Why you must rethink FATF now

This is a guest contribution by Dave Mullen-Muhr of Unbounded Capital. If you would like to submit a contribution please contact Bill Beatty for submission details. Thank you.

The Financial Action Task Force on Money Laundering, or FATF, is a G7 organized intergovernmental organization of 37 jurisdictions with the purpose of setting international standards and advisory to combat money laundering and terrorist financing. After learning more about the organization, its history, and its plans for the near future, I propose that if you are an investor with any significant investment in the crypto currency market you NEED to better understand FATF. The sooner the better.

What is the new FATF guidance?

This past June, FATF issued their recommendations to virtual asset service providers (VASPs) regarding their anti-money laundering, know-your-customer, and coutner terrorism financing (AML/KYC/CTF) guidelines. FATF defines VASPs as businesses that,

i) exchange between virtual assets and fiat currencies;
ii) exchange between one or more forms of virtual assets;
iii) transfer of virtual assets;
iv) safekeeping and/or administration of virtual assets or instruments enabling control over virtual assets; and
v) participation in and provision of financial services related to an issuer’s offer and/or sale of a virtual asset.

Because this definition clearly, perhaps explicitly, covers cryptocurrency exchanges, we saw headlines like “All Global Crypto Exchanges Must Now Share Customer Data, FATF Rules”, which is likely what initially brought FATF into most crypto currency investors’ consciousness.

The guidance recommends that exchanges “obtain and hold required and accurate originator [sender] information and required beneficiary [recipient] information and submit the information to beneficiary institutions” on all transfers valued over $1,000 USD.

Outside of the previously lightly regulated cryptocurrency ecosystem, this guidance is nothing out of the ordinary and is essentially the application of FATF’s operative guidance called the “travel rule” for traditional financial institutions towards cryptocurrency businesses.

Now that we have a sense of what guidance was issued, let’s take a look at the common misconceptions stemming from it.

Misconception 1: FATF is only issuing guidance and recommendations, they are not legally binding. They aren’t part of any governmental body with teeth.

This seems to be the predominant takeaway within the crypto ecosystem after the FATF announcement last June. It’s a perfect example of when the facts are true but the news is fake. Yes, FATF is “issuing guidance and recommendations” and no, FATF itself doesn’t have legal jurisdiction for enforcement as an offshoot of the G7. BUT, this does not mean that what they issue is not important.

On the recommendation spectrum this isn’t an “I recommend you watch this movie on Netflix” from a friend, but instead is closer to an “I recommend you step out of the car sir” from a frustrated police officer. As with an upset driver ignoring the recommendation of the latter, when a nation is not compliant with FATF recommendations they face negative consequences. Without voluntary compliance, those in charge of enforcement will opt to “do it the hard way.” With FATF the “hard way” is adding non-compliant nations to a list of “non-cooperative nations”, also known as the FATF grey and black lists.

Once added, the subsequent economic consequences for these nations can be severe. For example, in 2018 Pakistan was grey listed over concerns surrounding its inability to properly address terrorist financing. Subsequent FATF discussions over whether Pakistan should be black listed threatened them with “downgrading…by multilateral lenders like IMF, World Bank, ADB, EU and also a reduction in risk rating by Moodys, S&P and Fitch.” Countries currently grey and black listed include Pakistan, Yemen, Syria, North Korea, and Iran (among others).

While FATF recommendations are not directly related to U.S. or E.U. economic sanctions, they often coincide. FATF advises that additional counter-measures are implemented for routinely non-compliant countries such as Iran and North Korea with “serious, longstanding strategic deficiencies that have still failed to make progress after the FATF calls for enhanced due diligence,” stating that “counter-measures range from specific elements of enhanced due diligence and systematic reporting of transactions…to a limitation or prohibition of financial transactions with the jurisdiction.”

Okay, fine. Maybe being on FATF’s naughty list is bad after all. But North Korea? Isn’t that somewhat hyperbolic? It’s just cryptocurrency.

Misconception 2: Cryptocurrency represents a tiny fraction of the global financial system. We’re small fish. It won’t be a top priority.

To address this misconception you don’t need to rely on the speculation of a paranoid crypto holder or antagonistic no-coiner. FATF is very clear that cryptocurrency and virtual asset compliance is a top priority of the organization. Since FATF is an intergovernmental body, it has a rotating annual presidency between its member nations. The current (2019-2020) presiding nation is China which was preceded by the United States (2018-2019). At the onset of each leadership, the new president issues a short paper outlining their priorities and the objectives for FATF that year. Two of the four priorities outlined during the U.S. presidency’s FATF objectives directly involved crypto currency and FinTech. The section titled “Virtual Currency” reads as follows,

The U.S. Presidency will prioritise clarifying how the FATF standards apply to virtual currency providers and related businesses. Virtual currencies are increasingly being used to launder the proceeds of crime, but are not explicitly acknowledged in the FATF Recommendations…. During the U.S. Presidency, the FATF will also embark on a new project that focuses on investigative best practices on virtual currency to support law enforcement.

Likewise, China’s FATF objectives for the current year reiterate this priority in the section titled “Mitigating the Risks and Exploiting the Opportunities of New Technologies”. It reads,

Under the Chinese Presidency, the FATF will develop the methodology for countries to be assessed against the standard for virtual assets, and it will start assessing FATF members for effective compliance with it….

It’s worth mentioning that these documents outline only four priorities each, thus the respective virtual asset sections make up a significant portion of the FATF directives for that year. (If you read the extended quote from the original source you will note the optimistic tone of the potential benefits enabled via this new technology. We will expand on this optimism in part II.)

Add to this the emphasis from the United States Treasury Department (even including tweets from President Trump) again reiterating the high priority of regulating the crypto currency ecosystem. The Treasury’s Financial Crimes Enforcement Network, or FinCEN issued its own guidance this past May specifically pertaining to “business models involving convertible virtual currencies”. Shortly after its release, Sigal Mandelker, the U.S. Treasury’s Under Secretary for Terrorism and Financial Intelligence, issued remarks addressed cryptocurrency professionals at a conference stating,

…FinCEN issued guidance directly addressing areas of interest gleaned from ongoing industry engagement about how our regulations apply to different business models…I encourage you all to read it closely.

