Meme-inspired cryptocurrency Dogecoin (DOGE) is now officially the second largest proof-of-work (PoW) crypto in terms of market cap, following the Ethereum network's proof-of-stake upgrade on Sept. 15.
Bitcoin (BTC) of course remains miles ahead of Dogecoin’s market cap of $7.83 billion, though the well-followed memecoin is still comfortably ahead of the third place PoW cryptocurrency Ethereum Classic (ETC) (with a market cap of $4.69 billion), Litecoin (LTC) ($4.01 billion) and Monero (XMR) ($2.65 billion).
One Dogecoin fan appeared to be in disbelief of Dogecoin’s rise to become the second largest PoW cryptocurrency, stating “who would have thought that this would happen. Congrats #Dogefam.”
But it wasn’t taken well by everyone. One Twitter user responding to a tweet about the news asked how people could take the crypto industry seriously with a memecoin so close to the top spot, emphasizing the need to remove “useless coins” from public view.
But Dogecoin may also soon find itself competing against ETHPoW - the Ethereum PoW hard fork chain that will continue mining, according to the official Twitter account of the ETHPoW, which is currently priced at $13.64.
Ethereum's transition to PoS may have added pressure on PoW-powered cryptocurrency networks to transition to a more sustainable consensus mechanism.
In a statement to Cointelegraph, Lachlan Feeney, the founder and CEO of Australian-based blockchain development agency Labrys said “the pressure is on” Bitcoin now to justify the PoW system over the long term."
He added that "reluctance to carry out its own transition to PoS will be huge."
Meanwhile, the Dogecoin Foundation has been considering a transition of Dogecoin to a proof-of-stake after first hinting at the shift in Sept. 2021, which was put forward by Ethereum co-founder Vitalik Buterin, who is also an advisor for the Dogecoin Foundation.
In Dec. 2021, the Dogecoin Foundation released its “Dogecoin Trailmap” which proposed to build a Dogecoin “community staking” version that resembled PoS.
“Such a version would allow all Dogecoin users to stake their DOGE and get extra tokens for supporting the network,” the Dogecoin Foundation said.
However, little progress has been made since then, as it still appears to be in “proposal” status according to the Dogecoin website.
DOGE is currently priced at $0.06 at the time of writing.
Ethereum’s upgrade to proof-of-stake may have placed the cryptocurrency back in the crosshairs of the Securities and Exchange Commission (SEC).
Speaking to reporters after the Senate Banking Committee on Sept. 15, SEC chairman Gary Gensler reportedly said that cryptocurrencies and intermediaries that allow holders to “stake” their crypto may define it as a security under the Howey test, according to The Wall Street Journal.
“From the coin’s perspective […] that’s another indicia that under the Howey test, the investing public is anticipating profits based on the efforts of others,” WSJ reported Gensler as saying.
The comments came on the same day as Ethereum's (ETH) transition to proof-of-stake (PoS), meaning the network will no longer rely on energy-intensive “proof-of-work” mining and instead, allows validators to verify transactions and create new blocks in a process that involves “staking."
Gensler said that allowing holders to stake coins results in “the investing public anticipating profits based on the efforts of others.”
Gensler went on to say that intermediaries offering staking services to its customers “looks very similar — with some changes of labeling — to lending.”
The SEC has previously said they didn’t see ETH as a security, with both the Commodity Futures Trading Commission (CFTC) and the SEC agreeing that it acted more like a commodity.
The SEC has been keeping a close watch on the crypto space, particularly those that it alleges are securities. The regulator has been embroiled in a case against Ripple Labs concerning the launch of the XRP token.
The SEC has also pushed firms offering crypto lending products to register with them, including a $100 million penalty directed at BlockFi in February for its failure to register high-yield interest accounts that the SEC considers securities.
Gabor Gurbacs, director of digital assets strategy at American investment firm VanEck, tweeted to his 49,300 followers that he had been saying for over six years "that POW to POS transitions can draw regulatory attention."
Gurbacs went on to clarify that regulators refer to rewards from staking as dividends, which is a feature of the Howey test.
The Howey Test refers to a Supreme Court case in 1946 where the court established whether a transaction qualifies as an investment contract. If it does, then it would be considered a security and is covered by the Securities Act of 1933.
On Thursday, Ethereum officially transitioned to a proof-of-stake (PoS) consensus mechanism, which is expected to cut energy consumption used by the network by 99.95%, according to the Ethereum Foundation.
The upgrade effectively ended the need for the Ethereum network to rely on miners and energy-guzzling mining hardware to validate transactions and build new blocks, as these functions are now replaced by validators who “stake” their ETH.
In a statement to Cointelegraph, Charlie Karaboga, CEO and co-founder of Australian fintech company Block Earner, said the network’s transition to PoS would “drive the future of money to be more internet-based.”
He said that Ethereum would become “the settlement layer that everyone will accept and trust — especially when the spotlight is shining brighter than ever on the issue of sustainability in crypto mining.”
Markus Thielen, chief investment officer of digital asset manager IDEG, said that he had been in discussions with sovereign wealth funds and central banks to help build their digital asset portfolios, but direct investment had often been “voted down due to energy concerns.”
But, now that the Ethereum network has transitioned to PoS, this issue is much less of a concern, he said:
“While demand has been strong, the missing link has been an underlying zero-emissions, financial infrastructure. With Ethereum moving to PoS, this clearly solves this last pillar of concern.”
Henrik Andersson of Apollo Capital told Cointelegraph that ESG had become a “big factor” behind institutional investment decision making in the last few years.
Andersson said he believes the 99.95% energy consumption cut on Ethereum would dramatically improve ETH’s ESG score, which in turn would “make it more appealing for institutional investors” over the long-term.
Blockworks co-founder Jason Yanowitz told his 92,900 followers on Sept. 15 that “Green ETH” will be the “best narrative” in crypto’s history, with crypto mining and PoW long plaguing the industry.
Yanowitz noted that until now, the “Bitcoin is bad for the environment” narrative has been “so impactful,” adding it spread like wildfire” and “has probably had the most negative impact on the asset’s performance.”
“Most large institutions now have ESG mandates,” said Yanowitz:
“Fidelity, BlackRock, Goldman, etc... whether or not they like it, they now have to consider the environmental impacts of their portfolios.”
But, that is now old news for Ethereum, with Yanowitz adding that the most important takeaway from the Merge is that “Ethereum becomes green” which becomes highly appealing to large corporations who have ESG mandates to comply with:
“This will be the best narrative crypto and ETH has ever seen. It will flow into the institutional world, where investors will buy ETH because it satisfies their ESG mandate.”
This Daily Dose was brought to you by Cointelegraph.