As the cryptocurrency industry tries to keep up with the increasing regulatory scrutiny from authorities like the Securities and Exchange Commission (SEC), a peculiar distinction has emerged that intrigues market observers. The distinction revolves around the SEC’s treatment of Proof-of-Work (PoW) tokens, such as Bitcoin (BTC), and Proof-of-Stake (PoS) tokens, like Solana (SOL) and Cardano (ADA).
Notably, while the SEC has filed charges against crypto institutions like Binance and Coinbase over unregistered securities offerings, the list of targeted digital assets indicates a preference for focusing on PoS coins. Steven Lubka, Managing Director of Swan Bitcoin, points out that PoW coins may have largely evaded SEC attention due to their “open mechanism and lack of a central issuer.”
The SEC has identified several PoS coins as securities, including SOL, ADA, Polygon (MATIC), Filecoin (FIL), and Sandbox (SAND). PoS blockchains require validators to lock up tokens as a form of collateral to validate and secure blocks. On the other hand, PoW tokens, like Bitcoin, Litecoin (LTC), Monero (XMR), Ethereum Classic (ETC), and Dogecoin (DOGE), have seemingly evaded the agency’s lawsuits thus far.
The differences between PoW and PoS tokens lie in their method of securing their respective networks. PoW networks depend on an energy-intensive mining process involving specialized hardware equipment. Meanwhile, PoS systems rely on validators locking up their tokens as collateral.
Although SEC Chairman Gary Gensler has not explicitly explained why the regulator’s lawsuits mainly target PoS coins, the divide is intriguing. Last year, he said in a CNBC interview that “Bitcoin is the only one I am willing to call a commodity,” yet the reasons for exempting PoW tokens from legal action remain unclear.
Some market insiders believe that the SEC’s choice of target could be influenced by factors other than technology. For instance, Vineeth Bhuvanagiri, Managing Director of Emurgo, stated that the reasoning could be based on the coin’s popularity. Brent Xu, CEO of Umee, added that there’s “too little public knowledge of the reasoning and the rationale to explain this apparent trend.”
Chairman Gensler’s known skepticism of cryptocurrencies suggests caution, as it is still too early to celebrate a “victory” for PoW tokens amidst the current regulatory upheaval. With the US government involved, it’s wise to anticipate the unexpected.
Source: Decrypt
