Rumors of an impending ban on cryptocurrencies came to fruition on Feb. 9 when the Securities and Exchange Commission took action against Kraken, resulting in the exchange agreeing to terminate its betting services for US users. The action is likely to apply to all companies based in the United States.
The reactions were predictable depending on how you feel about crypto in general. Crypto proponents have railed against regulators that are slowly strangling this growing industry, while skeptics have celebrated the impending demise of crypto. The human rights activists are right. Antagonistic regulators will force the cryptocurrency into more friendly jurisdictions, which will bring economic benefits. The skeptics are right too. This event, like many events of the past year, is killing the cryptocurrency. However, their apparent jubilation is misplaced. This is a good thing.
Encouraged by the many collapses of the crypto business in 2022, the SEC and the Commodity Futures Trading Commission have begun to take an increasingly hard line on the crypto industry. They set their sights on introducing fiat money through US banks. Now they are focused on staking. Brian Armstrong, CEO of centralized exchange Coinbase, stated on Feb. 9 that “the SEC would like to get rid of U.S. crypto staking for retail customers.” A day later, Kraken announced that it would be shutting down its staking-as-a-service program as well as paying a $30 million fine. It now seems likely that something like a staking ban will apply to all US companies.
Armstrong rightly stated in his tweets that a ban on staking “would be a terrible path for the US if it were allowed.” If the US regulators push too hard, they may be responsible for the US losing its grip on the crypto industry to other countries. It is better to stop now because the crypto business is already leaving the United States.
1/ There are rumors that the SEC would like to get rid of US cryptocurrency staking for retail clients. I hope this is not the case as I believe it would be a terrible path for the US if that were to happen.
— Brian Armstrong (@brian_armstrong) February 8, 2023
The SEC’s latest action is even drawing criticism from within the SEC. Commissioner Hester Pierce objected to the rashness of these enforcement actions, stating that “using enforcement to tell people what the law is in a growing industry is not an efficient or fair way to regulate.” This creates uncertainty and discourages investment. We need fair and clear rules. Otherwise, American leadership in crypto will disappear.
However, the ban on staking is good for cryptocurrencies.
Good riddance.
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Betting on corporate business goes against what makes cryptocurrencies special. Staking is used to secure global networks such as Ethereum, which are meant to be controlled by no one. Since companies operate under the control of governments, there is an obvious dissonance between them and staking. This might not be a problem if businesses represented a trivial part of the total staking activity, but only US-listed Coinbase and Kraken represent roughly 20% of the total ETH.
It would be great if all government regulated companies accounted for significantly less than 10% of the stakes of Ethereum or any public blockchain for that matter. Perhaps the fastest way to achieve this change is to ban staking! After Mr. Armstrong’s tweets, prices for decentralized staking project tokens have skyrocketed. Hopefully this will lead to an increase in their stake share. There was another blow to the Kraken’s announcement. If the SEC continues, expect a significant shift from centralized to decentralized staking.
This is part of a larger trend that started in the crypto industry last year. As opaque crypto business after business became insolvent, like falling dominoes, people began to look for viable alternatives online. Suddenly, the quirky values that characterized the early users of cryptography are no longer so quirky—like “not your keys, not your coins” or “don’t trust, verify.”
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People started looking for unreliable platforms for things like derivatives and returns. We can probably add staking to this list as well. Fortunately, on-chain technology is already mature enough to offer an experience comparable to centralized services. This experience will only get better as technology continues to rapidly advance and more people move their assets online.
Fiat exchanges like Coinbase will always play an important role in crypto, but it is clear that eventually all crypto-to-crypto services currently offered by these intermediaries will be phased out in favor of better, fully decentralized alternatives.
To the naysayers who say “crypto is dead”.
Just answer: “Yes, cryptocurrency is dead. Long live cryptocurrency.”
This article is for general informational purposes and is not intended and should not be taken as legal or investment advice. The views, thoughts and opinions expressed here are those of the author only and do not necessarily reflect or represent the views and opinions of Cryptooshala.
Credit : cointelegraph.com
