The impending Merge of Ethereum may make the second-largest blockchain greener, quicker, and less expensive. However, a law professor warns that doing so could complicate regulatory issues by making ether (ETH), the network’s native asset, a security under American law.

“Ethereum will be a security after the Merge, and the case will be compelling. The token in any proof-of-stake system is probably a security” according to Adam Levitin, a Georgetown Law professor, in a tweet from July 23.

If Levitin is correct, and more significantly, if the Securities and Exchange Commission of the United States (SEC) agrees with him, then practically all exchanges that list ether would be subject to stricter regulatory restrictions. Ether has previously been viewed as a commodity, much like the cryptocurrency bitcoin (BTC).

This could have a significant impact on the adaption of cryptocurrency and smart contracts in America and further weaken an already damaged economy. 

There is a chance that Ethereum initiatives, particularly those outside of the US, will carry on. Even if these projects violate U.S. securities laws, according to Levitin, the SEC is less likely to use its little enforcement resources to bring them to justice because large, centralised corporations are simpler to take down. 

The regulation of centralised exchanges might undergo the most significant alteration. To support spot ETH trading, exchanges currently only need to register as money services businesses at the federal level and receive money transmitter licences in the states where they conduct business. If they were designated as securities, the SEC would have extra control over them.

That would at the very least result in a few exchanges leaving the USA (Kraken for starters) and new revenue models for US exchanges and more intricate consumer transactions for US citizens. Any security classification by the SEC could only lead to numerous additional negative consequences for blockchain investors and platforms within the USA.