be much more difficult for the Ethereum team to operate under the SEC‘s strict regulations. In addition, it would be much more costly to bring such a cryptocurrency to the market in the United States. Numerous cryptocurrencies – such as Cardano – are based on the proof-of-stake consensus mechanism. If proof-of-stake cryptocurrencies were classified as commodities, the legal scope would be much broader and simpler. Teams could entirely focus on their projects instead of adapting to complex legal processes.
The correct legal classification is quite complex. Nevertheless, the crypto community hopes to be spared the regulatory inconvenience – to champion what cryptocurrencies are meant for: Innovation and changing the world.