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Closing remarks on the future of crypto law, March 5

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Cointelegraph By Kollen Post

Editor’s note

Ladies and gentlemen, it is bittersweet to welcome you to the final installment of Law Decoded, at least with yours truly at the helm. Though someone may pick this newsletter back up at some point, there are no plans to do so now.

Taking advantage of the rose-tinted glasses or maybe the graduation goggles that are in effect for this final newsletter, I will be shaking up the format. As last week’s Law Decoded focused on a few long-standing stories in crypto, this week, I wanted to get thematic.

As I will no longer be guiding you through the weekly changes in crypto law, I wanted to give you some idea of how I see the overall situation shaping up. There are plenty of major laws in motion and courts in session, but I’m going to be zooming back from those to present you with what I find to be the three issues to watch in crypto law. These are also predictions and opinions, so bear in mind that they are mine, not those of Cointelegraph as a whole. And, as always with the future, I could very well be wrong.

Certainty and securities

Prediction: The role of securities regulators, especially the U.S. Securities and Exchange will continue to determine the fate of new token issuance. And, it may take a while, but the SEC and other securities regulators are going to start kicking back at some but not all DeFi projects, as soon as they can figure out how.

Situation: High-profile legal actions against firms like Telegram, block.one and Ripple has scared many would-be token issuers out of the market. Less dramatic than these clampdowns have been the quiet tentative successes. Developers like the Filecoin Foundation and Blockstack seem to have found ways of not only raising money to develop tokens according to SEC exemptions but also of decentralizing those tokens to the point where the SEC has, for now, not stepped in when those firms stopped filing registration statements for those tokens.

Formalizing the process of token decentralization will help new developers enormously, whether it is by classifying tokens in statute or adopting a safe harbor à la Hester Peirce. Likely incumbent chairman Gary Gensler will not indulge securities issuance masquerading as decentralized tokens. We will not see another 2017. Optimistically, however, Gensler is clearly interested in formalizing the market, which means clear rules of the road.

Meanwhile, publicly traded companies like Square, Tesla and Microstrategy are increasingly becoming oblique means for stock market investors to get exposure to Bitcoin’s price movements. BTC ETFs in Canada and vast market interest in the U.S. mean that it’s only a matter of time before the SEC greenlights one in the U.S. Slowly but surely, tokenization of securities continues.

As for DeFi? The commission is going to be hashing that out for years. I predict with low confidence and the hope of being wrong that there will be attempts to hold programmers legally accountable for DeFi code.

The wealth of CBDCs

Prediction: Central bank digital currencies are going to move forward. Some will launch more quickly, but the ones that have actual significance as peer-to-peer payment mechanisms will take significantly more time, if they ever happen at all. Distributed ledger technology will need to do some serious upgrading if it’s going to play any role in this transformation, which I am not confident it will.

Situation: CBDCs had been mostly on the back-burner for some time. To crypto advocates, they were a hypothetical use case. To monetary authorities: unnecessary techie mumbo jumbo. Interest waxed and waned at various points, with the involvement of tech giants in digital payments adding brief moments of pressure to central banks to update old systems. But those moments would fade.

The COVID-19 pandemic, however, exposed the flimsiness of existing payment rails in a way that everyone could see. The need to get money into the hands of citizens alongside the sudden fear of spreading disease via in-person contact and, especially, the contaminant of cash pushed the CBDC concept to the top of the agenda for many of the world’s largest central banks.

CBDC development is going to remain a critical subject of conversation and development for the foreseeable future. It is, however, riddled with misconceptions and unconfirmed assumptions. None of the five great monetary powers — the issuers of the dollar, the euro, the yen, the yuan and the pound — have committed to specific features of their prospective digitization, nor even whether they will launch at all. Will CBDCs be bearer instruments? How anonymous will they be? Where will transaction data go? Will they be accessible to banks, businesses, citizens, or the world? Will they run on distributed ledger technology?

People are touchy to any changes to their money. If true self-settling currency ever hits the market, it will do so slowly. Of those five major currencies, the Chinese yuan has seen the most “digitization,” which has attracted the crypto world’s attention. But to all appearances, that currency bears none of the hallmarks of what the crypto world professes to want to see. The digital yuan seems designed to be just another third-party payment app except that the Chinese government is that third party.

CBDCs will be an interesting trend to watch in coming years. But don’t hold your breath. The public’s memory of not getting their checks for months will fade as the pandemic subsides. Along with it, so will broad political pressure.

