As the date of the Ether merger draws nearer, the question of whether ETH, which has moved to a PoS mechanism, can be characterized as a security is once again at the center of the conversation.

Recently, Adam Levitin, a professor of law at Georgetown University Law Center in Washington, D.C., stated that any blockchain network system running a PoS mechanism could be classified as a security for the following reasons.

"The term "securities" includes "investment contracts. "An "investment contract" is defined by the U.S. Supreme Court in Howey as a K for an investment in a joint venture where the profit is expected "solely from the efforts of a third party. Howey speaks of an investment of "money," but this has been interpreted to mean only a valuable investment. Pledges easily satisfy this element. The element of a co-investment venture is also easily satisfied by pledging: the entire validation system requires the participation of multiple parties. This is crowdfunding (i.e., a harsher interpretation of a co-investment venture: horizontal commonality). The expectation of profit is also very clear, with the pledgee receiving a pledge reward. This brings us to the last element: the expectation that profits will come "solely" from the efforts of others. In Howey, the U.S. Supreme Court said "entirely" several times. If that were the measure, then the pledgee would not meet the test because the pledgee is also a participant. But the lower courts have essentially read the definition of "complete" into Howey, at least for things like multi-level distribution pyramids, where participants do have to work to recruit more downlines. Basically, the courts of appeals (the second and ninth courts) interpreted "wholly" as more likely to be "primarily" or "emphatically. The U.S. Federal Supreme Court did not disagree with this. It discussed the issue in a 1975 opinion, but did not take a position. Given that the contribution of any single pledgee relative to the sum of the efforts in the enterprise is likely to be quite limited, I suspect that the "wholly [=primarily] from the efforts of others" element is met. But none of this answers the thornier question: who is the "issuer" when you are dealing with a decentralized system. But that's part of the broader question of how to incorporate decentralized systems into a human-centered legal system. Instead, venture capital partner Adam Cochran argues that the merged ETH is not a security for the following reasons.

First, the Howey test has three elements: An investment of money, In a common enterprise, and the expectation of profit from the efforts of others. For the "investment of money" point, ETH is fine, after all, almost all risky assets, goods and services, and even bitcoin, meet this point. It is the latter two points that are more controversial, with different courts having different standards of measurement, many of which have never been adopted by the U.S. Supreme Court. The definition of "joint venture" is more controversial, and there are more diverse schools of thought, such as horizontal commonality, broad vertical commonality, and strict vertical commonality. Among these, horizontal commonality is a feature that courts look for in the proportional distribution of profits, or the bundling of investors' assets through the pooling of funds. Specifically applied to ETH 2.0, the ETH you pledge is independent, tied to the node, has nothing to do with other pledged funds, and is also rewarded or punished based on the performance of your own node, and does not affect other nodes, so it does not have horizontal commonality. Vertical commonality emphasizes more on the relationship between investors and issuers/promoters, for example, investors and issuers/promoters do not necessarily make the same profit and loss on ETH. But the first challenge is, who are the issuers and promoters of the Ethernet network as a decentralized open source project? More importantly, the people who wrote the code for Ether in the first place are not the people who are currently running the network. For the "expectation of profit from the efforts of others" point, some cases show that at its core is "a reasonable expectation of profit from the entrepreneurial or managerial efforts of others"; others show that profit cannot come from one's own efforts or services; this is a subtle but important distinction, and for pledges, it again relies heavily on on the certification of joint ventures. The important question in this piece is: what are you being rewarded for? When pledging, why are you able to be rewarded? The ultimate argument is actually twofold, one is that you are rewarded for selling block space to users; this view can be considered a co-investment enterprise, though not from the enabler or the issuer, because the block space is formed in partnership with the verifier and the verifier actually sells the act of verifying this. The question arises as to whether this act of validation by the validator is "self-fulfilling", and in fact, in previous cases, the SEC has indirectly given the answer that the validator's participation in network validation is a substantial effort for which it is rewarded. Although the model of "buying coins and pledging them to earn coins" looks very much like securities, if we look deeper, the pledged verification funds are not mixed with others and the rewards are independent, which does not comply with the second point. The third point is not met either, as the verifier is rewarded for his or her efforts online. But even if the SEC were to recognize ETH as a security, it would actually have nothing to do with the transition from Ether to PoS.

