Pro-XRP Attorney Deaton explains how Ethereum’s transition to Proof of Stake (PoS) may have made its security.
Attorney John Deaton has said Ethereum could be considered a security following the network’s transition to a Proof-of-Stake (PoS). It can be recalled that the much-anticipated Shanghai upgrade took place yesterday, marking Ethereum’s multi-year transition from a Proof-of-Work model to a Proof-of-Stake.
In an interview yesterday with Real Vision Crypto, attorney Deaton said Ethereum received a “regulatory free pass” after the former director of SEC’s Division of Corporation Finance, Bill Hinman, described the asset as “sufficiently decentralized.”
However, Hinman did not explain how Ethereum was “sufficiently decentralized.”
According to Deaton, Ethereum’s initial PoW model was considered decentralized because the system relied on miners to solve complex cryptographic sequences for a reward. Notably, this model helped validate transactions while keeping the blockchain secure.
“When ETH was a proof-of-work, the system relied on the miners and computers worldwide to solve cryptographic sequence and mathematical problems to get the reward. That is considered a decentralized system.”
The pro-XRP attorney said the same could not be said for Ethereum’s PoS model, as users with the highest stakes control and secure the network.
“Proof-of-Stake is considered more centralized than Proof-of-Work. So that’s basically the theory of how Ethereum could have moved by Proof-of-Stake to become a security,” said attorney Deaton.
To shed more light on his analysis, Deaton referred to the New York Attorney General’s recent lawsuit against the cryptocurrency exchange KuCoin. Last month, New York Attorney General Letitia James sued KuCoin for violating securities laws by offering assets, including Ethereum, that meet the definition of security.
During the interview, attorney Deaton read out a portion of the court’s filing, which described Ethereum’s transition to PoS as a move that impacts the core functionalities and incentives for owning the coin.
“By shifting to proof-of-stake, ETH no longer relies on competition between computers but instead now relies on a pooling method that incentivizes users to own and stake ETH. The shift of proof-of-stake significantly impacts the core functionality and incentives for owning ETH because holders can now profit merely by participating in staking.”
Meanwhile, whether the SEC will charge Ethereum founders for offering unregistered security remains to be seen. SEC chairman Gary Gensler disclosed that Bitcoin is the only cryptocurrency he considers a commodity. Gensler’s statement implies that the agency might someday consider Ethereum a security.
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