Brian Armstrong was asked if he would prefer to censor transactions, or to get out of the ETH staking industry. Blockchain technologists are becoming more concerned about government regulations affecting Ethereum’s fundamental operation and its post-merge proof of stake consensus mechanism.
Brian Armstrong, CEO of Coinbase, responded to a hypothetical scenario via Twitter today. He stated that his company would close down its Ethereum staking services in the event of regulatory threats to ensure the integrity and security of the blockchain network.
Lefteris Karapetsas (founder of open-source crypto analytics app Rotki) asked the question on Sunday. Karapetsas challenged several prominent Ethereum players to choose from two options, in case government regulators required them to censor certain addresses.
He asked, “Will your A) comply and censure at the protocol level [or]] B) shut off the staking service to preserve network integrity” in a tweet. He also tagged Coinbase, Kraken and Lido. Armstrong is representing Coinbase.
Armstrong responded, “It’s an imaginary we hopefully won’t actually have to face.” “But we would choose B if we had to,” Armstrong said. You need to see the larger picture.
He said that there could be a third, better option or that a legal challenge could help to achieve a better result.
Armstrong’s response is particularly noteworthy because Coinbase is relying heavily on its profitable staking service and Armstrong calls it a “big victory” for the company. JPMorgan analysts stated this week that the Ethereum merge should make Coinbase and its shares (COIN), bullish. This is due to its Ethereum Staking service.
Coinbase informed shareholders that they began offering Ethereum staking to institutional clients in August. This was just over a week ago. “We will continue to add assets for staking both for our institutional and retail clients going forward.”
Analysts and Web3 investors are worried that large institutions providing staking services for Ethereum will be subject to government regulators’ pressures after the merger. Their absence could also be dangerous because they control a large number of validators.
Eylon Aviv, a blockchain and crypto investment company Collider VC, estimates that these large players will follow suit if U.S. regulators demand they censor transactions. This would mean that 66% of Beacon Chain validators would support censorship.
He wrote, “There is a case here that the Ethereum ecosystem does not reach sufficient social decentralization and we are charting very dangerous, nation-state capture territory.”
Armstrong tweeted last week that the Tornado Cash ban had been announced. “Sanctioning technology (as opposed an individual or entity) seems to me like a bad precedent and should probably be challenged.” This could have unintended downstream consequences.”
He added, “Hopefully, obvious point: We will always follow law.”
Armstrong pointed out a February 4, Coinbase blog post that he had written to explain the company’s “philosophy about account removal and content moderation.”
He wrote that “Decentralization provides the ultimate customer protection.” “The decentralized nature cryptocurrency provides its own protections, and those protections strengthen the more our products are decentralized.”
Armstrong claims that the Coinbase moderation policy can be “co-opted over the course of time, succumbing to pressure or descend into us being judge and jury” without the protections of a decentralized system.
