Coin Center chimes in: Is proof-of-stake Ethereum suddenly a security? | – Bitcoinist | Jewelry Dukan

Not that anyone is asking, but Coin Center has weighed in on the current debate. Is Post-Merge Ethereum a Security Now? Going from proof-of-work to proof-of-stake without disrupting operations was quite an accomplishment, but it came at a cost. A lot of things are completely different at this point, and these new features could put Ethereum in the regulator’s eye. Is staking a similar activity to mining or are they completely different?

Aside from that, what does this whole situation have to do with Coin Center? The organization defines itself as “the leading non-profit research and advocacy center focused on the public policy issues faced by cryptocurrency and decentralized computing technologies such as Bitcoin, Ethereum and the like.” Article by Coin Center “Will the merger change Ethereum’s regulation? (No.)‘ addresses the issue.

“We do not believe that the technological differences between POS and POW justify different treatment,” Coin Center summarizes his position. “On the securities law side, the SEC has always emphasized that it looks at the economic realities of transactions and not the conditions or technology used to create those realities. The approach is substance over form,” they summarize the SEC’s position.

ETH price chart for 09/16/2022 on ForexCom | Source: ETH/USD on

Coin Center believes that mining and validation are basically the same thing

To soften the blow of this section title’s assertion, Coin Center limits the scope to “the economic realities of validation.” However, we all know what they say.

“The economic realities of validating a chain through mining and validating a chain through staking are similar. In both cases, the validators are an open group of participants, and the only requirement to participate is to be shown to incur some expense. In proof-of-work, that cost is energy and computational resources, in proof-of-stake, that cost is the time value of money (e.g., the opportunity cost of holding an asset needed for staking rather than spending it). ).”

in the Bitcoin’s first article is about post-merge Ethereum, we quoted Gabor Gurbacs, strategy consultant at VanEck, whose thesis was: “Even though it’s not a security, Ethereum needed to attract regulatory attention post-merger.” He recently tweeted:

“I’m not saying ETH is necessarily a security based on its evidence model, but regulators are talking about staking in the context of dividends, which is a feature of what securities laws call a “joint enterprise.” There are other factors in the Howey test as well.”

The Howey test, in turn, refers to these “four criteria for determining whether an investment treaty exists:”

  1. An investment
  2. In a joint venture
  3. With profit expectation
  4. Derived from the efforts of others

That leads us to…

Coin Center does not believe that the profits come from the efforts of others

Now that we’re all familiar with Howey’s test, this paragraph makes more sense:

“Central to being classified as a security is the continued reliance on gains derived primarily from the efforts of others. Both consensus mechanisms are explicitly designed to avoid such dependency by creating open competition among strangers, where any self-interested participant can and will fill the void left by every other unresponsive, corrupt, or censoring participant.”

That may be true, but what about the effort of all the companies and developers working on the Ethereum platform? They offer value that translates into profits. And people who buy ETH are investing in it in a way. chairman Gensler’s other example contain an additional element. “When an intermediary like a crypto exchange offers staking services to its customers, Mr. Gensler said, “it looks very much like lending — with some labeling changes.”

Coin Center contradicts extreme prejudice:

“However, our analysis of the technology suggests that there should not be a project differential based solely on the choice of one or another permissionless consensus mechanism.”

Not only that, they even go so far as to call them “commodities”:

“Otherwise, decentralized cryptocurrencies that use consensus proof are commodities, and as such, the CFTC has a spot market regulator and a derivatives market regulator.”

Maybe, but is there a proof-of-stake decentralized cryptocurrency? That is certainly up for debate. Especially considering Proof-of-Stake’s inherent propensity for centralization.

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