After Ethereum’s successful transition into the proof-of-stake mechanism, the United States government is already looking to understand what these changes will mean for the future of the cryptocurrency.
This week – the United States U.S. Securities and Exchange Commission (SEC) is closely monitoring the situation now that Ethereum has switched to Proof of Stake to see whether the cryptocurrency needs to be reclassified.
Following the recently announced and highly anticipated update to the Ethereum network, Gary Gensler, president of the SEC, spoke about the change and suggested that it might be sufficient to take Ethereum from its current legislative confines and into the realm of securities, also known as financial titles.
In the briefing, Gensler indicated that ETH could be seen more like security rather than a commodity. Later, the SEC president cited Bitcoin as a legally approved commodity.
Ethereum’s shift to Proof-of-Stake might shift the pendulum more towards a “security” definition.
Rather than earning ETH via block subsidies by performing mathematical functions with computer hardware (proof-of-work), under PoS Ethereum, “validators” now only need to stake a minimum of 32 ETH to have a shot at the reward.
Seeing PoS as an Investment
The staking method of cryptocurrency consensus has many benefits like the extremely lower energy costs.
However, PoS makes a cryptocurrency looks a lot more like an investment, rather than a currency.
Much like a public company rewards its investors by sharing some of the profits in the form of dividends – in Proof-of-Stake, stakers will hold Eth with the expectation of receiving more tokens in return.
Gensler apparently hinted at that notion on the last Senate Banking Committee.
The SEC president told the committee that Proof-of-Stake blockchains look very similar to lenders.
While not naming Ethereum specifically – Gensler told the Senate Banking Committee that digital asset exchanges and other online providers who offer PoS blockchain “staking services” look very similar to lenders.
US Senator Pat Toomey (R-Pa.) also pondered about the possibility of seeing cryptocurrencies as security. Toomey believes that some cryptocurrency transactions fall under SEC jurisdiction.
“Part of the problem is there has not been sufficient clarity as to what does constitute a crypto security and what does not.” The Republican Senator said. “So Celsius and Voyager, when they’re taking crypto deposits, paying an interest rate on it, using those deposits to then lend to hedge funds and other institutions, that definitely falls under the SEC.”
