The SEC Unleashes a Crypto Crackdown

The SEC smacked down the concept of crypto “staking” by requiring one of Coinbase’s (COIN) competitors, Kraken, to stop the process immediately. Staking is the concept of locking up your crypto for an amount of time to help the network, and, in return, the user receives interest on the staked crypto.

The SEC has determined this staking process to be similar enough to dividend payouts, making cryptos that offer it the equivalent of selling securities. Since none of the brokerages have listed any crypto tokens listed as securities, they are now in violation of SEC guidelines and must stop offering the service. Although the SEC hasn’t gone after Coinbase, yet, it’s expected they will do so in the coming days or weeks.

Additionally, this has brought up a lot of concerns regarding Ether (ETH), the second largest crypto after Bitcoin (BTC). The Ethereum Network, the network on which Ether operates as a token, recently switched from “proof-of-work” (i.e. mining using complicated math formulas similar to the creation of Bitcoin) to “proof-of-stake.”

The Ethereum Group switched to proof-of-stake as a way to reduce electricity use and make the entire network more green. However, the SEC’s new, aggressive stance may create significant headwinds for the Ethereum Network going forward. Although a relatively small risk currently, anyone holding Ether should be aware that there is a possibility the token could be invalidated entirely. Again, this risk is low, but it’s still possible.