Proof of Stake Risks Concentrating Power on Crypto Exchanges and Wallets: IMF

The International Monetary Fund (IMF) has highlighted some potential problems with a proof of stake (PoS) of the blockchain infrastructure as part of a recent articlemanufacturing suggestions for a regulatory framework that could limit the global risks associated with digital assets.

PoS is an alternative to proof of work (PoW) consensus mechanism, which Bitcoin uses, and the old pre-merge version of Ethereum used.

Instead of devoting hardware resources to securing the network, as in the case of PoW, PoS “validators” rely on the network’s native cryptocurrency to validate transactions on the blockchain.

– Advertising –

The document explained how PoS “could create an excessive concentration of decision-making powers on crypto exchanges and wallet service providers, which could increase market integrity risks” despite the potential energy savings. He also highlighted how PoW mining requires significant energy, which could thwart “the global goal of transitioning to a low-carbon economy.”

Regarding technology regulation in general, the paper says regulators should take a “technology-neutral approach,” but should also “consider the regulatory implications of different forms of technology,” as “certain types of consensus mechanisms that under -tend blockchains can inherently generate friction with broader politics.” goals and mandates,” saying a “technology-neutral approach may not be sustainable in the future.”

IMF, FSB and crypto

The report also made a host of other recommendations, including calling on the Financial Stability Board (FSB) to step up, saying it is “well placed to take the lead in coordinating and setting global standards to support national regulation of crypto assets”.

The FSB was created in 2009 in the immediate aftermath of the 2008 credit crisis.

Based in Basil, Switzerland, the organization monitors and makes recommendations on the global financial system, and it has been described as “a fourth pillar” of global economic governance alongside the International Monetary Fund, World Bank and the World Trade Organization.

The report went on to say that “the financial stability risks of crypto assets may not yet be systemic globally, but the growing systemic implications can already be seen in some countries,” and it identified an increase significance of the correlation between crypto assets and financial assets. assets during periods of market stress, based on its own research.

The key steps outlined in the document are to ensure that “key centralized entities that perform essential functions are licensed and authorized” and that authorities might want to consider risks related to “volatility, market knowledge, knowledge and understanding of products and how crypto assets are used. .”

Throughout the document, the IMF stressed the importance of international collaboration, stating that “the cross-industry and cross-border dimensions of crypto assets make national and international coordination and cooperation essential”, more than “in the case of many activities traditional finance”. .”

Without this linked approach to regulation, there could be a risk of a “race to the bottom by regulators and policymakers” and also limited means to combat “regulatory arbitrage by financial entities”, according to the report. of the IMF.

However, the IMF has made it clear that “regulation should not be seen as stifling innovation but rather as building confidence”.

Stay up to date with crypto news, get daily updates in your inbox.

We want to thank the author of this write-up for this awesome content

Proof of Stake Risks Concentrating Power on Crypto Exchanges and Wallets: IMF


Explore our social media profiles as well as other pages related to themhttps://metfabtech.com/related-pages/