Our experts tell us how a complex cryptographic concept found application in the cryptosphere. And why startups that use ZK technology attract millions of dollars from investors

As early as 2019, cryptocurrency-oriented venture capitalists have been supporting startups. Which are engaged in the development of technical solutions somehow related to zero-knowledge proofs technology (zero-knowledge proofs or ZK-proofs, ZK). It is largely thanks to the cryptosphere that the complex cryptographic concept has become a successful marketing tool for startups. Who are creating tools to optimize Ethereum and other networks.

Matter Labs has raised nearly $0.5 billion from foundations to develop its zkSync solution. And the launch of Polygon’s zkEVM software environment by Polygon Labs, with similar funding, was an event in the cryptocurrency community. Projects like Starknet or Scroll are worth billions of dollars. And they all use ZK-proofs technology in one way or another.

In 1985, scientists Shafi Goldwasser, Silvio Micali and Charles Rakoff published a paper called “Knowledge Complexity of Interactive Proof-Systems. This was the first theoretical formulation of zero-disclosure proof technology.

To greatly simplify, this cryptographic technique allows you to prove that you know something without revealing exactly what you know. In the context of cryptocurrency, this can be illustrated, for example, as verifying that the user has the funds to transfer. And without revealing to the other participants of the network who this user is and how much money he has in his wallet.

Such proofs are technically complex and computationally intensive

Since it is very complicated, this technology did not come to any practical realization for quite a long time. And it was discussed mainly in scientific circles. But starting in 2010, researchers realized that ZK-proofs can be implemented on current computers.

So too with the emergence of faster computers and more funding for research in cryptography. And researchers, including Georgetown University associate professor Justin Thaler, have described how to generate zero-disclosure proofs on real computing machines. Thaler is also a researcher at a16z crypto, a division of the venture capital firm Andreessen Horowitz. He also manages four funds to invest in blockchain projects totaling more than $7 billion.

The launch and distribution of cloud computing has also given further impetus to the adoption of the technology. Laptops or smartphones, for example, are slower than the combined power of Amazon’s servers. But with ZK-proofs, a single computer can confirm that multiple computers have executed the program correctly.

When Bitcoin emerged in 2009, there was early discussion about reducing the computational burden on the blockchain and privacy in the blockchain. And then two problems emerged – the relatively slow performance of the blockchain because of its decentralized structure. And also its transparency, allowing analysts to identify and track wallets with ties to real users.

In 2013, a group of scientists, based on improvements in the implementation of ZK-proofs technology, laid out proposals for a Zerocoin solution. And which was supposed to help make Bitcoin transactions completely anonymous. Teaming up with Zuko Wilcox, they eventually launched the cryptocurrency Zcash (ZEC). It was probably the first implementation of ZK-proofs technology on a large scale.

Essence of ZK technology for cryptocurrencies

The essence of technology in the context of cryptocurrencies is not just about privacy. When Ethereum grew in popularity with the spread of blockchain technology. And more and more developers were creating more complex applications to run on it. But they, in turn, needed ways to increase the speed of applications. Ethereum, to simplify things a bit, is essentially a decentralized computer that runs relatively slowly.

Ethereum co-founder Vitalik Buterin has repeatedly said that it is solutions using ZK-proofs. And in particular the so-called ZK-rollups will help to increase the bandwidth of the network. And in the future will be integrated into its software code.

Zero-disclosure proofs allow one to prove the truth of something without checking each statement. Using this property, solutions such as zkSync “minimize”. That is, they compile and process transactions outside of the main Ethereum blockchain and prove that they did so accurately. Already then the main blockchain only verifies this proof. And that takes significantly less time compared to verifying each transaction in the usual way.

Dozens of startups are developing a flood of solutions using ZK, including the same zkSync, Aztec, Scroll, Starknet and others. They compete with another group of Ethereum scaling solutions collectively called Optimistic rollups. And the best known of which are the Optimism and Arbitrum projects. The companies have formed an entire industry within the crypto market and have collectively attracted several billion dollars from investors.

Accelerate Ethereum

On June 8, the Taiko project announced that it had raised $22 million to develop its own zkEVM. It is a solution that Vitalik Buterin called essential for scaling the Ethereum blockchain.