The gist of the FinCEN guidance mirrors much of what FATF issued later in June. Treasury Secretary Steve Mnuchin was quoted saying,

This (FinCEN and FATF guidance) will enable the emerging FinTech sector to stay one-step ahead of rogue regimes and sympathizers of illicit causes searching for avenues to raise and transfer funds without detection. We will not allow cryptocurrency to become the equivalent of secret numbered accounts. We will allow for proper use, but we will not tolerate the continued use for illicit activities.

Unless you think both of these organizations are bluffing, it is clear that regulating cryptocurrency businesses is a top priority for each. But how will this enforcement work in practice?

Misconception 3: Even if they wanted to enforce this stuff, they wouldn’t be able to. Cryptocurrency is decentralized.

And now we address perhaps the biggest cryptocurrency misconception of them all: “but it’s decentralized.” History has empirically demonstrated that decentralization isn’t the panacea many optimistic techno-utopians in cryptocurrency believe it to be. To explain why, we can briefly review one history (among several) of an intergovernmental take-down of an effectively decentralized virtual currency.

Liberty Reserve was a virtual currency in use from 2001 until it was shut down in 2013. It focused heavily on anonymity as it allowed users to send and receive funds with only names, email addresses, and birth dates, all of which could be blatantly faked without ever being cross checked. At its height, Liberty Reserve is estimated to have had over five million users worldwide conducting transactions worth more than US$16 billion. Although it was technically centralized in that it had founders who were eventually sentenced to prison, its network was effectively decentralized across the world via its fiat on-ramp/off-ramp “exchangers”. A New Yorker article contemporaneous to Liberty Reserve’s closure describes exchangers as,

…typically unlicensed moneymen in countries like Malaysia, Nigeria, and Vietnam, who bought Liberty Reserves in bulk from Liberty Reserve. You would pay them dollars (or whatever currency) for a certain sum of Liberty Reserves, which they would then deposit into your account.

I don’t see a substantive difference between the description of these unlicensed moneymen and the unlicensed KYC/AML-less cryptocurrency exchanges that exist today, except that the latter are far easier to locate via Google searches.

Because of its multinational and decentralized nature, Liberty Reserve was possibly more onerous to shut down than a centralized entity, but that did not stop it from happening. The United Nations’ SHERLOC database summarizes the methods by which the U.S. Federal Executive and Judiciary branches used FinCEN authorities under Section 311 of the U.S. Patriot Act to seize all known domains and assets of Liberty Reserve’s operators. Additional court documents (see: exhibit B, page 7) outline how the U.S. worked in conjunction with several other nations and “obtained seizure warrants for 28 bank accounts controlled by the Defendants, located in eight countries” as well as “issued more than 30 (legal action) requests…to more than a dozen countries.”

The language regarding the threshold required for granting authority to the U.S. Secretary of the Treasury under Section 311 of the U.S. Patriot Act would seemingly already be met by the crypto currency industry given both FinCEN and FATF’s recent statements. Section 311 “grants the Director of FinCEN the authority, upon finding that reasonable grounds exist for concluding that a foreign jurisdiction, foreign financial institution, class of transactions, or type of account is of ‘primary money laundering concern’, to require domestic financial institutions and financial agencies to take certain ‘special measures’ to address the primary money laundering concern”. These special measures include imposing “additional recordkeeping, information collection, and information reporting requirements on covered U.S. financial institutions,” similar to those outlined by FATF’s travel rule.

The United States’ FinCEN isn’t alone on explicitly confirming and extending FATF’s guidelines enforceable within their own jurisdiction. In famously banking friendly Switzerland, the Swiss Financial Market Supervisory Authority (FINMA) has issued similar guidance. FINMA’s August 2019 report, explicitly referencing FATF’s guidance, lays out how the Swiss government will be regulating crypto currency businesses within their borders to comply with new international standards. They write,

…blockchain-based business models cannot be allowed to circumvent the existing regulatory framework. This applies particularly to the rules for combating money laundering and terrorist financing, where the inherent anonymity of the blockchain presents increased risks.

Concurrent with this guidance, FINMA also announced the issuance of banking and securities licenses to two blockchain service providers, the first in Switzerland. While excitement stemming from the announcement of “institutional” blockchain players entering the Swiss market made headlines on various cryptocurrency publications, the key disclaimer that they would be held compliant to FATF’s and FINMA’s standards as part of this licensing was often underplayed.

The severe negative consequences faced by the operators of Liberty Reserve are the same types of “do it the hard way” consequences major cryptocurrency exchanges will want to avoid going forward by opting to be compliant with all the recent national and international guidance. Although the technical architecture of blockchain makes it arguably more robust than a series of registered domain names and grassroots exchangers, currently profitable and compliant businesses will not rely on that suggestion for peace of mind. Leaving the likelihood that virtually all major existing exchanges will aim to remain legally compliant with international standards like those recommended by FATF aside, how many cryptocurrency investors would want to deal with these potential legal ramifications? If a strong majority of the market is spooked, what will happen to the value of the assets?

Misconception 4: This won’t take effect for years to come and it will be implemented in each individual country differently. Not very time sensitive.

The legal reality of the precedent of successful enforcement stemming from the guidance of organizations like FATF and the U.S. Executive branch virtually ensures that companies operating within compliant jurisdictions (all non black/grey listed) will want to stay ahead of the law. To imagine that a company within a FATF compliant nation will ignore the provided guidance is woefully naive. To do so would recklessly open their business up to the threat of crippling exclusion from all existing major financial institutions as well as jail time for the individuals who operate the business. Individuals are not decentralized. Furthermore, to imagine that an otherwise compliant jurisdiction would ignore enforcement of the FATF recommendations in order to allow non-compliant crypto currency businesses to operate within their borders is even more naive. This would open up the entire country to the threat of nation state level sanctions as well as the aforementioned exclusion from existing financial institutions. This is not remotely realistic.

FATF’s June 2019 guidance stated that “the threat of criminal and terrorist misuse of virtual assets is serious and urgent, and the FATF expects all countries to take prompt action to implement the FATF Recommendations in the context of virtual asset activities and service providers.” Accordingly, they will “monitor implementation of the new requirements by countries and service providers and conduct a 12-month review in June 2020.”

