Ethereum and its underlying blockchain technology is becoming increasingly critical in the financial sector as it enables more open, inclusive, and secure networks. To be more precise, it has the power to expel any activity built on transactions taking place on traditional databases, which underlies every financial service function. The Merge, the long-awaited upgrade to the platform, will make the most significant venue for DeFi protocols more accessible to financial institutions. Now that the platform is scalable, tokenization can finally take off. If Bitcoin is referred to as digital gold, ETH is considered digital oil because its long-term value stems from utility.
As far as Ethereum is concerned, there’s been much debate about whether it’s a commodity or not. Since it fuels the Ethereum blockchain, ETH can be viewed as a commodity. Commodity Futures Trading Commission Chair, Rostin Behnam, recently referred to Ethereum as a commodity, despite the PoS transition, while speaking at a symposium on October 24. Token classification has represented an ongoing issue for some time now. Undeterred by the lack of explicit clarification, financial institutions are moving ahead with Ether products.
What Is a Commodity, And What Is a Security?
The Ethereum Merge reignited discussions about whether ETH is a commodity or a security. Even if the value of Ethereum is based on proof-of-stake, it can’t be considered a security because it doesn’t meet all the criteria of the Howey test. A key factor in determining its success is the security of the blockchain. The more scalable the network is, the more traffic capacity on transactions, and the more monitoring should be in place. Many argue that Ethereum isn’t a commodity either. Before we draw any conclusion, it’s necessary to get a better understanding of what a commodity is.
A commodity is essentially a good that can be bought and sold on the market. When traded or exchanged, it must meet specified minimum standards. Commodities are good examples of fungible goods, as they’re interchangeable with units of the same kind. You can exchange commodities with one another without much effect. Ethereum is fungible, which translates into the fact that one ETH is exchangeable for one ETH. Not only does it store the same value, but also it acts as a medium to buy and sell goods. Attention must be paid to the fact that not all commodities are physical. For example, storage space in the cloud is a digital commodity.
Now, let’s see what a security is. A security is a fungible financial instrument that has financial value and typically comes in the form of a stock, bond, or option, producing a return in the form of a percentage of the potential profit. Securities are tradable financial assets leveraged to raise capital in public and private markets, and the nature of what can and can’t be called a security depends on the jurisdiction where the assets are traded. While a security is a financial instrument, a commodity isn’t a security and securing access is key to economic activity.
Why Does It Matter If Ethereum Is a Non-Security Commodity?
The future of the cryptocurrency industry depends on whether Ethereum will be classified as a commodity. The preferred outcome for regulators and governments would be for ETH to be considered a commodity as it would be subject to the Commodity Futures Trading Commission’s rules. If the general perception changes, this will influence the digital asset’s price, not to mention trading behavior. If you’re curious to know what is the price of Ethereum, you should know that it’s influenced by trends in the market, government regulations, and economic cycles. Depending on ETH’s adoption rate and scaling solutions, it might overcome Bitcoin’s title as digital gold. For now, it remains digital silver.
The use cases for Ethereum haven’t been figured out, meaning that it might have other applications. Owing to its original combination of features, such as smart contracts, ETH is used for various apps in finance, gaming, web browsing, advertising, and identity management, to name a few. It’s highly unlikely that Ethereum will be declared a security because the crypto ecosystem has developed by virtue of its success, so no one has an interest in changing the present state of affairs. Commodity traders aren’t subject to many provisions, but that’s set to change in the future.
Both the Commodity Futures Trading Commission and the Securities & Exchange Commission are committed to working together to develop rules around digital assets, and sharing responsibility; otherwise, the cryptocurrency industry will suffer. The bottom line is that Ethereum makes available a sought-after commodity in the crypto ecosystem. Whether it will be classified as a commodity or a security remains to be seen. The financial watchdog should focus its attention on incorporating limits on margins, ensuring transparency, and managing insider trading. Industry players are demanding more regulatory supervision and believe the Commodity Futures Trading Commission will take a tougher stance on digital assets.
How Do You Buy Ethereum?
Over time, cryptocurrencies provide returns that differ from other assets. A portfolio with Ether can help you better manage market volatility, so you can better manage risk and even earn money. The prices of tokens can fluctuate due to supply and demand, not to mention the overall health of the economy. While crypto funds can play an important part in portfolio diversification, spread your investment across multiple coins or projects. To buy ETH, you need to create an account at a crypto exchange, preferably one that has a wallet to store your investments. Due to its decentralized nature, Ethereum can be bought and sold at all hours.
Exchange-traded funds offer a more traditional way of investing in cryptocurrency, and they’re subject to federal regulations. You can invest in an ETF via a retirement account like an IRA, and it’s going to be a strategy where you can shield some of the income from taxation. When selecting an ETF, take into account more than the methodology of the underlying index and its performance. For example, check the dividends at month’s end.