All the different views on Contingent Staking

There has been an incredible amount of chatter within the Cardano community about pros and cons of contingent staking. Here I attempt to go through every single argument in an attempt to make sense of it all.

I won’t attribute all the points back to each source but I will list the sources I relied upon at the end.

If you wish submit bullet points then please state which question and which side of the debate you are submitting it for.

Q1. What should be Cardano’s primary objective?

View 1:

• To be an open, decentralised, permissionless, and censorship resistant system that is free of governmental interference. Get this right and adoption will come in time.
• We need to remember that being anonymous is the core value prop when competing against Web 2.0. The centralized options are often “free” to the end user in an effort to get more economic activity under monitoring.
• Is this how this “new” world should look like? We have this decentralised ledger and apply legacy mechanisms on top. I don’t see how this changes anything really except that things are a bit more “trustless”. When I think of decentralisation, I also think of efficiency, autonomy and automation. We are building this crazy decentralised ledger, which doesn’t know about borders and is available anywhere in the world. We have to leverage that. Cardano has a treasury and doesn’t require KYC from anyone to receive its fair share. What if we create sub treasuries and each country controls one? Wouldn’t this make the world highly efficient, no one has to care about taxes anymore because everything is automated and enforced in the system. It’s a frictionless system anyone can participate in. It’s extremely fair and the whole world benefits from it. If there is high economic activity in the US, treasuries in Africa or Asia receive the same share. We lift everyone up and bring the world together, which ultimately leads to high efficiency and endless possibilities.

View 2:

• To be the world financial operating system, and therefore prioritise on-boarding of real work entities, demonstrating Cardano is flexible enough to meet real world needs.
• Cardano’s success will, ultimately, be measured not by how “pure” the system is but by how many users we can attract. And the more flexible we are, the more users we’ll attract.
• <Feel we need another comment here>

Q2. Are SPOs a business?

For

• A Stake Pool Operator (SPO) is a business in that they invest in infrastructure, market themselves and make profit from processing ADA transactions. This is similar to how Bitcoin miners are also businesses.
• SPOs should have the choice of how they choose to deal with the legal and regulatory framework of their country

Against:

• SPOs are not a business, but something like CS will fundamentally change the nature of the relationship between SPO and delegators, from one where there is no interaction between the two, to one where some SPOs will now cooperate and consent to the delegation. This could lead to viewing SPOs as a business.
• <Feel we need another comment here>

Q3. Does crypto adoption have to also mean adopting regulation?

For:

• Connecting blockchains to the mainstream will improve the transparency and accountability our existing gov and organisations.
• <Feel we need another comment here>

Against:

• Providing neutral, censorship resistant infrastructure is the goal. Adoption will come when this system provides an alternative to the old systems. Becoming like them is inherent defeat. It provides a fair alternative. Maybe it’s not needed right away, but the day comes that the benefits of using it outweigh the cons of using the old systems. But that only works if the tech remains pure and adheres to the ethos and first principles.

• Being marked illegal by the old system is a win in my book, and irrelevant to the protocol as they don’t need permission from the system they’re built to replace.

Q4. Why contingent staking is a slippery slope that will impact all SPOs

For:

• By having the capability to do contingent staking, regulators could insist on utilising it. So the local government says: “You have the tools to deny delegations, so you must deny delegation from X, Y, or Z people.” And so blocks produced by permissionless pools are rejected by CS pools, and the chain forks until all pools give in and become CS pools.
• If the SPO has the tools to identify and deny illicit delegation, (as locally defined) and SPOs do not use them, it can be considered wilful blindness.
• Not having the ability to do contingent staking shifts the regulation debate away from restrictions on the L1.
• Pools have a monopoly on the slots they’re assigned, every KYC node reduces availability for non-KYC agents on the network for however many slots they’re assigned. I also really don’t believe govs will allow KYC pools to build on blocks of non-KYC pools.
• If you accept that a government would require a validator to know who is staking with them (KYC for staking), doesn’t it follow that they’d also require a validator to know whose transactions they are executing? (KYC for TX) – ETH/OFAC is right about here. You can’t be build on a chain of people you don’t know that could be unscrupulous! (KYC for chain selection) – This is next and kills the idea of an open Blockchain, at that point you may as well just be hitting a centralized bank system’s API.
• If the blockchain accepts delegates from sanctioned and non-sanctioned countries into its L1 protocol, in addition to creating first and second class communities, we will encourage country regulators to demand more regulations. An American delegator will not be able to delegate to an Iranian pool. I do not accept this discrimination.
• The US has global jurisdiction where they see an American engage in “business.”

Against:

• It is unlikely that KYC will be mandated at the Stake Pool level. If KYC was going to be mandated it would be much broader brush. Regulators won’t not mandate it just because it’s not possible at the L1 level. Having the capability to do contingent staking is more for the benefit of SPOs who may have to deal with this down the line. Regulators simply don’t care about the technicality.
• I don’t think CS changes that discrimination in any way. If the US decides tomorrow to go after delegations between Americans and Iranians, they’ll simply force pools to become private or just shut down entirely.

Q5. Should CS be added at the L1 level?

For:

<Feel we need a comment here>

Against:

• No the more complex you make the core essential parts of it the more brittle it becomes. Even Bitcoin doesn’t track which miners produced each block
• No – Build Contingent Staking with optional KYC-compliance as an L2 sidechain. It pairs poetically well with Midnight, the L2 privacy solution.
• Problem is validators end up having exclusive access to block production on the network and compliance to a nation’s regulation restricts everyone else in the world according to their idiosyncratic regulations during their blocks. To me it’s a bit like net neutrality? I don’t want base level infra prioritizing/minimizing traffic based on personal views. SPOs are sort of like natural monopolies in that whatever % of stake they have, they end up having exclusive access to an epoch for the same % of time. You can’t have a global operating system that switches rules from block to block based on the whims of the jurisdiction the operator is from.
• Leave Cardano L1 pure & permissionless, censorship-resistant against ALL GOVERNMENTS
• Cardano is resilient, Cardano is secure. Now suddenly he says L2 are not flexible, not secure, will make Plutus harder? Huh?
• Keep layer 1 permissionless. Layer 1 should be decentralized enough to the point its unhindered by regulatory compliance. This is why when governments try to ban Bitcoin, it continues to tread on. Cardano should have the same type of resilience.

Sources:

• Charles Hoskinson, @mwaddip, @mwaddip, @Cerkoryn, @monad_alexander, @MatthewPlomin,@GabsCrypto, TobiasFancee, @slapmybongo, @berry_ales