Given this time sensitivity, it’s not surprising that several cryptocurrency exchanges have already responded with changes. A few weeks after the FATF guidance was released Korean exchange OKEx announced they were dropping five anonymity focused “privacy coins” within 30 days. A few days later, Korean exchange Upbit followed suit, also delisting privacy coins. Upbit cited the “decision to end trading support for the crypto-asset was also made to block the possibility of money laundering and inflow from external networks.” Continuing, “Upbit will continue to consider crypto-assets that represent anonymity functions as candidates for designation of ‘investment warning crypto-assets.’”

Preempting the most recent FATF updates, in May 2018 the Japanese cryptocurrency exchange industry group “Japan Virtual Currency Exchange Association” voluntarily agreed to delist popular privacy coins. This impacted exchanges like Coincheck which opted to comply and removed their privacy coins. Coinbase U.K. also announced this past August that they were delisting privacy focused “ZCash” for U.K. customer, though without publicly citing their reason. Surprisingly Coinbase maintained Zcash service in other jurisdictions.

While anonymity focused privacy coins are the obvious low hanging fruit, it’s a worthwhile exercise to think through how the broader industry will respond. Likewise, it’s worth deeply exploring which cryptocurrency’s technical roadmaps are heavily invested in the feature of anonymity. What about market dominance leader BTC and their layer two Lightning Network?

What does this mean?

From my vantage point, the apparent legal naivety of the broader cryptocurrency market is a cognitive bubble that must pop. The integration of this relevant legal guidance and its consequences into any cryptocurrency investor’s landscape analysis is essential, no matter how unsettling it may be at first glance. That being said, I encourage investors to refrain from interpreting the presence of robust legal regulation as a negative signal. All of the aforementioned guidance explicitly leaves room for what regulators see as the positive consequences of a compliant market. In part II, I will argue for the attractiveness of these positive consequences for both regulators and end users alike, with Bitcoin (BSV) as the original design envisioned by Satoshi Nakamoto, positioned as the perfect tool for this compliance. Bitcoin’s inherent legal compliance is not an accident. But more on that later.

Stay tuned for part II.

Dave Mullen-Muhr is an investor, entrepreneur, writer, and ever-curious learner. A principal at Unbounded Capital, Dave is focused on leveraging Bitcoin to integrate the wisdom of the past with the technology of the present to innovate the future. 

Russia digital rights act defines smart contracts, cryptocurrency

Russian lawmakers have introduced a new law defining cryptocurrency and smart contracts, as part of ongoing efforts to tighten the rules around cryptocurrency.

According to reports in local media, the new laws specify the appropriate legal treatment for digital assets and smart contracts, and introduces the concept of “digital rights” into Russian law for the first time.

The bill means that digital rights will be treated in the same way as securities or other contractual rights. It clarifies that digital rights will be governed under civil law.

Automatically executing smart contracts will be treated in the same way as automated payment used by mainstream banks, while requiring information attached to each transaction, such as the identity of the digital rights owner and other parties to the transaction.

The Russian legal system is not based on common law, meaning there are no precedents—only laws written to the country’s civil code are enforceable. This means the bill will effectively be introducing regulatory structure to cryptocurrency and digital assets for the first time.

Russia has historically been reluctant to embrace cryptocurrency, and to date, the sector has been largely unregulated in Russia.

Ongoing efforts to develop legislation have stalled time after time, with lawmakers apparently struggling to create sufficient structures for regulating the fast-moving crypto space.

The new laws have been seen as one of the first tentative steps from the Russian authorities towards regulating crypto, at a time of an increasing international push towards establishing regulatory regimes for digital assets.

The Russian government had previously suggested it might ban cryptocurrency outright, and lawmakers have been reticent to embrace the technology fully for fear over its applications in criminality and its impact on the wider financial system.

Those suggestions have since been retracted, and the Russian authorities have appeared to warm to the idea of regulating the sector. As of November 2016, the Federal Tax Service of Russia said that cryptocurrency was “not illegal.”

The news will be welcomed by those operating in and around the Russian crypto sector, many of whom have called for greater clarity on the law around cryptocurrency and smart contracts in the country.

Crypto could be ‘money of the Internet’: Hester Peirce

Financial regulators are too paternalistic. This is the viewpoint of “Crypto Mom,” better known as U.S. Securities and Exchange (SEC) Commissioner Hester Peirce. She earned her moniker for calling out regulators on several occasions for their heavy-handed approach to digital currencies and she’s back again, stating that it’s possible crypto could eventually become the money of the Internet.

Peirce was on hand for the Digital Asset Compliance and Market Integrity (DACOM) Summit held Thursday in New York, where she conducted a Q&A with attendees that focused mostly on the state of digital currencies and their regulatory oversight. Always excited about the prospects for blockchain and crypto innovation, she stated, “It’s been an honor to be adopted by a group of people who are really thinking in such exciting and interesting ways and trying to think about ways to change the world,” adding that, as the technology advances, digital currencies will become “much more the money of the Internet.”

Crypto Mom also took a few minutes to reiterate her stance that the SEC is not giving digital currencies their fair attention. She asserted, “If you want a government that’s more forward-thinking on innovation, that means that if something goes wrong, you can’t go running back to the government and say ‘Hey, you didn’t protect me from myself!’ …I think we need to be a little less paternalistic.”

Peirce has become somewhat disenchanted with how slowly the SEC is moving on crypto-related activity. A case in point is how long it is taking to make a decision on crypto exchange-traded funds (ETF), still not able to draw its own conclusion more than two years after the subject first came up. It has repeated sought delay after delay in making a decision, only to ultimately shoot all crypto ETF requests down.

She asserted during the summit, “When I came to the SEC one of my hopes was to help change the way it addresses innovation. In my first round I saw it was slow.” Peirce believes that this slow approach is one of the reasons the U.S. is losing its technological edge and becoming less competitive, a viewpoint that has been shared by other regulators and lawmakers for some time. However, until SEC Chairman Jay Clayton either opens his eyes or is replaced, the odds of significant changes being made are slim.

Since commissioners serve five-year terms and Clayton has been in for just over two, it could still be a while before someone else is at the helm.

Facebook Libra may not launch in time after all

Facebook founder and CEO Mark Zuckerberg has suggested Libra may not launch on time after all, in a week that has seen the stablecoin meet more resistance from regulators.

