The head of Coinbase has stated the prospect of a ban on cryptocurrency stacking. His fears have been confirmed
The imposition of restrictions by US regulators on cryptocurrency stacking would be a serious mistake, the CEO of major US cryptocurrency exchange Coinbase, Brian Armstrong, has said. According to him, harsh measures will only lead to more companies leaving the US jurisdiction. His words were a reaction to rumours that a ban on staking for regular people could be imposed by the US Securities and Exchange Commission (SEC). In the end, it turned out to be so.
Stacking is the blocking of a certain number of coins in a cryptocurrency protocol or centralised service to validate transactions and make the blockchain work. As with mining, stacking generates a profit that depends on the total number of participants in a particular network.
The bottom line is that participating in stacking involves generating income in cryptocurrency terms. Apparently, this does not sit well with the Securities and Exchange Commission, because it is similar to what happens with securities.
The Securities and Exchange Commission
Alas, the agency representatives completely ignore the fact that stacking is a way to issue cryptocurrencies and simultaneously protect networks of decentralized assets. Contrary to this, regulators continue to use outdated regulations and cause problems for the cryptocurrency industry.
Why cryptocurrency stacking was banned
Armstrong didn’t explain exactly where these rumours came from, but his fears were eventually confirmed. Here’s what Brian wrote on Twitter about it.
Rumours are reaching us that the US Securities and Exchange Commission wants to get rid of cryptocurrency stacking for US retail customers. Hopefully this is not the case, because if implemented, such an idea would prove terrible for the US.
Coinbase CEO Brian Armstrong
According to Staking Rewards, the four largest cryptocurrencies by capitalisation with staking capacity account for over $55 billion in capitalisation. Accordingly, a nationwide ban would deal a blow to the local cryptosphere, which is already facing an exodus of cryptocurrency companies.
Top coins by capitalisation with stacking support
The Coinbase chief noted that stacking is an important part of the cryptocurrency industry. In addition, it helps reduce the negative impact of crypto on the environment. Still, while mining requires maintaining a huge amount of equipment with high power consumption, for stacking, ordinary computers are enough. He continues.
Steaking is a really important innovation in the cryptocurrency world. Steaking gives users the opportunity to participate directly in publicly available cryptocurrency networks. It also brings many positive improvements to this niche, including scalability, improved security and a reduced carbon footprint.
Brian Armstrong’s tweet
Armstrong also referred to an October 5, 2022 blog post by investment firm Paradigm, which claimed that Etherium's move to the Proof-of-Stake consensus algorithm does not make it a security.
According to Cointelegraph sources, Paradigm’s report came just weeks after the agency’s head Gary Gensler said that PoS-based cryptocurrencies could fall under the Securities Act.
In general, the US Securities and Exchange Commission is still using the Securities Act as a pretext to pressure the industry – this time the cryptocurrency exchange Kraken is in the regulator’s crosshairs. It is featured in a new investigation by the regulator for allegedly violating securities listing rules. The investigation concerns some of the services Kraken offered to US customers. Exact details of the regulator’s claims against the exchange have not yet been disclosed, in addition Kraken representatives have also declined to comment.
SEC chief Gary Gensler
Recall that back in September Kraken’s new CEO Dave Ripley said he did not see a need to register Kraken as an exchange with the SEC because it does not offer securities exchange services. For now, however, everything depends on SEC head Gary Gensler’s point of view – if he continues to regard most cryptocurrencies as securities, it’s possible that the regulator’s pressure on the industry will only increase.
Confirmations of this assumption emerged tonight. It appeared that the SEC appeared unhappy with the staking program of exchange Kraken. According to the regulator, it is positioned as a security and therefore allegedly requires separate registration.
SEC chief Gary Gensler
As part of the case, Kraken management has agreed to settle the dispute without going to court. They will pay a $30 million fine and also shut down the stack for US citizens. That said, the procedure will continue to be available to residents of other countries.
At the same time, the US IRS has requested documents on the users of the relevant program among Kraken customers, as its representatives want to “determine the correct federal income tax liability”. Kraken did not take this course of action, so the agency representatives went to court.
Amusingly, Coinbase's staking program will not be affected by the restrictions. As Coinbase General Counsel Paul Grewal noted, "Coinbase's staking is fundamentally different" from what's happening with Kraken and in addition "is not securities." So for now, the platform will continue to operate.
Coinbase logo in New York
We believe that such SEC activity is completely useless. In this case the regulator is preventing locals from generating income from certain activities, which are also taxable and beneficial to the country's budget. The SEC has done absolutely nothing to protect investors from the collapse of Terra, FTX, BlockFi and other cryptocurrencies, whose bankruptcy has caused real losses to investors. Apparently, regulators are either unable or unwilling to do good for citizens, and instead continue to put sticks in their wheels.
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