The zkEVM (Zero-Knowledge Ethereum Virtual Machine) is a development that combines Ethereum capabilities with the concept of zero-knowledge proofs. It was the company behind the zkSync solution that Matter Labs first deployed its version of zkEVM to the public along with the launch of the zkSync Era network.

The zkEVM solution is primarily a tool for scaling Ethereum. But which also includes privacy enhancing features. It combines the benefits of ZK-proof technology and compatibility with the Ethereum Virtual Machine (EVM) application environment. While providing faster, cheaper and simultaneously more private transactions.

Simply said, zkEVM allows developers to create second-tier solutions such as ZK rollups. This helps reduce congestion and bandwidth constraints on the core Ethereum network. And that leads to faster and cheaper transfers. The approach of projects like zkSync allows fast and inexpensive transactions in Ethereum. While maintaining data security and privacy.

Our experts point out that the slow operation of the network and high commissions hinder the mass spread of blockchain technology. Therefore, it makes sense for investors to support startups that offer efficient solutions.

The U.S. regulator named securities as the closest competitors of Ethereum. Our experts told us what risks this brings for ETH

From June 5 through June 6, cryptocurrency rates reacted to the SEC’s lawsuit against two major exchanges with a dramatic drop. Bitcoin and other cryptocurrencies fell in price, but by the morning of June 7, they partially recovered their losses. Ethereum was no exception and on June 6 updated its low from May 25 at $1802.

In lawsuits against two major exchanges, the SEC named several cryptocurrencies as securities. These assets reacted with fall of rates more strongly than others and fell in price by 6-15%.

In the first lawsuit were called securities: Solana (SOL), Cardano (ADA), Polygon (MATIC), Filecoin (FIL). As well as Cosmos (ATOM), Sandbox (SAND), Decentraland (MANA). And Algorand (ALGO), Axie Infinity (AXS), COTI (COTI).

In the second lawsuit, Chiliz (CHZ), Flow (FLOW), Internet Computer (ICP) joined them. As well as NEAR Protocol (NEAR), Voyager VGX (VGX), Dash (DASH) and NEXO (NEXO).

Despite the fact that the commission named Ethereum competitor coins (e.g., Solana), the largest ETH itself avoided a similar fate. None of the lawsuits mentioned it as a security.

Why the SEC chose the cryptocurrencies it named in the lawsuits

The SEC sampling algorithm is completely incomprehensible. And it defies logic, our experts note. Either the initiators of this process have outdated data. Even from the time of PoW mechanism in Ethereum network (till September 2022). Or it’s a “show punishment” for trading “tokens nobody needs,” says our expert.

SEC head Gary Gensler told CNBC that cryptocurrencies are essentially unnecessary at all. “We already have a digital currency. It’s called the U.S. dollar, the euro or the yen,” Gensler said.

The very arguments of the U.S. regulator regarding the recognition of PoS and DPoS (validators, not miners) projects as securities are “ridiculous.” But in the moment, these accusations can “create panic among investors” and provoke a local price collapse.

Long-term prospects for Ethereum are positive

If we consider the long-term prospects of Ethereum. It has much more growth potential than even Bitcoin. Because BTC’s growth comes from its status as the first cryptocurrency. As well as popularity and scarcity, which led to the leading position in infrastructure development.

For ETH the main growth driver is the area of decentralized finance (DeFi), says our expert. DeFi is still in its infancy. And in the future it will be able to push the price of ETH, which provides the infrastructure for DeFi projects.

Short-term ETH prospects

For short planning horizons on Ethereum, things are very complicated. Our experts note that on the one hand, Ethereum benefited from the fact that it was “forgotten to be mentioned” in the lawsuits.

But on the other hand, if ETH will be “remembered” later. It could repeat the fate of those coins that are already on the SEC list. As some investors exit from these coins, the assets are rejected by the platforms. Therefore, the risks remain, our Crypto Upvotes expert warned.

