By Michelle Price
WASHINGTON (Reuters) - The U.S. derivatives regulator on Tuesday said it was launching a formal consultation on the uses of ether as it aims to more closely scrutinize the virtual currency markets.
The Commodity Futures Trading Commission (CFTC) is one of several regulators, along with the U.S. Securities and Exchange Commission (SEC) and the U.S. Treasury, that is grappling with how best to oversee virtual currencies, which fall into a regulatory gray area.
Ether, powered by a blockchain technology called Ethereum, is among the top three largest cryptocurrencies by market cap alongside bitcoin and ripple.
Since early this year, officials at the CFTC and SEC have been discussing whether the cryptocurrency falls into traditional asset types, such as securities or commodities, and should therefore be subject to the relevant regulations.
The SEC has ruled that bitcoin is not a security but the CFTC says it is a commodity. Neither regulator has taken a position on ripple.
In May, CFTC commissioner Brian Quintenz called for federal regulators to clarify the legal status of ether as market participants rushed to list derivatives tied to the digital currency.
Weeks later the SEC announced that ether did not meet the criteria for a security, thus exempting certain transactions in the token from federal securities laws. But the CFTC has not yet taken an official position.
Ethereum is a blockchain-based platform and ether is the token that computer programmers or "miners" receive as compensation for developing specialized programs that help verify transactions on the blockchain.
In its consultation, the CFTC suggests that ether could also be regarded as a commodity, a "fuel" powering Ethereum, and seeks feedback on how ether and the Ethereum network are used.
It also asks how the function, technology and governance of the digital currency differ from that of bitcoin, what cyber security issues the CFTC should consider and what risk management challenges could result from trading ether as a derivative.
Market participants have 60 days to respond.