SEC Declares Network Control of Ethereum as Price Drops 20

As the shadow of a major US regulator falls over Ethereum's rising ambitions, its price has fallen over 20% despite last week's successful transition to proof of stake. Gary Gensler, chairman of the US SEC. The SEC says that since most Ethereum transactions are validated in the U.S., they should be regulated in the U.S.

The world's secondlargest blockchain was declared as coming under the jurisdiction of the U.S. government and Security Exchange Commission, SEC, due to the majority of validator nodes that secure the network being set up within the U.S.

As of the time of writing, ether (ETH-USD) had fallen 20% to $1,364. However, bitcoin (BTC-USD) fared better, holding above $19K with a fall of 13% to $19,413.

As the world's secondlargest cryptocurrency by market cap, Gary Gensler's comments have rattled investor confidence. According to a report from the Wall Street Journal last Thursday, Gensler referred to the process of Ethereum's staking rewards and said: "From the coin's perspective, that's another indicator that under the Howey Test, the investors are anticipating profits based on the efforts of others and that makes Etherium a Security now."

After moving to a low energy use proof of stake method for validating transactions, investors can now stake their ether to secure the validation of transactions on the network, and also profit from staking rewards. This profiting from staked ether has drawn the attention of Gensler and made crypto investors nervous about the future classification of Ethereum.

Furthermore, the SEC filed a federal lawsuit against crypto influencer Ian Balina on Monday for failing to register a

cryptocurrency as a security in 2018. A sentence in the lawsuit claimed the SEC had the right to sue Balina because the entire Ethereum network is under the jurisdiction of the U.S. government.

The SEC stated that the ether sent to Balina in 2018 was "validated by a network of nodes on the Ethereum blockchain, which are clustered more densely in the United States than in any other country, and as a result, those transactions took place in the United States." Ethereum's commitment to being seen as a fully global, decentralized blockchain that provides public good and a platform for web3 applications has been questioned.

Ethereum controls the majority of decentralized finance within the cryptocurrency ecosystem and most of the smart contract applications. Approximately 45.85% of all Ethereum validator nodes are located within the United States, according to Etherscan. The secondgreatest density of nodes is in Germany, with 19% of validator nodes. The SEC has not made a standalone official statement Ethereum blockchain is a security. Still, suppose the blockchain is classified as a security rather than a commodity. In that case, this will create a legal precedent that would send a wave of panic throughout the entire cryptocurrency market.

A move by the SEC to classify Ethereum as a security would mean that most digital assets except bitcoin could be considered a security, and every project deployed on top of the Ethereum network could be claimed to be a security and coming within the jurisdiction of the SEC. Being classified as a security will make Ethereum, and any application deployed on it, need to go through the lengthy process of registration with the SEC.

Also, if it is deemed a security, then that would mean Ethereum has been trading as an unregistered security for many years. This could lead to fines for the Ethereum Foundation, many exchanges trading ether, and most Ethereumbased cryptocurrency tokens.