Our Crypto Upvotes experts tell us how Ethereum zkSync scaling project with $458 million investment is organized. Why it is used by leading players of the cryptosphere and what conditions the developers name for launching their own token

The mass distribution of cryptocurrencies and Web3 projects is held back by the relatively slow performance of blockchains and high fees, especially during periods of heavy network load. One of the popular technical solutions to increase Ethereum blockchain throughput is the so-called ZK rollups. And the implementation of which is a key part of the Ethereum roadmap. And also about which the co-founder of the project Vitalik Buterin repeatedly spoke.

Such solutions exist on top of the main Ethereum blockchain. And they combine a set of transactions into packets, process them in their own network and then transmit them to the main network. By doing so, they increase the speed of transfer processing and significantly reduce fees. This fee is paid by users every time they interact with the blockchain. For example, when transferring coins, transactions in credit protocols. Or during an NFT purchase or any other Ethereum usage scenario.

If at the base level Ethereum processes no more than 15 transactions per second. The so-called Layer 2 (L2) solutions allow tens of thousands of transfers per second with multiples of smaller fees. There are many competing startups in the race to create the most successful Ethereum scaling solution. For example Polygon, Arbitrum, Optimism, Scroll, StarkWare, Fuel Network and others. They have formed an entire industry. And the largest projects are valued in the billions of dollars.

zkSync project

The most famous solution involving those same ZK rollups. And of which Buterin speaks is zkSync from Matter Labs. Last November, Matter Labs closed a $200 million investment round led by major crypto venture capital funds Blockchain Capital and Dragonfly. Other investors include LightSpeed Venture Partners, Variant and Andreessen Horowitz (a16z). Matter Labs raised a total of $458 million, and that in itself is one of the largest venture capital investments in the history of the crypto business.

Commenting on the closing of the investment round, Matter Labs product director Steve Newcomb told Fortune. About how most of the funding will go to “building a team, further growing, scaling and developing a full-fledged company.” Newcomb founded Powerset before working at Matter Labs. Which was bought by Microsoft and later became part of the search engine Bing. Anthony Rose is also on the zkSync development team. He also led engineering teams at Ilon Musk’s SpaceX, creating software solutions for Falcon, Dragon and Starlink.

The zkSync project roadmap and its development

After reaching several roadmap milestones, the zkSync project has two networks in its current form, Lite and Era. The capabilities of zkSync Lite are limited, and it is essentially the first version of the protocol.

However, zkSync Era is a more mainstream product, opened to a wide range of users and developers in March of this year. The network was the first fully launched software environment with support for Ethereum applications. And thus beating out competitors like Starknet or Polygon. This means it will be easier for developers to migrate applications to zkSync Era. And where they can take advantage of faster transactions and lower fees.

Many of Ethereum’s biggest projects are already deploying on zkSync Era. Among them are popular decentralized finance (DeFi) services such as Uniswap, Curve, Balancer, Maker and SushiSwap. In addition, zkSync Era is used by Circle, cryptocurrency wallet creator Argent or liquid staking service Rocket Pool.

An important feature of zkSync Era is the so-called account abstraction.

And with the help of which it is possible to introduce to crypto-purses the features familiar to more mass users. For example, two-factor authentication or simple access to the wallet through login and password. As a rule, most of crypto-purses are just standard addresses. Which can send and receive funds and interact with smart contracts. With zkSync Era’s solution, developers can adapt to the needs of a wider audience.

Matter Labs representatives say in various interviews that the company is generally geared toward working with traditional businesses. They are particularly interested in the game development industry. In late May, the company hired former Activision Blizzard vice president of community engagement Michael Lee as senior vice president of development. To focus on attracting game developers to the zkSync platform. Earlier, Wemade, a leading Korean blockchain game developer, announced a partnership with Matter Labs. Which is developing the WEMIX PLAY platform. And which, according to the company’s website, has more than 20 million active users.

Launch of zkSync token and airdrop

zkSync has long been considered in the cryptocurrency community as one of the first candidates for mass airdrop . Several large blockchain projects, among them Optimism, Aptos, Blur or Arbitrum, have conducted airdrops for early and active users. And who have received rewards worth thousands of dollars. This has sparked speculation that other projects will follow suit.

Given the impressive amount of investment raised and several other circumstantial signs. And that’s why zkSync is considered one of the most obvious contenders to issue a token and conduct an airdrop. At the end of March, the zkSync ecosystem projects saw a marked increase in activity and turnover following Arbitrum’s sensational token giveaway. At the time of publication, turnover in the zkSync Era network, according to analytics service DefiLlama, exceeds $157 million and continues to grow.