Earlier in the week, the Bank of Japan (BoJ) became the latest central bank to voice its opposition to the project, calling for strict standards of international regulation to control the proposed stablecoin.

Libra had been scheduled for release in 2020, with plans for an international rollout. Now, in an interview with Nikkei Asian Review, Zuckerberg appeared to imply there was flexibility in that timescale. Acknowledging the concerns of regulators and other industry stakeholders, Zuckerberg said Facebook would “work through” these challenges before proceeding with the launch of Libra.

A lot of people have had questions and concerns, and we’re committed to making sure that we work through all of those before moving forward.

Tellingly, he suggested it could take a number of years to get the launch right, in remarks which appear to come in response to the growing disquiet of financial regulators and central banks worldwide, saying, “Obviously we want to move forward at some point soon [and] not have this take many years to roll out…But right now I’m really focused on making sure that we do this well.”

Zuckerberg said that Facebook now intends to have a period of review and consultation before the launch, which could add further delay to the rollout.

“Part of the approach and how we’ve changed is that now when we do things that are going to be very sensitive for society, we want to have a period where we can go out and talk about them and consult with people and get feedback and work through the issues before rolling them out,” he told the news outlet. “And that’s a very different approach than what we might have taken five years ago. But I think it’s the right way for us to do this at the scale that we operate in.”

While Zuckerberg stopped short of putting a revised timeline on the launch, his comments pour cold water on the promise of a 2020 launch.

Even on a longer-frame timescale, Facebook still has a number of challenges to overcome in order to get its stablecoin into circulation. 

블록체인 기술이 규정 준수를 개선할 수 있나요?

규제가 심한 업계 내 기업들은 수년간에 걸쳐 블록체인 기술을 자세히 모니터링해왔습니다. 블록체인은 많은 기업에 보고를 간소화하고 규제 부담을 덜어주기 위한 기회를 제공합니다. 하지만 블록체인 기술이 규정 준수를 어떻게 개선하며, 특히 가장 큰 수혜를 입는 부문은 무엇일까요?

자동 실행되는 스마트 계약이 상거래가 작동하는 방식을 점검할 예정입니다. 가장 기초적으로 스마트 계약은 미리 결정된 특정 요인이 충족되면 자동으로 발효되는 계약으로, 협상 계층을 효과적으로 없애줍니다.

계약이 보통 대체로 표준화되거나 반복되는 업계에서는 자동 실행되는 스마트 계약의 자동화 기능이 효율성을 향상하고 비용을 절감하면서 영구적인 감사 내역을 제공할 것입니다.

토지 등기는 특히 개발도상국에서 규정 준수가 훨씬 더 쉬워지는 또 다른 법적 기능입니다. 공개형 블록체인에서의 토지 등록 추적은 일관되고 투명한 소유권 기록을 보장하고 더 원활한 소유권 이전을 촉진합니다. 변경할 수 없는 소유권 기록으로 검증이 더 쉬워져 대부분의 토지 등록 시스템보다 훨씬 더 효과적으로 다시 추적할 수 있습니다. 블록체인 기술은 향후 토지 등록에서 점점 더 중요한 역할을 하게 될 것입니다.

지적 재산권도 블록체인의 수혜 대상이며 최초 사용 증거 및 특허권/상표 정보를 저장하기 위한 공공 원장에 기록되어 IP 소유권을 보다 즉시 확인할 수 있습니다.

인구 조사 데이터와 출생 기록을 포함한 정부 및 국가 기관에서 관리하는 모든 종류의 공공 기록도 마찬가지입니다. 이 데이터를 콜드 디지털 또는 문서 보관소 대신 블록체인에 저장함으로써 기록을 더 쉽게 관리하고 영구적으로 저장하며 탈중앙화된 네트워크에서 쉽게 검색할 수 있습니다.

심지어 블록체인 검증이 기록과 투표의 무결성을 강화하고 프로세스 자체를 훨씬 더 쉽게 관리할 수 있도록 지원함에 따라 전자 투표와 유권자 등록까지 확장할 수 있습니다.

규제 업계와 부문은 규정 준수, 기록 보관 및 관리를 개선하는 데 도움이 되는 무수한 응용 프로그램이 있는 블록체인 기술을 더 많이 채택함에 따라 수혜를 입는다고 할 수 있습니다.

블록체인 기술이 규정 준수를 개선할 수 있나요? 이 질문은 곧 서울에서 열리는 코인긱 컨퍼런스에서 비트코인 SV(BSV) 발전과 관련된 다른 많은 문제와 함께 더 자세히 탐구될 질문 중 하나입니다.

이 행사는 개발자와 이해당사자들이 비트코인의 최초 백서 비전을 고수하면서 비트코인 SV와 기술이 세계의 새로운 화폐를 개발하는 방법에 대해 더 많이 배울 수 있도록 하는 데 목적이 있습니다.

비트코인 창시자이자 nChain 수석 과학자인 크레이그 라이트(Craig Wright) 박사를 포함한 세계적으로 손꼽히는 학자들의 프레젠테이션을 특징으로 하는 이 행사는 BSV와 블록체인에 관심이 있는 모든 이에게 열려 있습니다. 블록체인 기술이 규정 준수를 개선하는 방법에 대해 배우려면 오늘 티켓을 구매하여 코인긱 서울 컨퍼런스에 참석하세요.

고객님께서는 비트코인 SV  CoinGeek Seoul 컨퍼런스 티켓을 구매 하시면 20% 할인을 받으실  있습니다그리고 컨퍼런스 참석자는 Le Meridien Seoul 에서 독점 할인 혜택을 받으실  있습니다이 링크를 확인하신 뒤특별 요금 탭에서 ‘그룹코드‘  선택하신 후에 프로모션 코드인 RE1RE1A  입력하시면 호텔 할인 혜택을 누리실  있습니다.

Can blockchain technology improve compliance?

Blockchain technology has been closely monitored by companies in highly regulated industries over a number of years. For many firms, blockchain presents opportunities for streamlining reporting and discharging regulatory burdens. But how can blockchain technology improve compliance, and what sectors specifically stand to benefit most?

Self-executing smart contracts are set to overhaul how commerce functions. At their most basic level, these are contracts that execute automatically when certain predetermined triggers are met, effectively eliminating layers of negotiation.

