More damaging than FTX & Terra Luna combined
Ok, if this is true, it could be bad:
To explain why, let's start with the basics - then dial up the 'very bad, no good' potentials as we go...
Staking.
Proof-of-stake crypto networks function like this:
A bunch of independently owned computers (referred to as 'validators') process transactions on the network, for a fee.
To make sure the individual validators are playing by the rules (e.g. not faking transactions), they each stake a bunch of crypto.
If they break the rules, everyone else on the network calls them out - they lose their staked money, and are booted from the network.
Validators win the right to process transactions semi-randomly, but the system will favor validators with:
A long history of playing by the rules
A lot of crypto staked
Security.
If singular entities or collectives own/control the majority of validators, they can take control of the network.
(I.e. If they break the rules, and others call them out - they can override the vote, because they have the majority).
Which means:
The more validators there are on the network → the harder it is for anyone to collude and fake transactions → the more secure the network is.
So we want more independent validators! How do we encourage them to join?
One way is to let the general public contribute to validator staking pools (so the system favors them more in the selection process).
When you add tokens to a validators 'staking pool,' you get a cut of the transaction fees as a reward for trusting them with your hard earned cash.
The problem with these potential regulations.
For many blockchain networks, the majority of stakers/validators are U.S. based.
So if staking in the U.S. is only available to accredited investors (folks with a net worth of $1M+, or who earn $200K+ per year), it could massively reduce the amount of independent validators.
Which means private companies, entities, firms - anyone with deep enough pockets really - would have a better chance of owning a majority of the validators, and taking control of a network.
Will they be malicious? Will they play fair?
Who knows.
The difference is, this isn't a decision they get to make when there's a broad spread of independently owned validators on the network.
The national security argument.
Alright, let's take this situation, and make it a whole lot darker.
Forget private companies trying to take control of a cryptocurrency network - what about nation states??
Imagine if China or Russia had the ability to manipulate a ~$200B cryptocurrency, like Ethereum.
US citizens/companies are some of the largest holders of ETH.
Once the dominos start to fall, that could do some real economic damage.
(Look at what happened with FTX's $32B collapse).
And that's just for right now.
The economic threat will only grow, as Ethereum and other proof-of-stake networks become(s) more valuable.
Ok, time to dial back the panic.
Remember: this is a rumor, circulating on Twitter.
It's the same place that Chevy's estranged uncle, Steve, rants about his theory that Starbucks is run by lizard people.
Let's treat this rumor of regulation, as if its a tequila shot - and take it with multiple grains of salt.