The community notes that the main reason for this may be the accrual of activity. Or so called airdrop pharming. This is when users create a lot of wallets, from which they spend a certain set of actions in network projects. And in doing so, expecting to get more tokens as a reward in the future if the project decides to do an airdrop.

The zkSync developers themselves are apparently aware of what’s going on. As Matter Labs’ Anthony Rose said in a comment for DL News, project teams “should always monitor speculation around tokens and airdrops.”

The company removed the “tokenomics” section from the zkSync website, which was present there until last October. The documentation stated directly that the network’s own token was planned to be used for staking and as collateral for the network’s validators.

Our experts note that the ZkSync Era network remains largely centralized for now. And Matter Labs can arbitrarily update its software code. The company still controls the so-called sequencer and prover. These are the two main components of the network. As Matter Labs CEO Alex Gluchowski clarified, the project will only need a token when it becomes necessary to make the sequencer decentralized. He estimated that this will happen in about a year.

Our experts talked about trends in the staking cryptocurrency niche after the Shapella update and its impact on cryptoasset prices

The price of Ethereum cryptocurrency (ETH) crossed the $2,000 mark for the first time since August 2022. After a major blockchain update of the second largest cryptocurrency took place. And fears of a massive outflow of funds from the network were not confirmed. Since the beginning of the year, the coin has grown by more than 60%.

The fears of many market participants were not justified

The April 13 update to the Ethereum blockchain, working title Shanghai. Which was made as part of the Shapella update group gave investors the opportunity to withdraw coins on a first-come, first-served basis. Which they placed as collateral in a special Beacon Chain smart contract, launched back in 2020. This gives them the status of a transaction validator on the network and allows them to be rewarded by issuing new coins, a process called staking.

Accumulated rewards also became available for withdrawal to the wallets. According to the analytical service Nansen, in the first 12 hours after the activation of the update, investors withdrew only 0.3% of the 18 million ETH. Which were placed in the contract for staking.

Contrary to the fears of many market participants, the rate of ETH tested $2,000. It’s safe to say that traders and investors took the update positively. The possibility of withdrawal of coins [from staking] is limited. As it can put pressure on the price.

Only 43.2 thousand ETH can be unlocked in a day. About 170 ths ETH will be sold at market price in the near future. But even if coins will be withdrawn at the maximum allowed limit per day. That figure would fit into the average ETH inflow to the exchanges and would not critically affect the price of the coin. It’s important to understand that many validators are just now starting to test the new feature. And they are withdrawing exactly the earned funds and not the deposit of 32 ETH. Accordingly, they plan to validate transactions further, our experts explain.

What will happen to the price of ETH in the next week

According to Coin Metrics analyst company, about 1.2 million ETH are expected to be withdrawn from staking in the next five days. Which is equivalent to about $2.3 billion at current prices. About $36.7 billion in Ethereum coins remain in the Beacon Chain.

The price of ETH could experience fluctuations in the coming weeks. As some investors will rush to withdraw coins and sell them. But those who were not ready to freeze their assets before. Then now on the contrary, may decide to place coins in a smart contract. Most likely, the upgrade of the network in the medium to long term will lead to the growth of ETH exchange rate. But before that, a period of increased volatility is possible, our experts say.

Staking as a service

Self-staking Ethereum involves setting up equipment. And mandatory minimum deposit of 32 ETH. But even more private investors use stacking services on cryptocurrency exchanges. And decentralized platforms that provide the service of so-called liquid staking.

In this case, exchanges or services act as a validator. Which pools users’ funds into a single pool with a user-friendly interface. And also with the reward for staking in proportion to their investment. The largest staking platform Lido. At the same time, being a validator, manages about 31% of all ETH in staking. Binance, Coinbase and Kraken crypto exchanges are also in the top five largest validators.

