Despite a rolling The Merge transition, the price of ether falls

While the transition of The Merge blockchain has gone well, the price of ether is currently undergoing severe disruptions.

This Thursday, the Ethereum blockchain successfully completed its merger called The Merge. This transition, which consists of moving from a mode of operation of “proof of work” to “proof of stake” (see our complete article on this subject), did not leave the American stock market policeman indifferent.

Indeed, the chairman of the Securities and Exchanges Commission (SEC), Gary Gensler, declared Thursday that cryptocurrencies which use the principle of “proof of stake” (or PoS for “proof of stake”) could be considered as “securities” after passing the “Howey” test reports the Wall Street Journal. “The Howey test determines whether an asset can be considered an “investment contract” and therefore subject to federal security laws,” the media said.

Rewards with Proof of Stake

As a reminder, the “proof of work” (or PoW for “proof of work”) is to put in competition tens of thousands of computers (“miners”) which work at the same time to solve a mathematical problem and thus acquiring the right to add a new transaction (block) on the blockchain. By adding a new block to the chain, these are paid in crypto. But it is a very energy-intensive method since these computers consume a lot of electricity.

On the other side, with Proof of Stake, there are no more cryptographic puzzles to solve. To guarantee the security of the blockchain, validators (equivalent to miners in PoW) must “deposit” (in crypto language we speak in particular of “staker” hence proof of “stake”) in a common pot 32 ethers each, and it is according to a draw system that they will be chosen to validate a transaction. The validator drawn at random to validate the transaction receives a reward in return (about 4% return per year). The SEC is questioning this system which makes it possible to earn rewards.

“This is another clue that, according to the Howey test, the investing public expects profits based on the efforts of others,” said Gary Gensler.

The chairman of the SEC, on the other hand, would not have specifically qualified ether or another cryptocurrency according to the Wall Street Journal, but the very system called “proof of stake”. Nevertheless, given the move to The Merge of Ethereum, such a message from the American stock market policeman seems to be beyond doubt. Until now, Gary Gensley had said that bitcoin does not fit into the category of securities.

Result of the races: this Friday morning, the cryptocurrency ether is in the red. According to data from Coinmarketcap, ether lost 10% of its value in the space of 24 hours, dropping from around $1580 mid-afternoon Thursday to $1470 at 9:30 a.m. this Friday morning. As a reminder, the cryptocurrency had reached an all-time high last November, trading at over $4,700.

If ether, with its new “proof of stake” mode of operation, were to be considered a security, what would be the consequences?

This “would have significant implications for all industry players. Investors would be subject to different reporting obligations and new taxation, as well as token issuers and managers. We will think in particular of validators on the network, or to commercial entities that market staking services for individuals and institutions. In all cases, the implications would be numerous”, points out an article from the specialized media on Corner Newspaper.

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Despite a rolling The Merge transition, the price of ether falls

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