Some in the cryptocurrency business are looking to Bitcoin: Following the rules to the letter

In general, proof-of-stake networks use far less energy than proof-of-work blockchains. When the SEC takes action against bitcoin exchange Kraken, some in the sector are worried that it could lead to a complete ban on staking.

On Thursday, the SEC announced that Kraken will be facing charges for failing to register its staking service as a security. Kraken has decided to pay $30 million to resolve the allegations and has also ended its U.S. staking business, as said in a Thursday statement. The corporation maintained a neutral stance on the accusations.

Staking benefits are no longer earned by any U.S. client assets participating in the on-chain staking scheme, with the exception of staked ether. These assets are now automatically unstaked. “And further, U.S. customers will not be able to stake additional assets, including ETH,” an email from a Kraken official said.

Staking is a part of the proof-of-stake consensus method that many blockchains utilize. This allows token holders to receive rewards by verifying transactions with their token holdings. Some of these blockchains are Cosmos, Cardano, Solana, Ethereum, and Politiken. Bitcoin (BTCUSD) +0.37% uses the proof-of-work technique to secure the blockchain. In this approach, “miners” safeguard the network by solving challenging mathematical problems for cash incentives.

In their role as custodians, Binance and Coinbase (COIN, -4.26%) are among the several prominent cryptocurrency exchanges that provide staking services. Safeguarding one’s own coin is possible using Lido Finance, a decentralized staking service.

Investors are holding their breath until the SEC announces its next move, which may be a ban on staking in the United States or a tightening of restrictions on centralized staking services like Kraken.

If the SEC targets centralized staking providers, customers would seek out decentralized staking services, according to Francesco Melpignano, CEO of Kadena Eco.

In his discussion with MarketWatch, Melpignano said that proof-of-stake blockchains may take “a huge hit” if authorities outlaw staking altogether, particularly if a significant portion of their user base is based in the US.

Some may be interested in Bitcoin because of its proof-of-work technique, which is used for cryptocurrencies. Blockchain technology has, according to Melpignano, always been on the “safe side of regulation.” Only bitcoin, according to SEC Chairman Gary Gensler, may be openly referred to as a commodity.

Thursday saw a further 5% decline for the biggest cryptocurrency, Bitcoin, as it fell to a three-week low.

The provision of staking services may prove to be an attractive source of income for several bitcoin exchanges. Nearly 10% of Coinbase’s total income, or $62 million, came from “blockchain rewards” in the quarter ending September 30, 2022. Staking one’s cryptocurrency on the exchange might result in a commission cost of up to 35% of the earnings. According to a Coinbase spokesman, income from staking was less than 3% in the first three quarters of 2022.

On Wednesday, Coinbase CEO Brian Armstrong tweeted that a prohibition on retail crypto staking by the SEC would be a “terrible path for the U.S.”

Regarding the staking program, Coinbase CLO Paul Grewal assured investors in an email on Thursday that it would go forward as scheduled, notwithstanding the current events. This morning’s headlines said that Kraken was effectively selling a yield product. Grewal said that staking services offered by Coinbase are “fundamentally different” from securities. Thursday saw a 14% decline in Coinbase stock price, with the price ending at about $59.63, according to Dow Jones Market Data.