Staking from crypto exchanges

The main advantage of staking services from exchanges is simplicity. The user does not need to understand the intricacies. The user only has to press a couple of buttons and be assured that staking works. Interest payments are made by the exchanger. And it also takes the rights and responsibilities. If there are any difficulties, you can write to the support service and get an answer in a short time. This is always suitable for beginners. That is why the popularity of staking through exchanges or platforms will not suffer much from Ethereum updates.

The possibility of unlocking coins is unlikely to have much effect on the popularity of staking services. Their target audience is not so much those investors who were not ready to freeze their assets. But those who simply don’t have 32 ETH to place in a smart contract. The demand for the service, even if it falls, is insignificant, our experts say.

Kraken leads in the number of applications to withdraw coins from staking. The U.S. exchange accounts for more than 86% of the total amount of ETH. Which are now “in line” for withdrawal. The exchange was forced to stop its staking service in the U.S. and pay a $30 million fine when the Securities and Exchange Commission (SEC) recognized its staking service as the equivalent of illegal sales of securities. Because of such bans in the U.S., it is the decentralized platforms where coins will be put. The use of which the SEC will not be able to prohibit technically.

Staking on decentralized platforms

Decentralized liquid staking services allow you to invest in staking coins from Ethereum and other blockchains. Which work on the Proof-of-Stake (PoS) algorithm. And receive derivative tokens of equal value in return. Which are also traded on cryptocurrency exchanges. And can be used for additional earning strategies. Examples of such platforms include Lido, Rocket Pool, Stakewise, and others. Many of them issue their own tokens. Which give you the right to vote in DAOs or get discounts on fees for services.

Our Crypto Upvotes experts point out that the investment appeal of such platforms’ tokens depends not only on the set of their services. But also their overall marketing performance, turnover and trends in the market. Some platforms don’t have a token. But this does not prevent them from attracting users. For example, stake.fish is popular due to the experience and reputation of the f2pool behind it. It is a well-known brand in the niche of mining pools.

Tokens of the largest staking platforms also benefited from the successful Ethereum update. The tokens of Lido (LDO), Rocket Pool (RPL) and Stakewise (SWISE) showed growth of 6-7%.

ENS registrar reported that more than 80% of all addresses appeared in the past year. Crypto-Upvotes expert review

Last year, users registered more than 2.2 million addresses in the Ethereum Name System (ENS). This was reported by representatives of the ENS registrar in its official Twitter account. According to ENS Domains website, the number of .eth addresses exceeds 594,000.

Vitalik Buterin, co-founder of the Ethereum ecosystem, called ENS-domains the most successful application of NFT technology in an interview with WIRED.

An ENS domain is technically an NFT on a particular wallet. To make a transfer to this wallet, you can specify not its address in the usual format. And replace it with a conveniently readable address such as “vitalik.eth”. Such a wallet address can also be used for authorization in decentralized applications (dApps) and searches in blockchain browsers such as Etherscan.

Domains in the form of NFTs can be traded on leading marketplaces such as Looks Rare or OpenSea. However, the largest marketplace by volume is ENS.Vision, which specializes in ENS domains. According to the platform, the most expensive addresses were “333.eth” and “metaverse.eth,” sold for 100 and 99 ETH, respectively.

Domains are becoming a form of identification in the crypto community. And this provokes demand for short and easily recognizable addresses. Floor price for domains in the “999 Club” category, that is, three digit addresses consisting of numbers, is at 20.22 ETH.

Our experts told us about possible price movements for cryptocurrencies in coming weeks. And gave forecast for their prices in accordance with different variants of events development

On October 13, after the publication of inflation data in the U.S., leading cryptocurrencies updated their price lows. Bitcoin rate fell to $18.3 thousand, less than the last time it was worth on June 20, when it was trading about $18.2 thousand. Also Ethereum showed decline – it fell to $1.2 thousand, updating its minimum since mid-July.

But by October 14 Bitcoin had recovered to the level of $19.8 thousand, the daily growth was 5.4%. Аnd Ethereum also rose in price by 7.2%. And the total market capitalization of cryptocurrencies is $980 billion, which is 5.5% more than a day ago.

Current situation on crypto market

Macroeconomics is the leading factor for cryptocurrency markets right now. Our experts notice that after the new release of inflation data in the U.S., there was a rare volatility in leading indices. But at the same time, the sharp drop was just as sharply bought back by investors. Cryptocurrencies reacted in a similar way.