All about AML

Prediction: Smart anti-money laundering rules are good for the world. The next few years of AML may not be good for crypto. The biggest economies have either tried to ban crypto entirely or have made major strides in deputizing fiat gateways — namely exchanges. The crypto industry has largely accepted this. But coming rules are going to get more intrusive.

Situation: In its much-repeated origin story, Bitcoin emerged when the global financial system was unraveling. Satoshi’s timing in pushing a means of moving power away from monetary authorities and financiers alike was perfect.

On the flip side, the subsequent decade saw a surge of attention on all of the devilish ways the powerful and corrupt have squirrelled away illicit gains all over the world, using financial instruments. The 2010s saw successive waves of mass leaks of dirty finance and offshoring — and this was after the U.S.’s “War on Terror” had expanded authority to pursue financial flows in the name of countering terror financing.

In response to, say, the Panama Papers, the public rightly reacted with outrage. Policymakers rightly set out to cut down on interjurisdictional money laundering. And crypto got rolled into these massive policy shifts and legislative packages, despite never coming close to UBS or Mossack Fonseca or Vancouver’s real estate market as a vehicle for money laundering.

But while it is not fair to slur Bitcoin as a money laundering mechanism, it’s obvious that lack of KYC has been extremely lucrative for a number of not-good actors in the crypto world. This is especially true of exchanges. It was the Paradise Papers that exposed that BitFinex and Tether are run by the same people, a fact they would clearly prefer to have kept hidden. It was only as Malta was trying to get its corporate registry in line with EU expectations that it outed Binance for lying about its registration on the island. Which is not even to mention how reckless the executives at BitMEX were.

As the EU rolls out AMLD5, and the U.S. starts demanding owner names for firms registered anonymously, the crypto world has already shifted its party line. Fewer and fewer industry voices are arguing in favor of fully law-agnostic Bitcoin, likely because many of these big players and, especially, exchanges profit by replicating the sins of the traditional financial world. Speaking in generalities, the consensus has been to center legal responsibilities like know-your-customer on fiat gateways. Which is what the Financial Action Task Force is already asking for, so in some ways this is just accepting the inevitable.

As governments have gotten more comfortable with managing exchanges, there have been pushes to go further. Most famous is the U.S. Treasury’s attempt to get info on transactions between exchanges and self-hosted wallets. Those rules are still in process and, pessimistically, some are going to stick.

I don’t foresee governments having any power over fully peer-to-peer transactions on, say, the Bitcoin network unless there has been some major operator error on the part of the wallet owner. But, pessimistically, I can envision a world of whitelists and blacklists, where it gets harder and harder to move between fiat and crypto without giving up all kinds of personal identifying information along the way. It’s not what I would call likely, at least not for several years, but it’s not impossible.



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DogeMania, ‘Dog-Coin’ trademark dogfight, hashrate outage, government warms up to crypto

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Cointelegraph By Ben Yorke

The big news this week happened on April 16th, when a major power outage in Xinjiang wreaked havoc on the BTC hash rate. According to local sources, the hash rates on Ant Mine Pool fell by 21.93%, BTC.com by 18.5%, Binance Mine Pool by 22%, and Huobi Mine Pool by 25.5%. Reports from Cointelegraph linked it with safety inspections resulting from a mine accident in the western-most province. Western China has a strong presence in the mining space due to cheap electricity and equally affordable real estate. Despite miners originally stating the impact would only last 1 to 2 days, the hash rate has yet to rebound. Currently the global rate is under 145 million TH/S, down from a peak of 172 million TH/S the day before the accident.

DogeMania

Dogecoin mania set in as buyers on OKEx and Huobi helped drive the price up 370% in one week. These two predominantly Chinese exchanges accounted for 16.9% and 15.9% of global volumes respectively, with Binance making up only 5.2%. Chinese buyers tend to view all assets through the lens of a potential investment, a strong contrast to western investors who were more likely to make memes about the performance on social media.

Trademark dogfight

Dogecoin mania didn’t stop there. Tianyancha, a website for enterprise information, showed that two companies have tried to register the Chinese version of Dogecoin. The Chinese name, which literally translates to ‘Dog-Coin’, was the subject of trademark applications by two separate technology companies in Shanghai and Changsha. According to the source, the trademark is awaiting a substantive review.

Binance’s new top exec

Binance recently appointed a new head of Greater China as the executive roles continue to shuffle. Binance is a very decentralized company which keeps many of the roles and structure hidden from the public eye. The company moved its head office out of China in 2017 after facing a lot of regulatory uncertainty. Still China possesses a high concentration of traders and investors, making the region extremely attractive for centralized exchanges.

