Ethereum may be an investment contract

Legal questions arise after the switch from the blockchain Ethereum to an environmentally friendly system. The predominance of a few large participants in the network is also striking.

The new system of the blockchain Ethereum is called ‘proof of stake’. Users can use the cryptocurrency ether as a deposit to validate transactions and add new blocks to the blockchain chain. If they do their validation work well, they get their commitment back with a fee. If they don’t do their job properly, their commitment is lost. A minimum bet of 32 ether is required, about 50,000 euros, but investors can also pool their resources in a ‘pool’ and participate passively in this way.

Gary Gensler, the chairman of the US financial watchdog SEC, said after the switch that proof of stake has properties of investment contracts and that his agency has the power to oversee them. The Wall Street Journal noted that Gensler did not mention Ethereum by name. Still, observers believe there is a real chance that the SEC will treat Ethereum as an investment contract.


In the US, the ‘Howey test’ is important in the discussion about the investment aspects of crypto. It says that something is an investment contract if investors fund a company with the intention of making a profit based on that company’s efforts. According to top executives of the SEC, many crypto assets are an investment contract on that basis.

With its previous system, which required computers to perform energy-consuming calculations in the verification and security process, Ethereum was considered a kind of commodity by US regulators along with Bitcoin. As a result, it fell under different regulations.


Ethereum is committed to decentralization, both for financial services and for games. Thanks to the blockchain, control over data lies with the users instead of with centralized companies. But critics note that Ethereum itself is in danger of becoming more centralized. Much of the tethered ether is in the hands of crypto markets like Coinbase, Kraken and Binance or in that of Lido Finance, which offers services where investors can pool their bets.

In the hours after the changeover, fears of further centralization became reality. “Out of the last 1,000 transaction blocks, 420 were built by Lido and Coinbase alone,” notes Martin Köppelman, the co-founder of Gnosis, which provides infrastructure for Ethereum. At the same time, he said on Twitter that Bitcoin is also highly centralized.

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