Crypto market heavyweights such as Bitcoin and Ethereum are hardly reacting to events in the cryptosphere right now. However, there are not many negative factors. The main factor “confusing crypto-enthusiasts” is the trend toward tighter regulation in many countries. Because this brings cryptocurrencies closer to traditional asset classes.

Also, cryptocommunity is concerned about the decline of decentralization. Or the lack of growth of this indicator in many blockchains. In addition, the outflow of capital from GameFi, NFT and Metaverses markets looks logical against the background of energy crisis and risks of recession in economics.

Negative forecast scenarios

In case of a prolonged fall in Bitcoin, it is possible that those miners who have been working at a loss for a long time will capitulate. This is likely to lead to a decrease in the level of support. And it will bring Bitcoin’s price down to around $14,000 or $10,000.

Large capital is now panicking and seeking to withdraw funds in stablecoins and US dollar. The most likely scenario is that bitcoin will drop to $17,800 in coming weeks.

In addition, the fall in Bitcoin is accompanied by the biggest sell-offs of miners in the last 2 years – about 8,000 BTC per month (according to Glassnode). This has also influenced the rate of BTC decline and overall current market sentiment, our Crypto-Upvotes experts say.

Positive forecast scenarios

Crypto-Upvotes experts called a scenario in which cryptocurrency rates will start growing in the near future unlikely. However, if Bitcoin breaks through resistance level of $20.4 thousand, it will be possible to see movement to $22.5 thousand, our expert believes.

Positive factors that could support cryptocurrency rates are hard to find right now. At the same time, the option to increase prices of cryptocurrencies should not be discarded either. Because investors are eager to redeem assets at lower prices right now.

According to our expert, it could lead to overcoming the level of $1.4 ths for Ethereum. Bitcoin may initially reach a psychologically important level of $20,000. And its overcoming will lead to increase of BTC price up to $22 ths.

BNY Mellon licensed from New York state regulator to handle two cryptocurrencies. Review by Crypto-Upvotes experts

The oldest U.S. bank BNY Mellon began to provide services for cryptocurrency storage, writes The Wall Street Journal. For this purpose, the company received a license from the financial regulator of New York.

Bank will store the keys needed to access and transfer the cryptocurrency. It will also provide accounting services for Bitcoin and Ethereum.

BNY Mellon claims to be the first of eight systemically important U.S. banks to provide custody services for digital currencies. And it allows customers to use one custody platform for both traditional and cryptocurrency assets.

The platform will go live with select investment-fund firms this week. The bank said it expects to expand its crypto custody offerings to additional clients in the future, pending regulatory approvals.

In the summer of 2021, BNY  joined a group of six banks that plan to launch Pure Digital, a digital asset trading platform. At the time, the bank said it would roll out cryptocurrency infrastructure as the legal and regulatory framework emerged.

A hacker took advantage of a vulnerability in OmniBridge protocol. Hacked and withdrew funds from it in new Ethereum PoW network tokens

The first hack of a smart contract in the new Ethereum PoW network brought a scammer 200 ETHW (about $1,000). Theft of funds was possible because OmniBridge protocol (a bridge to transfer funds between different blockchains) in PoW network. He received a second message about transaction already made in Ethereum network. This was reported on Twitter by BlockSec, a cybersecurity company.

On morning of September 15, The Merge update took place on Ethereum’s main network. It switched altcoin from Proof-of-Work protocol to Proof-of-Stake (PoS). The token of the old version of this network received symbol ETHW.

On September 18, a scammer transferred 200 WETH via the OmniBridge protocol of Ethereum blockchain to Gnosis network. And then he repeated the same transaction message on the new PoW blockchain. To get 200 ETHW from a copy of the OmniBridge smart contract on this network.

Our experts explained that this attack was made possible by a vulnerability in the OmniBridge smart contract. It uses an incorrect unique blockchain identifier. The OmniBridge smart contract mixed up the networks and mistakenly paid a scammer.

The Ethereum PoW network itself was not hacked. The stolen funds belonged to the OmniBridge protocol. However, our experts warn a crypto community. That similar attacks using PoW blockchain and ETHW tokens can happen to other interconnect bridges.

