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Last week, Commodity Futures Trading Commission (CFTC) Chairman Heath Tarbert shared some insight on ether’s legal classification once the Ethereum Network’s 2.0 upgrade takes place. Ultimately, Tarbert says the commission is still evaluating ether’s future legal status. Some speculate the asset will maintain its commodity status, while others make the case for a security — which would make the asset subject to the Securities and Exchange Commission’s (SEC) regulations.
The Ethereum 2.0 Upgrade Explained
When it comes to digital assets powered by blockchain technology, very few have been cleared by regulators from the status of a security. In fact, there have been just two: Bitcoin and ether. The latter constitutes the only digital asset which was funded through an Initial Coin Offering (ICO) and is not a security. The SEC stated the Ethereum Network was ‘sufficiently decentralized’ to escape the classification — and regulatory requirements — of a security.
That is, of course, so long as the Ethereum Network does not undergo significant changes. Over the course of the next year however, Ethereum will see perhaps the most significant change a blockchain can experience: a transition in its consensus mechanism.
Currently, Ethereum leverages a Proof-of-Work (PoW) consensus mechanism. Here, high-powered servers, referred to as nodes, compete to solve extremely complex mathematical puzzles in order to validate transactions and approve new blocks. Due to the difficulty involved, the servers have a remarkably high rate of electricity consumption. Due to this, PoW has received a bad reputation for its negative effects on the environment.
Sometime over the next 12 months however, Ethereum will shift to the much more environmentally friendly Proof-of-Stake (PoS) mechanism. The transition has been officially deemed the Ethereum 2.0 upgrade. Under the PoS model, nodes stake blockchain-specific wealth —…