IMF: Proof-of-Stake approach may give cryptocurrency exchanges and wallet providers too much control over the decision-making process

Kutl Ahmedia

In a recently released report that highlights several problems with the Proof-of-Stake (PoS) approach to blockchain technology, the International Monetary Fund (IMF) also suggests a regulatory framework that would reduce the overall risks associated with digital assets. A sort of consensus process used to verify bitcoin transactions is called proof-of-stake. With this approach, cryptocurrency owners can stake their coins, giving them the authority to review and add new blocks of transactions to the blockchain.

The IMF's most recent report discusses how PoS, despite the energy savings, "may produce an undue concentration of decision-making capabilities on crypto exchanges and wallet service providers, which may heighten market integrity issues." It also emphasized how energy-intensive Proof-of-Work mining is, which could work against the "global purpose of moving to a low-carbon economy."

Owners of a cryptocurrency can stake their coins and establish their own validator nodes thanks to the PoS model. Staking is the act of pledging your coins for use in transaction verification. While you stake your coins, they are locked up, but you can unstake them if you want to swap them.

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The proof-of-stake mechanism of the cryptocurrency will pick a validator node to examine a block of transactions when it is ready to be processed. The block's transactions are examined by the validator to determine their accuracy.

According to the paper, when it comes to tech regulation generally, regulators should adopt a "technology-neutral approach," but they should also "consider the regulatory implications of different forms of technology" because "certain types of consensus mechanisms that underpin blockchains may inherently generate frictions with broader policy objectives and mandates," adding that a "technology-neutral approach may not be sustainable going forward."

The Financial Stability Board (FSB) is urged to set and guide international efforts on cryptocurrency regulation in the IMF document, which was issued with another report on regulating stablecoins. According to the reports, which were released on Monday, the watchdog is "well positioned to take the lead in coordinating and establishing global standards to support national regulation of crypto assets," as well as directing the national implementation of the regulation of crypto assets while taking into account sector-specific standards.


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