As the date of the Ether merger draws nearer, the question of whether ETH, which has moved to a PoS mechanism, can be characterized as a security is once again at the center of the conversation.

Recently, Adam Levitin, a professor of law at Georgetown University Law Center in Washington, D.C., stated that any blockchain network system running a PoS mechanism could be classified as a security for the following reasons.

"The term "securities" includes "investment contracts. "An "investment contract" is defined by the U.S. Supreme Court in Howey as a K for an investment in a joint venture where the profit is expected "solely from the efforts of a third party. Howey speaks of an investment of "money," but this has been interpreted to mean only a valuable investment. Pledges easily satisfy this element. The element of a co-investment venture is also easily satisfied by pledging: the entire validation system requires the participation of multiple parties. This is crowdfunding (i.e., a harsher interpretation of a co-investment venture: horizontal commonality). The expectation of profit is also very clear, with the pledgee receiving a pledge reward. This brings us to the last element: the expectation that profits will come "solely" from the efforts of others. In Howey, the U.S. Supreme Court said "entirely" several times. If that were the measure, then the pledgee would not meet the test because the pledgee is also a participant. But the lower courts have essentially read the definition of "complete" into Howey, at least for things like multi-level distribution pyramids, where participants do have to work to recruit more downlines. Basically, the courts of appeals (the second and ninth courts) interpreted "wholly" as more likely to be "primarily" or "emphatically. The U.S. Federal Supreme Court did not disagree with this. It discussed the issue in a 1975 opinion, but did not take a position. Given that the contribution of any single pledgee relative to the sum of the efforts in the enterprise is likely to be quite limited, I suspect that the "wholly [=primarily] from the efforts of others" element is met. But none of this answers the thornier question: who is the "issuer" when you are dealing with a decentralized system. But that's part of the broader question of how to incorporate decentralized systems into a human-centered legal system. Instead, venture capital partner Adam Cochran argues that the merged ETH is not a security for the following reasons.

First, the Howey test has three elements: An investment of money, In a common enterprise, and the expectation of profit from the efforts of others. For the "investment of money" point, ETH is fine, after all, almost all risky assets, goods and services, and even bitcoin, meet this point. It is the latter two points that are more controversial, with different courts having different standards of measurement, many of which have never been adopted by the U.S. Supreme Court. The definition of "joint venture" is more controversial, and there are more diverse schools of thought, such as horizontal commonality, broad vertical commonality, and strict vertical commonality. Among these, horizontal commonality is a feature that courts look for in the proportional distribution of profits, or the bundling of investors' assets through the pooling of funds. Specifically applied to ETH 2.0, the ETH you pledge is independent, tied to the node, has nothing to do with other pledged funds, and is also rewarded or punished based on the performance of your own node, and does not affect other nodes, so it does not have horizontal commonality. Vertical commonality emphasizes more on the relationship between investors and issuers/promoters, for example, investors and issuers/promoters do not necessarily make the same profit and loss on ETH. But the first challenge is, who are the issuers and promoters of the Ethernet network as a decentralized open source project? More importantly, the people who wrote the code for Ether in the first place are not the people who are currently running the network. For the "expectation of profit from the efforts of others" point, some cases show that at its core is "a reasonable expectation of profit from the entrepreneurial or managerial efforts of others"; others show that profit cannot come from one's own efforts or services; this is a subtle but important distinction, and for pledges, it again relies heavily on on the certification of joint ventures. The important question in this piece is: what are you being rewarded for? When pledging, why are you able to be rewarded? The ultimate argument is actually twofold, one is that you are rewarded for selling block space to users; this view can be considered a co-investment enterprise, though not from the enabler or the issuer, because the block space is formed in partnership with the verifier and the verifier actually sells the act of verifying this. The question arises as to whether this act of validation by the validator is "self-fulfilling", and in fact, in previous cases, the SEC has indirectly given the answer that the validator's participation in network validation is a substantial effort for which it is rewarded. Although the model of "buying coins and pledging them to earn coins" looks very much like securities, if we look deeper, the pledged verification funds are not mixed with others and the rewards are independent, which does not comply with the second point. The third point is not met either, as the verifier is rewarded for his or her efforts online. But even if the SEC were to recognize ETH as a security, it would actually have nothing to do with the transition from Ether to PoS.