In industries where contracts are often largely standardized or repeated, the automation from self-executing smart contracts will improve efficiency and reduce costs while also providing a permanent audit trail.

Land registry is another legal function where compliance can be made significantly easier – especially in developing countries. Tracking land registration on a public blockchain ensures consistent, transparent ownership records, as well as facilitating smoother transfers of title. Verification is made easier by the immutable record of ownership, which can again be traced far more effectively than in most land registration systems. Blockchain tech will play an increasingly important role in land registration in future.

Intellectual property rights stand to benefit from blockchain too, making IP ownership rights more immediately ascertainable, recorded on a public ledger for storing evidence of first use and patent/trademark information.

The same applies to all kinds of public records administered by governments and state agencies, including census data and birth records. By storing this data on a blockchain, rather than in cold digital or paper archives, records become easier to administer, permanently stored and easily retrievable across decentralized networks.

This can even be extended as far as electronic voting and voter registration, with blockchain verification shoring up the integrity of records and votes, as well as making the process itself significantly easier to administer.

Regulated industries and sectors arguably stand to benefit most from greater adoption of blockchain technologies, with countless applications that would help improve compliance, record keeping and administration.

Can Blockchain technology improve compliance? This is one of the questions set to be explored in more depth at the forthcoming CoinGeek Conference in Seoul, South Korea, alongside a host of other issues pertinent to the development of Bitcoin SV (BSV).

The event is designed for developers and stakeholders to learn more about Bitcoin SV and how the technology is developing the world’s new money, through adhering to the original whitepaper vision for Bitcoin.

Featuring presentations from some of the world’s leading academics, including Bitcoin founder and nChain chief scientist Dr. Craig Wright, the event is open to everyone with an interest in BSV and blockchain. To learn how can blockchain technology improve compliance, get your tickets today to the CoinGeek Seoul conference.

Get 20% off the CoinGeek Seoul conference tickets when buying with BSV, plus conference attendees can also take advantage of exclusive discount to the Le Meridien Seoul. Check out this link, select “Group code” at the Special Rates tab and simply type the promo code RE1RE1A to receive the hotel discount.

Jimmy Nguyen: Bitcoin SV (BSV) Building the Regulation-Friendly Ecosystem

The cryptocurrency world has been marred by the criminal activities of a few who would seek to carve out their own fortunes rather than build something bigger. That’s not the original vision of Bitcoin, and as Bitcoin Association Founding President Jimmy Nguyen told the crowd at the Expo-Bitcoin International 2019 in Bogota, Colombia, Bitcoin SV is fighting for a better regulated industry to protect consumers.

As Nguyen showed, the digital currency industry needs better protections against the foolishness and criminality of even once respected businesses. QuadrigaCX is the perfect example of this. Deceased founder Gerald Cotten was once a respected member of the Canadian cryptocurrency scene, but as the exchange failed, stories of improperly handled private keys and mismanagement of user funds proved that a lack of regulations had failed Canadians.

“Things like this have been happening in the cryptocurrency world and that’s why some people are afraid of it,” Nguyen noted. “It’s why some governments are afraid of Bitcoin and cryptocurrency.” (6:13)

As Founding President of the Bitcoin Association, Jimmy Nguyen and Bitcoin’s creator Dr. Craig Wright are trying to make a difference in this area by encouraging world governments to firm up regulations. “Yesterday Craig Wright and I had the fortune, thanks to Boris, to speak before Craig spoke before the Council of Bogota,” Nguyen explained, “and we spoke with other government officials and we talked to him about the need of creating a lawful environment because we don’t want this to happen to people if you’re going to invest in or use cryptocurrency you want to feel that it’s safe.” (6:20)

To explain how deep this problem goes, Nguyen told the story of Bitfinex and Tether. Through Tether’s stablecoin, which has been proven can be printed with nearly nothing to back its value, the price of SegWitCoin (BTC) has soared on exchanges like Bitfinex. To protect this criminal manipulation of the markets, BTC supporters have argued for the anonymity of cryptocurrency, which misleads the world into believing that’s what Bitcoin offers. As Nguyen told the Bogota crowd, that’s just not true:

“If you create a completely anonymous system of money, do you know what happens? People use it for illegal things. They use it for terrorists and criminals. Is that what we want? It’s not what we want and it’s not what Craig created Bitcoin for. So that’s why Bitcoin SV (BSV) is not only the only blockchain that’s pursuing the original Satoshi Vision created by Craig Wright, is pursuing a vision to mass scaling, huge blocks for huge business for fast transactions all over the world, but we are building an environment that is regulation, government, and business friendly.” (12:02)

To accomplish BSV’s regulatory friendly goals, it seeks to promote privacy, not anonymity. It encourages Money Services Businesses (MSBs) to follow all know your customer (KYC) and anti-money laundering (AML) laws. Through Tokenized, it looks to implement tokens based on real-world assets, compliant with all securities regulations. It sheds relationships with bucket shop crypto exchanges in favor of utility based exchanges like Float SV, who practice proper oversight to protect investors. Finally, unlike Tether, it only associates with stablecoin tokens with verifiable, auditable backed up assets.

Using proper regulation and supervision, BSV looks to embrace the laws of the land, through which it can gain the public’s confidence and realize mass adoption. “Bitcoin is sunlight. It’s not darkness,” Nguyen noted. “It’s a blockchain, a public, record keeping system which anyone should be able to look at, and while your name may not be attached to it, the history of transactions, the history of records is something that is meant to provide more truth to the world.” (32:58)

Nguyen concludes:

“And that’s the final thought I will you on. Bitcoin is about truth. It’s about providing more truth to the world and it’s providing all of the users of it, people in this room like you, we hope one day four billion people around the world more financial power over their own lives, more financial services, and the truth of a Bitcoin currency and blockchain that brings sunlight to the world.” (36:18)

Bitcoin SV: The regulation-friendly Bitcoin

Many cryptocurrency enthusiasts argue that Bitcoin and other digital currencies are beyond the law’s reach, and that instead “code is law.” Recent headlines make clear this is not true—Facebook’s Libra project faces U.S. Congressional hearings and pushback from other governments, the New York Attorney General Office’s investigation into Bitfinex and Tether, the bankruptcy of Canadian exchange QuadrigaCX and discovery that its CEO abused customer funds, and more stories of crypto actors running into the law. While other cryptocurrency camps resist government, I and other Bitcoin SV (BSV) supporters welcome responsible regulation. We know it’s necessary to protect consumers, win institutional investment, earn enterprise confidence, and help grow blockchain technology. That’s why BSV, as it restores Bitcoin’s original Satoshi Vision, is building a regulation-friendly ecosystem.

