Ethereum Under Potential SEC Scrutiny After Merger: WSJ
Ethereum’s latest software update may have caught the attention of the Securities and Exchange Commission (SEC) chief to view the second largest cryptocurrency as a security, according to a report by the Wall Street Journal (WSJ).
Chairman Gary Gensler shared his comments hours after Ethereum’s successful update, known as The Merge, which moved the framework from proof of work to proof of effort.
According to the report, Gensler was talking about the Howey test, which is a test used by courts to determine whether an asset is a security. He stated that cryptocurrencies and intermediaries that allow holders to “stake” their coins may have to pass that test.
The Howey test also examines whether investors expect to make money off the work of third parties, according to the WSJ.
“From the coin’s perspective … it’s another indication that under the Howey test, the investing public expects profits based on the efforts of others,” Gensler told reporters after a congressional hearing.
However, he did not provide any definite clarity. According to the WSJ report, Gensler said he was not referring to any specific cryptocurrency.
Under laws passed in the 1930s, issuers of securities — assets such as stocks and bonds — must file extensive disclosures with the SEC. Exchanges and brokers that conduct securities trading must comply with rules designed strictly for the safety of investors to protect them from conflicts of interest, according to the WSJ.
Currently, due to the volatile nature of cryptocurrencies, issuers and trading platforms face strict obligations if they sell assets deemed to be securities by the SEC or courts.
A way that cryptocurrency networks – including Solana, Cardano and starting this week, Ether – verify transactions are stakes, allowing investors to lock their tokens for a specified period of time to receive returns.
Commenting on crypto exchanges offering betting services, Gensler said it “looks very similar – with some changes in labeling – to lending.”
Over the past year, Gensler has reiterated that firms offering crypto-lending products should register with the agency. After failing to comply with the SEC’s request, BlockFi Lending was forced to pay $100 million in February.
The merger has moved Ethereum to a more environmentally sustainable framework by reducing Ethereum’s energy consumption. It will also facilitate future improvements that will make the platform easier and cheaper to use, according to a report from Blockchain.News.
The technical details of the merger are extremely complex, but basically the process boils down to a shift in how cryptocurrency transactions are verified.
The report added that after completing the merger, Ethereum has now switched from a verification system called proof of work (PoW) to “proof-of-stake” (PoS) – which uses less energy and does not involve an energy-sucking calculation run. , unlike the previous system. PoS also deposits or “stakes” a certain amount of participants’ crypto savings into a pool, which in addition enters them into a lottery. The new system also has a reward system; every time a crypto transaction requires approval, a winner is chosen to confirm the exchange and receive a reward.
Popular estimates show that Ethereum’s transition to proof of stake will reduce energy consumption by more than 99%.
The developers involved in the merger have said that the transition from PoW to PoS will make it easier and friendlier to design future updates that lower gas fees – the cost of carrying out a transaction in the cryptocurrency linked to the Ethereum platform, Ether.
The completion of the merger has come after years of intense study and debate. Founded in 2013 by Vitalik Buterin, Ethereum is now run by a loose network of coders from around the world who spent months gathering on video calls streamed on YouTube to discuss the intricacies of the merger.
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