The SEC chairman seems to be eyeing Ethereum’s proof-of-stake model as he suggested that a cryptocurrency that allows holders to bet on it could be considered a security according to the Howey test.
According to a Wall Street Journal story, SEC Chairman Gary Gensler stated today that proof-of-stake cryptocurrencies might qualify as securities.
Under the test, an asset is considered an “investment contract” if investors pledge their money to fund an enterprise with the intention of making profits from its efforts. Gensler claimed that proof-of-stake cryptocurrencies could pass Howey test.
“That’s another indicia that under the Howey test, the investing public is anticipating profits based on the efforts of others,”The WSJ reported him saying.
On September 15th, Ethereum successfully updated The Merge to bring the network from PoW to PoS.
If Gensler is right, Ethereum’s historical development could entail that the asset is now potentially classified as a “investment contract” and is consequently governed by securities laws. Although Gensler has previously declined to speak explicitly about Ethereum, he has stated that he thinks Bitcoin is not a security.
It is different to proof-of-work cryptocurrencies, like Bitcoin, currently the top cryptocurrency by market cap, which use the highly energy-intensive process of mining.
Proof-of-stake blockchains function by requiring network users to “stake” their coins, effectively locking them up in order to process transactions and maintain network security.
Such assets are widely available right now, including Cardano, Solana, and Ethereum, the second-largest cryptocurrency by market cap.
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