Bitcoin’s blockchain is an immutable ledger of transactions and data. While its system provides pseudonymity to users, the ledger is transparent and auditable. That’s because Bitcoin was designed to create more honesty in government, businesses and money. (Read the Bitcoin white paper and you’ll see it uses the word “honest” 15 times.) Bitcoin was intended to bring more light, not darkness, to the world. Unfortunately, its early commercial uses—such as the Silk Road marketplace—fostered criminal activity. And many early crypto enthusiasts have an anti-establishment, even crypto-anarchist, mindset and advanced the false idea that Bitcoin was anti-government. 

I have a healthy respect for law. I’m a former 21+ year lawyer in the U.S., having helped big corporates and tech start-ups navigate legal compliance as they conducted business on the Internet and other digital platforms. My legal career helps me understand the practical challenges companies confront when regulation is uncertain for frontier environments—such as Bitcoin and cryptocurrency face now. This is why I know Bitcoin’s industry will grow by working with, not against, the law. For Bitcoin to achieve global adoption, businesses and consumers need confidence its currency and blockchain are legally safe to use. 

In practical terms, what does this mean? For me and others in BSV ecosystem, it means:

1. Users should have privacy about their Bitcoin transactions, but not anonymity.

Bitcoin transactions are pseudonymous, but not anonymous. Other crypto projects want to create coins that enable more “anonymous” transactions. But anonymity, especially with money, helps breed illegal activity and that is the opposite of what Bitcoin was created to do. While Bitcoin transactions are pseudonymous, they are a terrible means to conduct illegal activity because the blockchain evidence trail is permanent.

2. Exchanges, custodial wallets and other service providers need to comply with know-your-customer (KYC) and anti-money laundering (AML) rules.

When you open a bank account or send funds through money transmitters, you need to provide identifying information about yourself. Those KYC and AML requirements are designed to curb money laundering and illegal transfer of funds. But in the crypto world, some users do not like complying with such requirements to open exchange or wallet accounts, and many service providers resist because these rules create friction in the user on-boarding process. But the legal tide is increasingly making clear that laws governing money service businesses—which require KYC and AML compliance—apply to crypto exchanges, custodial wallets, and certain other service providers.

In the U.S., the Bank Secrecy Act and its related regulations will likely govern. In the G20 countries, exchanges face AML standards and countering the fund of terrorism (CTF) rules of the Financial Action Task Force (FATF). Before January 2020, in the European Union, exchanges must comply with the 5th Anti-Money Laundering Directive (AMLD5)—which treats exchanges like financial institutions and requires them to perform customer due diligence and submit suspicious activity reports (SARs).

Other crypto camps will struggle with such requirements. For example, the Bitcoin Core (BTC) ecosystem pins its hopes on the Lightning Network, which uses special nodes to create payment channels that are likely subject to money transmitter laws. Alt-coins that provide “anonymity” functions (better labelled “dark coins”) seek to avoid traceability. While their legal future is clouded, BSV builds an ecosystem with compliance in mind now. That’s why BSV will not be relegated to the small world of crypto hobbyists, but has the best path to global adoption.

3. Cryptocurrency exchanges should be licensed and need oversight to protect investors.

Cryptocurrency exchanges need to be regulated so they do not become “bucket shops” that allow gambling-like trading of numerous questionable digital assets. Regulatory oversight is also needed to protect investors—for example, to prevent wash trading that artificially inflates an exchange’s supposed volume; to ensure exchange operators separate their own fiat and crypto assets from those of customers (to prevent another QuadrigaCX debacle); and to avoid exchanges capriciously delisting a coin and unfairly hurting global investors in that asset, such as when Binance and certain other exchanges delisted BSV in April 2019 just because they personally disliked legal actions taken by prominent BSV supporter Dr. Craig Wright. Exchanges create the public marketplace for investors’ assets; they should be held to reasonable standards so they cannot unfairly harm those assets.

4. Token issuers should comply with applicable securities laws.

The initial coin offering craze in 2017 is now resulting in regulatory enforcement action, and rightfully so. Most of those ICOs were unregistered security offerings, and should not escape securities laws just because the offered tokens were created on Ethereum or other crypto platforms. In the BSV world, we do not want a rampage of get-rich-quick tokens with no real value. Instead, we support tokenization of real world assets and creating tokens with real utility. While not all tokens trigger securities law, those that do should comply.  

That’s a big reason why the Tokenized team was selected to win CoinGeek’s £5 million contest to create a tokenization protocol for BSV.  In addition to being good technically, the Tokenized solution enables a token issuer to easily comply with laws in its operating jurisdictions—such as by enabling issuers to track, freeze and reclaim tokens, as well as restricting the secondary trading to accredited investors and/or investors from certain jurisdictions. That’s smart, business-friendly, and indicative of the BSV ethos.

Another example of this ethos is Float SV, which emerged in April 2019 as a new form of digital asset exchange. In addition to being a strong supporter of BSV, Float SV expressly advertises itself as “a digital asset exchange that only supports tokenized real assets.” I look forward to the day when BSV-based tokens of real world assets—such as commodities or financial instruments—are traded on Float SV and other like-minded exchanges.

5. Stable coins should be backed by verifiable and auditable real-world funds or liquid assets.

Stable coins are a popular trend, but they need oversight to ensure they are in fact backed by real-world value. The New York Attorney General’s investigation into Bitfinex and Tether has exposed how the USDT “stable coin” is not 100% backed by assets equal in value to the total amount of minted coins, and certainly not backed by liquid assets of reliable value. 

Many observers believe Tether coins have been used to artificially pump up BTC’s value—including during BTC’s crazy 2017 bull run—and unduly influence the BTC market. That in turns triggers artificial rises and falls of other cryptocurrencies, which historically coupled to BTC’s price trends. We do not want magically-minted digital coins to distort financial markets. If you issue a stable coin (on BSV or any other platform), the backing assets should be verifiable and auditable to ensure that each dollar worth of stable coin is truly backed by an equivalent dollar of real funds or liquid assets.

