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Ethereum’s latest software update may have caught the attention of the Securities and Exchange Commission (SEC) chairman for classifying the second-largest cryptocurrency as a security, according to a Wall Street Journal report ( WSJ).


President Gary Gensler shared his comments hours after Ethereum’s successful upgrade, known as The Merge, which moved its proof-of-work framework to proof of stake.

According to the report, Gensler talked about the Howey test, which is a test used by courts to determine if an asset is a security. He said cryptocurrencies and intermediaries that allow holders to “stake” their coins may have to pass this test.

The Howey test also examines whether investors expect to derive a return from third-party labor, according to the WSJ.

“From the perspective of the coin…this is another clue that, according to the Howey test, the investing public anticipates profits based on the efforts of others,” Gensler told reporters after a congressional hearing.

However, he did not provide firm 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 detailed information with the SEC. Exchanges and brokers that trade in securities must adhere to rules rigidly designed for investor safety to protect them from conflicts of interest, according to the WSJ.

Currently, due to the indeterminable nature of cryptocurrencies, issuers and trading platforms are subject to strict responsibilities if they sell assets considered securities by the SEC or the courts.

A means by which cryptocurrency networks – including Solana, gimbal and, starting this week, Ether – verify that transactions are staked, which allows investors to lock in their tokens for a specified amount of time to receive a return.

Gensler commented on the crypto exchange offering staking services, saying it’s “a lot like – with some labeling changes – lending.”

Over the past year, Gensler has reiterated that companies 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 moved Ethereum into a more environmentally sustainable framework by reducing Ethereum’s energy consumption. It will also pave the way for 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 comes down to a change in the way cryptocurrency transactions are verified.

The report adds that after completing the merger, Ethereum has now moved from a verification system called proof-of-work (PoW) to “proof-of-stake” (PoS) – which consumes less power and does not involve an energy-intensive computing race. , unlike its previous system. PoS also deposits or “puts” a certain amount of participants’ crypto savings into a pool, which further enters them into a lottery. The new system also has a reward system; whenever a crypto transaction requires approval, a winner is selected to verify the exchange and receive a reward.

Popular estimates show that switching Ethereum to proof-of-stake will reduce its power consumption by more than 99%.

The developers involved in the merger said the switch from PoW to PoS will make it easier and simpler to design future updates that will reduce gas fees – the costs of performing a cryptocurrency transaction associated with the platform. form Ethereum, Ether.

Completion of the merger came after years of intense study and debate. Founded in 2013 by Vitalik Buterin, Ethereum is now run by a loose network of coders around the world who have spent months gathering in video calls broadcast on YouTube to discuss the intricacies of the merger.

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