Ethereum, the second cryptocurrency in terms of value behind Bitcoin, has successfully completed its The Merge update. After years of doubt and postponement, the Ethereum Foundation has finally achieved its goal.
However, if it is true that the transfer is indeed a success, it is possible that it has created new problems for the cryptocurrency. In fact, since the principle of the compound operation was the modification of the Ethereum network operating mode, many experts believe that it may have changed its economic and fiscal nature.
Most of these experts belong to the service of the Security Exchange Commission (SEC) that is the organization used to regulate the financial markets in the United States.
The new operating principle of Ethereum
The main purpose of The Merge operation was to transfer the Ethereum blockchain network from the mechanism Proof of Work with the mechanism Proof of Stake. The first is a mechanism where minors maintain the security and operation of the blockchain. It is the source of the enormous amount of energy they need to fulfill their role.
As for the Proof of Stake system, it is basically a mechanism where only some are randomly selected to maintain and ensure the security of the Ethereum network instead of everyone having to do calculations. Here, we are not talking about minors anymore, but rather than validation who act more or less independently and take turns at work.
Ethereum’s move towards the Proof of Stake mechanism has been praised by the general public as some reports suggest that the cryptocurrency would be able to reduce energy costs by up to 99%. The announcement of the success of Ethereum’s transition to its new mechanism did not fail to elicit reactions from several players in the economic world.
However, as much as this initiative was necessary, it risks creating new problems for the Ethereum network. In fact, according to media reports in the United States, current SEC manager Gary Gensler reported that just hours after the successful transition, his department was already analyzing a possible change in the rank and priority given to the Ethereum cryptocurrency.
The SEC uses a fairly simple method to determine in which category a financial asset should be classified. This is a method called Howey’s test. Although it’s very old (it’s been around since 1940), it’s still the SEC’s basic classification method.
Depending on the elements taken into account during this test, an asset can be an investment contract if it three criteria basic requirements:
- Monetary investment
- Made for a classic company
- To be able to provide profits for this company and the investors that come from the efforts of others.
When we dwell specifically on each of these points, it is true that investing in cryptocurrency falls under the Howey Test. However, such a classification method is still possible different interpretations.
For example, it is not possible to say for sure that the Ethereum network currently under review It really is a classic business.
What would be the impact of the new classification of Ethereum by the SEC?
While still using the Proof of Work mechanism, ETH was one of only two cryptocurrencies with Bitcoin recognized as a commodity-type asset by federal regulators.
The reclassification of Ethereum into the category of “securities” assets poses enormous risks not only to the network and its users, but also to all industry players.
Through this step change, Ethereum investors as well as token issuers and managers could be subject to new taxation rules. Differences will be seen especially at the level of its reporting method.
The changes will further affect new aggregators tasked with maintaining network security and various commercial entities whose primary role is market validation. betting services for individuals and institutions.
Although in his views, the chairman of the SEC he did not specifically point the finger at Ethereum, his comments still came hours after the blockchain transitioned to the Proof of Stake mechanism by completing The Merge.
During his interview, Gary Gensler nevertheless said that cryptocurrencies can be a form of Proof-of-Stake value of investment contracts. A new classification that could very well subject them to securities regulations. Statements that suggest a fairly turbulent future for the cryptocurrency industry as a whole.
The Merger the internet could change. If you want to know more about the future of Ethereum after this update, here is an article about it.