What Is Crypto Staking and Why Is the SEC Cracking Down?
In the latest of a string of actions brought by the US Securities and Exchange Commission, the crypto exchange Kraken agreed to pay $30 million to settle allegations that it broke the agency's rules by offering a service that allowed investors to earn rewards by “staking” their coins. The SEC is pushing to bring crypto operators within the US under the same regulatory framework that governs the sale of all sorts of securities — to treat the tokens much like stocks and bonds.
What's different from other crackdown efforts is that staking is a central feature of many blockchains such as Ethereum and key to potentially switching other cryptocurrencies away from a system that requires vast amounts of electricity.
1. What is staking?
It's depositing Ether or other cryptocurrencies for use in what's known as a “proof-of-stake” system that helps run a blockchain network by ordering transactions in a way that creates a secure public record. Ethereum in September switched to staking to replace the “proof-of-work” system pioneered by Bitcoin, which continues to use it. Ethereum's switch was said to cut the network's energy usage by about 99%, an important step for an industry that has come under fire for the amount of electricity it uses.
2. What are the ‘proof of' systems for?
Cryptocurrencies wouldn't work without blockchain, a relatively new technology that performs the old-fashioned function of maintaining a ledger of time-ordered transactions. What's different from pen-and-paper records is that the ledger is shared on computers all around the world. Blockchain has to take on another task not needed in a world of physical money — making sure that no one is able to spend a cryptocurrency token more than once by manipulating the
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