Despite last week’s successful shift to proof of stake, Ethereum has recently dropped by more than 20% as the shadow of a major US regulations falls over its expanding aspirations.
The transition changed Ethereum’s consensus from proof-of-work, to PoS – which requires far less energy when compared to cryptocurrency mining.
However, this transition could also affect how the United States government classifies the currency.
As reported by CryptoCoinOpps on September 16, United States regulators initiated a debate over wetter the cryptocurrency should classify itself as a security or not.
“Security” is a fungible, negotiable financial instrument that reflects financial value, typically in the form of a stock, bond, or option.
The argument for the US government classifying Ethereum as security was due to its new staking consensus making the cryptocurrency look more like an investment rather than a currency.
The comparison here would be that PoS blockchains pay stakers a monetary prize for holding on to the coin, exactly how companies pay dividends for holders of stock. The Us government believes that PoS Ethereum incentivizes and promotes investments in the currency for the rewards that staking can generate, which is not something possible in fiat currencies.
Due to the bulk of validator nodes that secure the network set up in the US, the world’s second-largest blockchain was determined to be within the authority of the US government and Security Exchange Commission, SEC.
“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.” Said Gary Gesler, head of the U.S. Securities and Exchange Commission.
Ethereum has taken a hard hit since news of the U.S. regulations arrived. Ether is presently trading at around $1,290, down more than 11% from a day ago, while bitcoin, the world’s most prominent cryptocurrency, is down 8% to barely $18,420.
SEC Has Debated Over Classifying Crypto as Security In The Past
This is not the first time the American Securities and Exchange Commission has initiated this debate.
On December 22, 2020, the SEC filed a complaint against Ripple Labs, Inc. (“Ripple”) and two of its executives, alleging that the defendants violated federal securities laws by failing to register the cryptocurrency XRP with the SEC or fulfill any exemption from registration. As of this writing, XRP is the seventh biggest cryptocurrency, with a market valuation of over $53 billion.
The lawsuit is still going, and today – the SEC and Ripple Labs both want a federal court to determine either that the crypto business associated with the XRP cryptocurrency violated federal securities laws or that the complaint be dismissed without needing a protracted trial.