Cardano founder Charles Hoskinson has reacted to the increasing regulatory pressure that entities and governments are putting on cryptocurrency staking.
Cryptocurrency staking has become one of the biggest practices in the crypto industry. It is a process in which cryptocurrency holders participate in a network by contributing to its operation, from validating blocks to maintaining its security and stability. To do this, users only have to deposit and keep their cryptocurrencies locked within the network. The process of staking is, for many, simple and less complex than mining, which is why it has generated great interest.
But regulators have also been taking an interest in the practice, which closely resembles a traditional savings account.
Recently, the U.S. Securities and Exchange Commission (SEC) sanctioned Kraken's staking program for violating securities laws. The sanction resulted in a $50 million fine and the program's closure.
The US regulator's intervention, seen by many as unfair, has sparked different reactions in the crypto community. Among them, that of Cardano's development leader, Charles Hoskinson.
During a broadcast, Hoskinson proposed a new model for staking, which while it would change the way in which this practice has been developing in the crypto industry, it would also would help meet regulatory requirements to mitigate the risk of agency scrutiny and potential sanctions.
What is Contingent Staking that Charles Hoskinson talked about?
The proposal put forward by Charles Hoskinson is to do what he has called “Contingent Staking”.
Hoskinson explained that this staking model would integrate a verification process such as KYC (Know Your Customer), to comply with “know your customer” requirements and practices. This would be possible by implementing a bilateral certification, Hoskinson explained, where both the user or staker and the operator of a staking platform or pool have to sign the operations before they are processed.
The staking model proposed by the Cardano developer creates an alternative to partially comply with the requirements demanded by regulators within the crypto industry.
But as expected, in an ecosystem where decentralization and freedom are promoted, the staking model proposed by Hoskinson has also generated controversy.
Crypto community rejects Hoskinson's staking model
Cardano whale “ADA Whale” commented that Hoskinson’s staking model would open up the possibility of rejecting people living in or coming from countries sanctioned by the United States Office of Foreign Assets Control (OFAC).
The content creator known as “Liberlion” opined on the Contingent Staking model, stating that it is perceived as a bad idea. “It’s not public, it’s not permissionless,” the user commented.
Other crypto investors also believe that Contingent Staking would put stakers who do not provide a KYC record at a disadvantage, allow staking pool operators to arbitrarily accept or reject user participation, and kill much of the What is the concept of staking? itself.
Meanwhile, SundaeSwap engineering lead Calvins Brew argued for the need to create a document that explains the Contingent Staking model in detail, as many people are just making assumptions about what this model would entail without fully understanding its purpose, he said.
Hoskinson also defends the model as an interesting alternative that the Cardano community could develop and evaluate.
Brian Armstrong's Comments
Coinbase CEO Brian Armstrong has commented on the SEC's regulatory scrutiny of Kraken.
In a post, Armstrong explained the reasons why his company's cryptocurrency staking service It is not a value and therefore should not be regulated under U.S. securities laws. Armstrong also reminded regulators that imposing aggressive requirements on core services in the crypto industry will only push investors toward unregulated foreign platforms.
Continue reading: Charles Hoskinson will challenge the crypto community to break Lace wallet security
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