Proactive Regulation Can Help Bitcoin Grow

People often think of regulation as only imposing restrictions on what actors cannot do. But laws can also be used to proactively help technology grow. For example, we encourage laws and government guidance that:

 – Provide economic incentives for blockchain technology entrepreneurs and start-up companies;
 – Create sandbox programs that allow start-up companies to experiment as a digital asset business before having to obtain a full regulatory license;
 – Help cryptocurrency and digital asset businesses can obtain banking—such as by creating a new bank category that is clearly authorized to provide services to digital asset businesses (which the State of Wyoming in the U.S. has enacted);
 – Recognize Bitcoin [SV] as legal tender or an authorized form of payment in the jurisdiction;
 – Permit use of Bitcoin [SV] to pay corporate or individual taxes;
 – Recognize enforceability of smart contracts (the State of Arizona in the U.S. has done so); and
 – Recognize blockchain records can be used by corporations and in courts of law.

Dr. Craig Wright and I increasingly communicate with government officials to provide guidance on such matters. We review and comment on draft legislation. And we invite dialogue. Our goal is to educate legislators and government agencies about how to responsibly regulate cryptocurrency businesses, while encouraging innovative growth. 

Any technology can be used for both good and bad purposes. It’s how the Bitcoin ecosystem develops—and whether it supports legal frameworks—that will determine how much it succeeds. We want major enterprises and billions of people globally to use Bitcoin, precisely because it brings more light and honesty to the world. That’s why BSV is finally creating the regulation-friendly Bitcoin, the way Bitcoin was always born to be.

Jimmy Nguyen is Founding President of Bitcoin Association, the global industry organization for the business of Bitcoin, which backs Bitcoin SV. Jimmy was formerly CEO of nChain Group, the worldwide leader in advisory, research and development of blockchain technologies, and now is Chair of its Strategic Advisory Board. Jimmy is a former lawyer, with a 21+ year career as an intellectual property and digital technology lawyer in the U.S., where he was a partner at three major law firms. In 2008, Lawdragon named Jimmy (at only age 36) one of the “500 Leading Lawyers in America” and described him as a “dynamo talent.” 

South Korean lawmakers to champion legalised ICOs

South Korean lawmakers to champion legalised ICOs

South Korea has been on the frontline of ICO regulation in recent months, following the decision of lawmakers there to outlaw initial coin offerings, as part of a wider crackdown on activities within the cryptocurrency space.

Now, a group of lawmakers is reported to be working on a bill that would seek to overturn the ban, and reintroduce ICOs on a legal footing.

According to local media reports, lawmakers are drawing up proposals which could be presented later this year, of early 2019 at the latest. The proposals are being led by Rep. Hong Eui-rak, who told the National Assembly this week of his plans to challenge the 2017 ban.

“The bill is aimed at legalizing ICOs under the government’s supervision…The primary goal (of the legislation is helping remove uncertainties facing blockchain-related businesses,” Hong said, according to Korea Times.

However, far from a return to the free-for-all conditions of the unregulated market, the proposals would allow only “research centers” and public organisations from deploying the funding model, which most market analysts would consider a step in the right direction for legitimising token issues. Nevertheless, the proposals will come as a surprise to some, following the decision in South Korea to ban initial coin offerings in the first place.

The 2017 decision seems to have had little impact on trading volumes or interest in the wider cryptocurrency space in South Korea, save for a reduction in the number of dubious ICOs being launched each month.

It follows similar moves by regulators elsewhere to bring ICOs in line with existing securities laws. In the U.S., for example, the Securities and Exchange Commission declared some ICOs to be de facto securities, accompanied by several other motions towards a formal, regulated environment for the ICO model.

Authorities in China have come down hard on the other extreme, effectively banning the model outright—a policy approach that has apparently gained some traction across other Asian countries.

This makes a new structure in South Korea potentially even more significant, and the chance to set a new precedent for regulating ICOs in the region.

With the implications of the 2017 ban still becoming apparent, it remains to be seen whether the more moderate approach proposed in the bill will gain the necessary support to become law, and to soften the regulatory approach to ICOs in South Korea.

Note: Tokens on the Bitcoin Core (segwit) Chain are Referred to as BTC coins. Bitcoin Cash (BCH) is today the only Bitcoin implementation that follows Satoshi Nakamoto’s original whitepaper for Peer to Peer Electronic Cash. Bitcoin BCH is the only major public blockchain that maintains the original vision for Bitcoin as fast, frictionless, electronic cash.
Regulation is coming: SEC commissioner slams ICO industry

Regulation is coming: SEC commissioner slams ICO industry

The U.S. Securities and Exchange Commission (SEC) has been intensifying its rhetoric around regulating initial coin offerings (ICOs) in recent months, as the regulator increasingly turns its attention to token crowdsales and the wider cryptocurrency space.

Now, in one of the starkest official criticisms to date, a serving commissioner at the securities regulator has criticised the current state of the ICO space, suggesting investors are currently finding it difficult to separate genuine opportunities from opportunistic scams and frauds.

SEC Commissioner Robert Jackson said the current situation with ICOs was the reason the SEC exists in the first place.

“Investors are having a hard time telling the difference between investments and fraud…If you want to know what our markets would look like with no securities regulation, what it would look like if the SEC didn’t do its job? The answer is the ICO market,” Jackson told CNBC.

Citing “troubling developments” in the sector, he continued to say the commission’s priority was to protect investors who might be drawn in: “Right now we are focused on protecting investors who are getting hurt in this market.”

However, Jackson was more optimistic about the future for ICOs, which he sees as inevitably subject to existing US securities laws, telling the news outlet: “Down the road, I think we will be thinking about ways to make those investments work consistent with our securities laws.”

Jackson’s comments come in the wake of several other high profile announcements from US authorities around ICOs and cryptocurrencies. A divisional director of the SEC confirmed at a hearing in the House of Representatives last week that the securities regulator has been working towards a regulatory framework for ICOs, while a former executive from the CFTC confirmed his personal view that many ICOs, including those for cryptocurrencies like Ripple’s XRP and ETH, could ultimately be found to be securities.

It seems inevitably at this stage that the SEC will look to introduce firmer regulation around ICOs and new cryptocurrency tokens. It remains to be seen whether this will help reduce instances of fraud and deception, already too prominent with investments of this kind.

