The chairman of the Commodity Futures Trading Commission (CFTC), Heath Tarbert, warned during an interview that Ethereum 2.0 Proof-of-Stake (POS) could easily be classified as a security.
Mr. Tarbert said although many view Ethereum’s upcoming block validation as commodity, the Securities and Exchange Commission (SEC), who is currently analyzing the new platform’s upgrades, could decide to change its legal status to security.
Our job at the @CFTC is to ensure that our rules protect market integrity while fostering innovation. Thanks to @mikejcasey for a great discussion today at @coindesk’s #InvestNYC on the future of digital assets. pic.twitter.com/HGRBNhT95Y
— Heath Tarbert (@ChairmanHeath) November 12, 2019
Reasons why Ethereum 2.0 to be classified as security
Ethereum is switching its system from Proof-of-Work (POW) to Proof-of-Stake (POS). POW kept the SEC away because it did not pass the Howey Test; the method used to evaluate whether a project is a security or commodity.
However, the new Ethereum 2.0 system upgrade to Proof-of-Stake (POS) could change that for ETH. Why? Because ETH’s POS creates a profit-based system, in which participants will earn a return.
Any project where its participant can earn a return is often classified as a security by the SEC. The Ethereum new system, Ethereum 2.0 makes its function similar to stock owners.
The SEC recently filed a cease and desist letter against Telegram token sale because its met all the requirements to be classified as security and the company didn’t file the paperwork to get permission to conduct the token sale.
Will classifying Ether 2.0 Proof-of-Stake (POS) affect other projects?
Is Ethereum stuck between a rock and a hard place? It’s likely so. Unless they submit the required documents to get legal status, Ethereum 2.0 is in jeopardy.
And if ETH gets classified as a security, the status will affect how projects are created on the blockchain for years to come.