US Government Securities and Exchange Commission just fined Cryptocurrency Exchange Kraken 31 million dollars over Staking Services Kraken provides customers.
I rose to read of this fine levied against Kraken Cryptocurrency Exchange.
I am concerned about this latest SEC lawsuit because this SEC attack on staking strikes at the heart of cryptocurrency.
I will explain why I feel this way:
Public Blockchains like Bitcoin and Ethereum, and most Altcoins like Hive have Distributed Networks of Nodes, which is a computer running the software that makes the blockchain possible and each of these computers has a copy of the ledger.
This Distributed Network of computers, called Nodes, is a core principle of blockchain technology.
A blockchain doesn’t have to have a President, CEO or a home office.
The software running the blockchain or ledger exists on hundreds or thousands of computers called Nodes, which are distributed all over the world. This is distributed all over the world, and it is decentralized because it is not run from one place or by one group.
This establishes governance of the project simultaneously nowhere and everywhere and that is a huge strength.
It is no where because there isn’t a single computer you can attack to take over the blockchain or a single office to shut down.
It is everywhere because computers or nodes, hooked up to the internet can be situated in cities, and countries all over the world.
This is the basis for the term distributed decentralized network, and it is two of the five pillars holding up the roof that makes cryptocurrency secure, and immutable.
In Proof of Work blockchains like Bitcoin, there is no staking. It has miners and mining rewards. This is how Bitcoin pays for its security.
But in Proof of Stake blockchains staking rewards are the payment system which pays for the blockchains security.
The distributed, decentralized computer node operators run a copy of the blockchain and validate and verify all transactions. They are rewarded with Staking Rewards.
The operators Stake the blockchains token, which typically means they agree to hold a large number of that blockchains tokens in the blockchain wallet, and agree not that large number of blockchain tokens, and in return they get rewards of smaller amounts of blockchain tokens they can choose to sell instead, or save them up and run a second node to increase the amount of passive income they receive from maintaining these computers.
This payment system is the backbone of Proof of Stake blockchains, and this type of blockchain is becoming more common as it is better able to grow as the main business or use case of the blockchain grows.
So to summarize..
I feel like an attack on Staking, is an attack on a core principle of decentralized distributed networks underlying Proof of Stake blockchains. And realize that Ethereum and Hive are Proof of Stake, as well as Polygon, Binance and many other promising ecosystem blockchains out their like Thorchain, Cosmos and others.
I don’t see this as simply an attack on Kraken. I worry it is more.
I worry that it is an attack on the very thing which makes blockchains immune from single National state attacks on leadership because the leadership is scattered all the world in this distributed network.
I think it’s important to take a moment and realize what this can be a strategy to attack cryptocurrency, and drive it out of entire countries, and recreate FTX like scenarios.
I think there are ways to approach this problem, but the first step in any solution is recognizing the problem, So I am sounding the alarm today.
@shortsegments