Carefully chosen words of support?

Li Bo, deputy governor of the People’s Bank of China, raised some eyebrows when he announced at a conference that the bank regards Bitcoin and stablecoins as investment alternatives. In a country where words are not generally left to chance, this is a strong indicator that Beijing’s stance on cryptocurrency continues to soften.

Digital yuan is a gamble

In digital yuan news, many fear that stricter monitoring of currency could be another blow to the Macau gaming industry. The region, which depends on the mainland for around 70% of its traffic, would allegedly suffer if illegally-obtained funds became harder to traffic across borders.

Influential currency

Finally, the former governor of the People’s Bank of China warned that applying digital taxes could trigger a tariff war. Speaking at the Boao Forum for Asia, he defended China’s growing presence in the digital economy by pointing out the importance of multilateralism. China is slowly extending its influence in neighboring countries through economic policies, a theme that could be accelerated by developed digital yuan infrastructure.



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Jackson, Tennessee follows Miami’s lead to adopt Bitcoin operations

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Cointelegraph By Helen Partz

Jackson, Tennessee is the latest city in the United States moving to adopt Bitcoin (BTC) payments and mining, following recent crypto developments in Florida.

Jackson Mayor Scott Conger announced Wednesday that the city is actively exploring the option to pay its employees in cryptocurrency in addition to mining Bitcoin and adding it on the city’s balance sheet. The mayor hinted that the city is looking to enable payrolls in several digital assets, mentioning coins like Bitcoin, Ether (ETH), and Litecoin (LTC).

“Local government will lead the way in #Bitcoin adoption, and along with it, usher in a new industrial revolution with sustainable economies that will help close the wealth gap,” Mayor Conger said in a Thursday tweet.

The latest announcement comes shortly after Mayor Conger joined the crypto community’s “laser eyes” flash mob, changing his Twitter profile picture to include laser eyes earlier this week. The crypto laser eyes trend emerged in February, with industry leaders and users changing their Twitter profile avatars to include laser eyes in support of Bitcoin’s price surge.

The mayor’s move follows in the steps of Miami Mayor Francis Suarez, who backed a major initiative to allow Miami residents to pay taxes and receive salaries in Bitcoin. The city commission has already supported a resolution to explore Bitcoin as an acceptable investment for municipal funds. A Miami-Dade County commissioner backed a similar tax resolution in April.

“I’m just following your lead,” the Jackson mayor said in response to Mayor Suarez’s support of his latest crypto move.





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Despite scams, Australian securities regulator keen to support crypto industry

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Cointelegraph By Samuel Haig

The Australian Securities and Investments Commission, or ASIC, has expressed its desire to support the crypto industry, noting the challenges associated with regulating innovative technologies.

Speaking as part of a panel during Australian Blockchain Week on April 22, ASIC commissioner Cathie Armour described the regulator’s objectives as working to “maintain, facilitate and improve the performance of [Australia’s] financial system and the firms that operate within it,” while also ensuring that “all investors and consumers have the confidence the participate in the system.”

“When we’re talking about new innovations like [DLT], or new products like various crypto asset products, from our perspective at ASIC, we are really interested in how those products can be utilized to improve how our financial system operates.”

Armour highlighted one such innovation, noting the Australian Securities Exchange’s plan to replace its CHESS clearing system with a distributed ledger-based system.

“We are spending a lot of time looking at the ASX’s proposal to change its clearing and settlements system,” she said.

Despite the regulator’s desire to work with the crypto asset industry, Armour emphasized the high volume of complaints regarding crypto scams received by ASIC.

“As part of our job in dealing with consumer issues and investor issues, we receive a lot of complaints when things aren’t going right,” she said, adding:

“We know that this is probably a concern as much to all of you who participate in the industry as it is to us.”

Armour urged industry participants to alert the regulator about “poor practices or scam activity,” noting that ASIC “would like to take action to disrupt poor practice in this sector.”

In March this year ASIC put out a warning that dating sites and apps have increasingly become host to crypto-asset scams: “Beware of profiles that suggest or pressure you to participate in ‘third party’ crypto investments. Most crypto-asset investment opportunities reported to ASIC appear to be outright scams with no actual underlying investment.”

In June of last year, ASIC warned of an increasing prevalence of crypto asset scams amid the coronavirus pandemic, estimating that overall scam activity had increased 20% between March 2020 and May 2020.