Note: Tokens on the Bitcoin Core (segwit) Chain are Referred to as BTC coins. Bitcoin Cash (BCH) is today the only Bitcoin implementation that follows Satoshi Nakamoto’s original whitepaper for Peer to Peer Electronic Cash. Bitcoin BCH is the only major public blockchain that maintains the original vision for Bitcoin as fast, frictionless, electronic cash.
Flip-flopping Iran finally goes all in on cryptocurrency crackdown

Flip-flopping Iran finally goes all in on cryptocurrency crackdown

Is the country shutting down competitors in preparation for their own cryptocurrency?

Iran has been going hot and cold on cryptocurrencies lately. In November last year, the secretary of Iran’s High Council of Cyberspace (ICC) said they “welcome Bitcoin.”

“We [at the HCC] welcome Bitcoin, but we must have regulations for Bitcoin and any other digital currency…Our view regarding Bitcoin is positive, but it does not mean that we will not require regulations in this regard because following the rules is a must,” secretary Abolhassan Firouzabadi said.

But then in February, the Central Bank of Iran backpedalled and released contradictory statements, saying they never legally recognized Bitcoin or any other cryprocurrencies in the territory.“The wild fluctuations of the digital currencies along with competitive business activities underway via network marketing and pyramid scheme have made the market of these currencies highly unreliable and risky,” they stated.

And now, they are going all in on the crackdown. The Central Bank has issued an order banning local banks from engaging in any cryptocurrency-related activities, which means any exchanges operating or planning to operate in the country are good as dead.

“Banks and credit institutions and currency exchanges should avoid any sale or purchase of these currencies or taking any action to promote them,” the Central Bank reportedly stated in a report by state news agency IRNA. “All cryptocurrencies have the capacity to be turned into a means for money-laundering and financing terrorism and in general can be turned into a means for transferring criminals’ money.”

Some speculate whether they’re trying to pull off something similar to China’s crackdown on cryptocurrencies—phasing competition early in preparation for launching their own nationally mandated cryptocurrency. In February, Iran’s Information and Communications Technology (ICT) minister Mohammad-Javad Azari Jahromi Tweeted that they are working on their own cryptocurrency. A rough translation of his Tweet in Arabic goes:

“In a meeting with the board of directors of the Post Bank of Iran on digital currency based Won blockchain, the necessary measures for the pilot implementation of the country’s first digital currency were set out by using the country’s elite capacity. A pilot model for review and approval will be presented to the banking system of the country.”

Note: Tokens on the Bitcoin Core (segwit) Chain are Referred to as BTC coins. Bitcoin Cash (BCH) is today the only Bitcoin implementation that follows Satoshi Nakamoto’s original whitepaper for Peer to Peer Electronic Cash. Bitcoin BCH is the only major public blockchain that maintains the original vision for Bitcoin as fast, frictionless, electronic cash.
nChain CEO Jimmy Nguyen: Philippines is the perfect market for virtual currency

nChain CEO Jimmy Nguyen: Philippines is the perfect market for virtual currency

Nguyen says there’s work to do, but that the BSP is doing right in creating sensible regulation to improve consumer confidence. 

In an interview with Bloomberg TV Philippines, nChain CEO Jimmy Nguyen gave insights on the blockchain and cryptocurrency development in the country and how it can impact overseas remittances. According to Nguyen, the country is in the early stages of cryptocurrency adoption, but is on the right path.

“I think the Philippines is in the early stages of adopting cryptocurrencies generally—and blockchain technology,” Nguyen said, adding however that there aren’t a lot of cryptocurrency exchanges in the country to help citizens participate in the new economy.

“I think it is headed in the right direction. This is the perfect market for virtual currency.”

The Philippine economy benefits highly from overseas foreign workers (OFWs) sending money back to their families in the country. Last year, the World Bank estimated that OFW remittances to the Philippines would hit almost $33 billion, bumping the archipelago up as the third biggest remittance-receiving country behind India and China. Nguyen, says the country’s remittance activities can be made better.

“Remittance and wire transfers could be much cheaper and more efficient. And that’s important to the Philippines.” Nguyen, whose company nChain is helping develop Bitcoin Cash (BCH) for cheap and fast transactions, went on to explain the value of BCH in comparison to BTC for daily transactions due to its usability, despite the former only having existed for only eight months.

As was the global trend, several scammers took advantage of the advent of blockchain technology to pull off Ponzi schemes and other cons, prompting the country’s central bank, Bangko Sentral ng Pilipinas (BSP) and the SEC to issue warnings to the public, along with a set of guidelines for businesses planning to open up exchanges in the country. The BSP has also been in talks with some industry players in the Philippines to help gain better understanding of the technology.

Nguyen commends the BSP’s openness despite the risks.

“I know the BSP issued some guidelines recently to warn people to be careful about investing in virtual currency. In addition to recognizing the risks, it recognized the value for a country like the Philippines.”

He adds that regulation would actually be good for cryptocurrencies. “I think, first of all, it’s a good step for the government to begin sensible regulations for virtual currencies. Some people in the Bitcoin world don’t like that. I, particularly because I’m a former lawyer, think regulation can be a good thing and create more consumer confidence,” Nguyen said.

In terms of the PHP 150 million ($2.9 million) minimum capital requirement imposed by the government on digital wallet operators, Nguyen thinks it’s quite low but “it’s a start.”

“That capital requirement is fairly low, but we are dealing with people’s money. I think it’s important to require the wallet operators and the exchange operators to have backing so that we avoid situations like in Japan—with the Mt Gox hack a number of years ago and a lot of people lost their bitcoin and didn’t have recourse against the company,” Nguyen explained.

“So I think that’s probably a start and over time, as the exchanges and wallets get bigger, they’ll probably raise the capital requirement. I think that’s a sensible step,” he added.

Watch the interview below:

Note: Tokens in the SegWit chain are referred to as SegWit-Coin BTC (inaccurately called Bitcoin Legacy or Core by many) and SegWit Gold (SWG) and are no longer Bitcoin. Bitcoin Cash (BCH) is the only true Bitcoin as intended by the original Satoshi white paper.  Bitcoin BCH is the only public block chain that offers safe and cheap microtransactions.