The Future of Cryptocurrency: Why Attacking the Industry is a Mistake

14 February, 2023

In the world of cryptocurrencies, the recent rumors of a potential coordinated government attack on the industry have caused widespread concern.

The rumors were fueled by a public statement from Coinbase CEO Brian Armstrong, who warned of the SEC’s plans to eliminate staking for retail customers in the US. This move by the SEC has the potential to cause a devastating blow to the crypto ecosystem, leaving many in the community concerned about the future.

Image by Scott Everett

Staking is the critical process of holding onto a certain amount of digital assets to support the underlying blockchain network, which involves users verifying transactions on the blockchain and earning rewards for their participation. Unfortunately, the SEC (Securities and Exchange Commission) has raised concerns that these rewards could be considered profits from unregistered securities, leading to a potential ban on staking for retail customers in the US.

Is Staking a Security?

No, staking is not considered a security under the US Securities Act or the Howey test used by the SEC. Staking fails to meet the four elements of the Howey test: investment of money, common enterprise, reasonable expectation of profits, and efforts of others. 

When a customer entrusts their digital assets to a third party (i.e. Coinbase) for staking purposes, they don’t give up anything in return for a separate financial interest. Staking customers retain full ownership of their crypto at all times and reserve the right to “unstake” their assets. This, in turn, negates the first element of the Howey test “investment of money”.

Staking services don’t meet the “common enterprise” aspect as assets are staked on decentralized networks. Stakers are connected only by blockchain technology and transactions are validated by a community of users, not by a common enterprise.

Staking rewards are not a return on investment, but simply payments for validation services provided to the blockchain. They are set by the protocol and are the same for all customers, whether they are staking on their own or through a service provider. So also the “reasonable expectation of profits” cannot be applied.

Finally, staking rewards are not based on the “efforts of others.” Service providers do not play a managerial role in determining the distribution of staking rewards or the amount of rewards received. The relevant protocol governs which validator nodes receive rewards and the amount of rewards paid for each token staked by that node. These are IT services, not investment services.

So we can firmly say that staking is a process of supporting the blockchain network by holding onto a certain amount of digital assets, and therefore cannot be considered a security under US regulations.

What else is happening?

In addition to this, there have been reports by Nic Carter revealing the Biden Administration’s “Operation Choke Point“, which aims to cut off the crypto industry from the legacy fiat banking system. The effects of this effort have already generated a significant impact, with major exchange, Binance, halting all USD withdrawals.

It is important to consider the consequences of a coordinated attack on the crypto industry. If the government were successful in banning staking and cutting off crypto from the dollar system, it would likely drive the entire industry offshore. Attacking the crypto industry would be a mistake that could have far-reaching and potentially disastrous consequences, considering that it is basically impossible to stop the spread of decentralized technology.

It’s essential to remember why cryptocurrencies have become so popular in the first place and why they hold so much promise for the future.

Crypto is now a mainstream asset, with millions of people all over the world owning some form of digital currency. This widespread adoption highlights the significant role cryptocurrencies can play in providing financial freedom and empowerment to those who have traditionally been excluded from the traditional banking system.

Cryptocurrency has the potential to revolutionize the financial world, providing equal access to financial services regardless of location or economic status. It represents a significant step towards a more equal and inclusive financial future, where everyone can benefit from the advantages of a decentralized financial system.

The Benefits of Cryptocurrency:

  1. Decentralization: One of the most significant benefits of cryptocurrencies is their decentralized nature. Unlike traditional financial systems that are controlled by central authorities, cryptocurrencies allow for a more secure and transparent system that operates independently of any single entity.
  2. Borderless Transactions: Cryptocurrencies also allow for borderless transactions, meaning that people can send and receive funds from anywhere in the world without having to worry about exchange rates or cross-border fees. This opens up new opportunities for businesses and individuals alike, fostering economic growth and promoting financial inclusion.
  3. Increased Financial Privacy: Another advantage of cryptocurrencies is increased financial privacy. Transactions on the blockchain are anonymous, meaning that users’ personal information is protected. This is especially important for people living in countries with oppressive governments or for those who are concerned about the security of their financial information.
  4. Growing Adoption: Cryptocurrencies are becoming increasingly popular, with more and more businesses and individuals investing in digital currencies. Major corporations like Tesla or MicroStrategy have made significant investments in Bitcoin, while other companies are exploring the potential of cryptocurrencies for their own businesses.
  5. Long-Term Potential: While the short-term future of cryptocurrencies may be uncertain, the long-term potential is vast. Cryptocurrencies have the potential to transform the financial world as we know it, providing a more secure, transparent, and accessible financial system for everyone.

Although it may be tempting for governments and regulatory bodies to try and suppress the growth of cryptocurrencies, it’s essential to remember the potential consequences of such a move. Attacking the crypto industry could slow innovation, create a politically charged issue, and ultimately lead to a more unequal and inaccessible financial future.

In conclusion, instead of assailing the crypto industry, we should be embracing it and working to promote its growth and development. Cryptocurrencies are here to stay and have the potential to transform the financial world for the better. By supporting the crypto industry, we can ensure a brighter, more accessible, and more secure financial future for everyone.