The cryptocurrency exchange Kraken made big news last month when it announced a groundbreaking settlement with the Securities and Exchange Commission, shutting down the firm’s “staking-as-a-service” business in the U.S. and paying a $30 million settlement. The news came as a jolt, in part because of the reputation of the defendant. Kraken is one of the more responsible actors in an industry characterized by reckless business practices. But a bigger shock came in the form of the SEC’s interpretation of “staking.” To technologists, staking has a straightforward definition based on its purpose in a cryptocurrency network. In proof-of-stake consensus mechanisms, networks are secured by actors running specialized software who are typically required to put funds “at stake” to deter them from acting maliciously. Under this incentive scheme, funds are destroyed (“slashed”) by the network if a participant acts dishonestly. Staking refers to using one’s funds to participate in the security of a decentralized cryptocurrency network by running software—rather than burning electricity, like in a proof-of-work consensus chain.
Full commentary : ‘Staking’ as a disservice—how crypto marketers ruin it for everyone.