ETHW rate has been falling on centralized exchanges since the start of hardfork. But its price in the old version of the network rose on Friday September 16 to 16,400 USDT on decentralized exchanges.

SEC filed a lawsuit against Ian Balina, a famous member of cryptocurrency community. The lawsuit states that all Ethereum blockchain transactions take place in USA territory

The Securities and Exchange Commission (SEC) claims that transactions on Ethereum are made in United States. Because blockchain validators (network nodes) are clustered more tightly in the United States than in any other country. This claim was made in a lawsuit against famous member of cryptocurrency community Ian Balina.

The lawsuit was filed Monday, Sept. 19. Balina is accused of breaking law while promoting Sparkster Cryptocurrency ICO (SPRK) in 2018. Which raised about $30 million from 4,000 investors.

This is not the first time the agency has initiated such litigation. However, paragraph 69 of this lawsuit states : ” At that point, their ETH contributions were validated by a network of nodes on the Ethereum blockchain,
which are clustered more densely in the United States than in any other country. As a result, those
transactions took place in the United States.”

According to Etherscan, more than 46% of all Ethereum nodes are now operating in the US.

What this means for Ethereum

Our experts think that mentions of transaction processing by US-based nodes in a lawsuit against blogger Ian Balina. It can also be interpreted as the SEC  attempt to extend its jurisdiction over any transactions in Ethereum network according to geographical principle. And in the future, this could become a precedent and reinforce the current fears of transaction censorship. Which have arisen since sanctions were imposed on Tornado Cash mixer.

Following the Ethereum move to Proof-of-Stake. And given its high level of centralization, Coinbase, Kraken and Binance are estimated by Nansen to account for 30.25% of ETH blocked in stacking. The U.S. government could seriously consider bringing this space under its control.

In future case law, similar lawsuits from the SEC may await other cryptocurrencies. Which work on the Proof-of-Stake algorithm.

Our experts talked about chances of ETH becoming such an asset after the network update. As well as to what implications this may lead to

The migration of Ethereum from PoW (Proof-of-Work) to PoS (Proof-of-Stake) is complete. Among the possible threats is not only the loss of part of the community represented by miners. But also the risk of recognition of ETH as a security with stricter regulation.

Thus, head of the U.S. Securities and Exchange Commission (SEC) Gary Gensler once again said. That vast majority of cryptocurrencies qualify as securities. And are subject to the relevant laws. Companies that conduct transactions in the cryptocurrency market. Are required to register with the SEC, just like other market brokers.

However, the position of the SEC has not been fully clarified. The agency has expressed its willingness to interact with the U.S. Commodity Futures Trading Commission (CFTC) on this issue. Because control over virtual asset service providers (VASP) could be passed on to the second of these regulators. That, in turn, would lead to the recognition of leading cryptocurrencies as commodities.

Recognition of ETH as a security would be a disaster for ordinary users. If that happens, the token would likely face large fines. Which ETH may not survive. As well as delisting from 90% of centralized exchanges. This will cause irreparable damage to both user base. And also price, which is likely to go down sharply.

Specific coins that are being considered as candidates for recognition as securities include. Such as Ripple, Stellar (XLM), Zcash (ZEC) and Horizen (ZEN) could include Ethereum in the near future.

Probability of recognition of ETH as a security

Recognition of Ethereum as a security seems unlikely. However, after moving to Proof-of-Stake algorithm, chances for recognition of such status can definitely become higher.

Our experts explain that Howey Test serves this purpose. According to this test, an investment contract is “an investment of money in a common enterprise with a reasonable expectation of profit solely from the efforts of others.” Regarding Ethereum, blockchain coins can be recognized as “money.” And a “common enterprise” is a system of validators in stacking. And the “expectation of profit” is rewards from stacking.

However, our experts pointed out that Ethereum still does not “risk” to move into the category of securities. SEC head Gary Gensler said he would support a bill that would give the CFTC a right to supervise BTC and ETH. In case such law is passed, ETH will actually receive a status of “exchange commodity” officially.

Also our experts say that on another hand, in this case all tokens on Proof-of-Stake can be considered as securities. And regulated in the same way as shares, which is unlikely.