Ethereum co-founder Vitalik Buterin has responded to community concerns regarding the network’s transition from proof-of-work (PoW) to proof-of-stake (PoS).
Over the past week, Ethereum's PoS transition faced intense scrutiny from community members, especially amid concerns that it would trigger increased scrutiny from US regulators.
Was Ethereum's move to PoS a mistake?
Since its launch in July 2015, Ethereum has operated on a PoW consensus mechanism similar to Bitcoin. In PoW, participants compete to solve cryptographic algorithms, which require significant computational power and energy to verify each block in the blockchain.
Concerns about the environmental impact of PoW cryptocurrencies have led authorities in various countries to advocate for a ban in favor of more sustainable alternatives.
In September 2022, Ethereum developers began a large-scale migration known as the “merge” towards a PoS infrastructure. This monumental change replaced miners with stakers, addressed environmental concerns, and aligned with Ethereum's long-term goals.
Read more: Proof of Work and Proof of Stake Explained
Vitalik Buterin emphasized the centralization of PoW and the temporary nature before PoS implementation, highlighting the importance of this transition.
“PoW was also quite centralized. Everyone knew it was just a temporary step up to PoS, so it wasn’t talked about much. Also, future PoS switches will use ASICs. It doesn't mention that we probably avoided ASICs for the most part just because it didn't mean an incentive to build them.” Said.
Since completing the transition to PoS chains, Ethereum has seen a surge in the number of validators and staking demand. More than 25% of the circulating supply of ETH is staked, increasing the security of the network and providing returns to participants.
However, Ethereum staking is subject to oversight by the Securities and Exchange Commission (SEC). SEC Chairman Gary Gensler has suggested that PoW cryptocurrencies that allow staking may qualify as securities under the Howie test.
Still, a ConsenSys spokesperson told BeInCrypto that Ethereum's move to PoS has nothing to do with the SEC's decision to investigate the Ethereum Foundation.
“Comparing Proof-of-Stake itself to Proof-of-Work does not make Ethereum a security. Really, this is a question that could provide some explanation as to why the SEC flipped on the Ethereum issue. Of course, there's the famous speech from 2018 where Secretary Hinman said Ethereum is not a security,'' a ConsenSys spokesperson said.
Uncertainty surrounding Ethereum's regulatory status remains relevant and is impacting the compliance efforts of companies dealing with ETH.
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