After Ethereum Turning To PoS, Crypto Community Asks Either ETH Securities Or Not

Ethereum has successfully switched to Proof-of-Stake. The crypto community is asking whether ETH will fall into the securities category or not. (Photo; Doc. Pixabay)

JAKARTA – A few days ago, Ethereum completed its transition from Proof-of-Work (PoW) to Proof-of-Stake (PoS) in less than 24 hours. The switch of ETH from PoW to PoS has begun to be debated by the crypto community regarding whether the second crypto after Bitcoin will enter the security category or not.

The chairman of the US Securities and Exchange Commission (SEC), Gary Gensler, has previously stated that cryptocurrencies that allow staking can qualify as securities under the Howey test.

Gensler issued the statement following a congressional hearing in which he reiterated his belief that most crypto assets are securities. He stated that it would first be tested in the Howey test.

"From the coin's perspective, it's another indication that under Howey's test, the investing public anticipates profits based on the efforts of others," Gensler said.

He further explained that intermediaries such as crypto exchanges offer staking services or offer services similar to lending even if there is a change in labeling.

Reap Various Ethereum-related Debates

Gensler's statement above, although less specific, indicates that ETH has the potential to be included in the category of securities. With the transition to PoS, Ethereum joins the ranks of other blockchains that have smart contract capabilities and offer staking services to secure the network.

A strategy adviser at VanECK, Gabor Gurbacs stated that the migration of Ethereum to PoS could attract the attention of regulators.

The SEC chairman said the system used by Ethereum after a software update could trigger securities laws. Literally published on day 1 of the fork/merge. I have been saying this for more than 6 years that the transition of POW to POS can attract the attention of regulators,” said Gurbacs, September 15, 2022.

“To be clear, I'm not saying that ETH is a security because of the Proof-of-Work model, but regulators are talking about staking in the context of dividends which is if one of the features of what securities law calls a "company". There are other factors in the Howey test as well," he added.

In addition, Adam Cochram was harshly criticized by stating that the SEC chairman's remarks were "baseless FUD from entities that do not understand technology, or ignore legal elements." With Gensler's comment today, the related question "Is staking Ether (can be called) a security?" has increased again.

"I think it's an unfounded FUD from an entity that doesn't understand the technology, or ignores the legal elements," said Adam Cochran.

Advocacy organization Crypto Coin Center in a September 15 blog post, argued that Ethereum's transition to PoS should not affect its classification. The nonprofit says the technological differences between PoW and PoS do not require different treatment, saying "the economic realities of validating the network through mining and validating the network through staking are the same."

“(The average) person may not understand why, but Ethereum is now an unlisted security,” said Timothy Peterson, an investment manager.