The potential recognition of Ethereum as a security could have a significant impact on the cryptocurrency industry.
While regulators have generally recognized ETH as a commodity, the recent lawsuit filed by the New York Attorney General’s Office against Seychelles-based exchange KuCoin has raised questions about its status.
The main reason for considering ETH as a security is the transition from Proof-of-Work (PoW) to Proof-of-Stake (PoS), which gives more power to those who hold larger amounts of tokens.
This has raised questions about decentralization and governance, with power primarily lying in the hands of Vitalik Buterin and the development team.
The definition of a security according to the Howey case of 1946 suggests that ETH does fit the criteria, as investors essentially do nothing and rely on the actions of third parties for income.
However, the SEC’s interpretation of this definition remains unclear, and the economic situation may prevent them from adding further pressure on investors.
If ETH were to be recognized as a security, it could have implications for other PoS cryptocurrencies such as Solana, Cardano, and Avalanche.
The case law in the US could be used as a basis for future cases, potentially leading to the recognition of these other cryptocurrencies as securities as well. However, until regulators make a definitive decision, the situation remains in balance.