Ethereum is both a commodity and a security, claims a former US official
The largest altcoin Ethereum can simultaneously be classified as both securities and commodities, thinks Former Commodity Futures Trading Commission (CFTC) Commissioner Dan Berkovitz.
In his opinion, Ethereum falls under the jurisdiction of both regulators – the CFTC and the US Securities and Exchange Commission (SEC), as it can perform different functions depending on the context. “The law is clear. In fact, something can be both a commodity and a security,” Berkowitz explained.
He says the confusion over definitions comes from the fact that goods aren’t always just physical objects. Anything that falls under a “future contract” can technically be defined as a commodity.
A security, which is defined by the Securities Act and the Exchange Act and includes such things as bills of exchange and investment contracts, can also be the subject of a futures contract, which as a result places it under the jurisdiction of the CFTC.
“This is a rather strange question: is this digital asset a security or not? I think you have to ask: Is it being sold as part of a securities deal? It depends on the facts and circumstances,” Berkowitz explained.
In September last year, the developers activated a massive update of The Merge on the Ethereum mainnet. The blockchain of the largest altcoin was successfully transferred from the Proof-of-work (PoW) consensus algorithm to the Proof-of-Stake (PoS) algorithm.
Immediately after the update was activated, SEC Chairman Gary Gensler took the Howey Test, a special tool developed by the US Supreme Court to determine whether a financial transaction means investing in a security. The test is considered positive if four conditions are met simultaneously:
- investment of funds
- with the expectation of profit;
- to a common enterprise;
- the expected profit is related to the activities of others.
If a transaction receives a positive Howey test result, it is considered an investment contract and must be registered with the SEC.
While the main altcoin used the PoW consensus algorithm, Ethereum was not considered a security. However, with the transition to the PoS algorithm, when staking is included in the case, in which the user locks his tokens for a while in exchange for a return on investment, Ethereum can be considered as a security, and staking itself as “expectation of profit”.
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