Coinbase Bytes April 2021 – SEC Chairman Crypto
Greetings from Coinbase Bytes
We’ve sailed into temporarily choppy seas in the crypto markets, but as always, we’re here to help you navigate with the most important news of the week. In this week’s Bytes, we’re taking a look at the SEC’s views on crypto and breaking down the need-to-know facts about Ethereum 2.0. Let’s dive in:
Ethereum 2.0 basics explained
The SEC’s crypto outlook
Wall Street’s latest crypto moves
Price changes are for the past week, ending on Apr 21, 2021 at 02:07 PM UTC
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Understanding Ethereum 2.0 (and ETH2 staking)
As you may have heard, the Ethereum community’s developers began rolling out the Ethereum 2.0 (or ETH2) blockchain late last year. It’s a big deal, because in addition to being the second biggest crypto by market cap, Ethereum hosts a huge amount of DeFi, NFT, and other cryptoeconomy activity. As transactions have spiked, the old infrastructure has been struggling to keep up. ETH2 is designed to increase speeds, lower fees, and reduce energy consumption.
The key to these improvements is an entirely new blockchain, which uses an alternative method for verifying and adding new transactions to the blockchain called “proof of stake.” It replaces the current “proof of work” system, which requires a huge amount of processing power.
Instead of contributing processing power as miners currently do, “validators” stake their own ETH (hence “proof of stake”). The network selects a winner based on the amount of ETH each has in the pool and the length of time they’ve had it there — rewarding the most invested participants.
The winner validates the latest block of transactions and then other validators attest that the block is accurate. When a threshold number of attestations have been made, the network updates the blockchain.
All participating validators receive a reward in ETH, which is distributed by the network in proportion to each validator’s stake.
The upgrade aims to improve efficiency and scalability, which in turn should reduce costs, reduce bottlenecks, and increase security.
The ETH2 transition is scheduled to be finalized sometime in 2022, at which point the entire network will have moved to the new blockchain.
Why it matters… Anyone interested can help accelerate the shift to ETH2 by joining a staking pool. While becoming a full validator requires technical expertise and a significant investment, it’s easy to stake some of your ETH via an exchange like Coinbase and earn rewards (currently 6% APY).
Learn how to stake crypto on Coinbase
Biden administration weighs crypto regulations
With the confirmation of Gary Gensler as head of the Security and Exchange Commission (SEC), clarity around U.S. crypto regulations may be on the way. In the meantime, here’s what you should know about the debate heating up in Washington.
“When is a digital asset a security?” is the deceptively simple question at the heart of the U.S. regulatory debate. Securities, including stocks and bonds, are regulated by the SEC, but without a crypto-specific case law, much discussion has been focused on how to apply a 1946 Supreme Court analysis about orange groves, called the “Howey Test,” to crypto technology.
So far, the SEC hasn’t considered Ethereum or Bitcoin to be securities. But this isn’t the case for all cryptos. Notably Ripple’s XRP was the subject of an SEC lawsuit claiming the company sold more than $1 billion in tokens without registering with the agency.
If you find this confusing, you’re not alone. The Wall Street Journal points to findings in the Ripple case that suggest the SEC’s decades-old rulebook hasn’t been clear about which currencies it regulates. But clarity could be on the way.
Last year, SEC Commissioner Hester Peirce proposed a “safe harbor” plan that would exempt digital currencies from securities regulations for three years. With the new SEC Chair coming on board, Peirce notably updated her proposal last week in what looks to be a renewed effort to find common ground.
Meanwhile, Gary Gensler became the new SEC Chair. And some crypto enthusiasts are optimistic: he called Bitcoin a “catalyst for change” and taught a course on “Blockchain and Money” at MIT.
Why it matters… The Biden administration has signaled that a clearer regulatory approach to this new technology may be on the way — and there’s hope that crypto-savvy regulators could get this right, protecting both the cryptoeconomy and its investors. As Timothy Massad, former chairman of the Commodity Futures Trading Commission, told the New York Times, “Regulation won’t stop innovation unless it’s done badly”
Wall Street, already bullish on BTC, eyes ETH
Institutional investors have been a key force propelling Bitcoin’s current bull run, and as crypto becomes increasingly mainstream, larger firms and funds are diversifying into the second biggest crypto, Ethereum. Let’s take a look at some of the biggest crypto moves Wall Street made this week.
Hedge fund Brevan Howard announced that it will begin investing up to 1.5 percent of its main $5.6 billion fund in cryptocurrencies.
The CEO of BlackRock, the world’s largest asset manager, said of crypto: “It may become a great asset class and I do believe this can become a great asset class.”
ConsenSys, a crypto-technology company focused on Ethereum, raised $65 million from firms including JP Morgan Chase, Mastercard, and UBS.
Open interest for Ethereum hit all-time highs on the Chicago Mercantile Exchange (CME). Futures allow investors to bet on (and hedge against) price movements, and are commonly used by institutions. As reported by The Block, “Crypto trading on CME has become a barometer for broader institutional activity in the digital assets sector.”
Learn about the ETH economy
Paris Hilton on NFTs, China reconsiders crypto
Crypto candidate… New York city comptroller candidate Reshma Patel has a plan to invest up to 3% of the city’s five retirement systems in cryptocurrencies: “This is a financial innovation … and the only way to make it more sustainable is to engage with it.”
About time… Time’s CTO announced that the magazine is accepting crypto: “We are thrilled to offer cryptocurrency as a payment option for our digital subscribers for the first time.”
House rules… GOP House leader Kevin McCarthy told CNBC: “Those who regulate … better start understanding what it means for the future because other countries are moving forward, especially China.”
China reconsiders… Indeed, China has softened its tone about crypto, especially after its 2017 crackdown on ICOs. Li Bo of the People’s Bank of China like Bitmain antminer elaborated during a panel: “We regard Bitcoin and stablecoin as crypto assets… These are investment alternatives.”
Hilton points… In an interview with Coindesk, Paris Hilton extolled NFTs and their potential impact on artists: “I think NFTs are the future because it gives power back to the creators.”
What is a blockchain?
- Crypto’s underlying technology
- A transparent list of transactions
- A decentralized computer network
- All of the above
Find the answer in the footer — and read up on how blockchain technology supports crypto.
Learn about blockchains