Presentation slides for my talk on Blockchain Regulation presented on September 24th 2018 at the Seattle Blockchain Technology Summit.
For more information visit my website: https://www.conorbronsdon.com/
3. We have a PR Problem
Olive + Goose
How bitcoin is fueling America's opioid crisis
Dealer used dark web, bitcoin and
U.S. Postal Service to run national
drug business from Denver, feds
say
How Criminals And Terrorists Use
Cryptocurrency: And How To Stop It
Jamaican Traffickers Turning To Bitcoin
To Mask Trail
$60M in virtual currency stolen in Japan
virtual exchange hack
5. What are the key issues with blockchain regulation?
• Lack of regulatory certainty
• Obsolete statutes
• Lack of dialogue between regulators and other stakeholders
– including both financial service providers and blockchain
entrepreneurs.
Olive + Goose
7. The European Union
Olive + Goose
• Strong stance on data privacy
• General Data Protection Regulation (GDPR) – took effect May 25th
• Mandates EU citizens the “right to be forgotten” online
• “harmonizes” data privacy efforts across Europe
• For many blockchain companies, the “right to be forgotten” clashes with the
concepts of immutability and decentralization
• Onus is on companies to ensure that the EU threshold for data ownership (by the
individual vs by the company) is met sufficiently
Data rights of citizens
8. China
Olive + Goose
• Like many coastal Asian countries, China initially took a “business first, regulation
later” approach
• Allowed blockchain companies to operate largely without restrictions
• With the explosion of crypto in 2017, this all changed
• People’s Bank of China banned initial coin offerings (ICOs) in the country
• Major deviation: China had been considered an international refugee
• South Korea followed suit, stating that while blockchain technology was
generally encouraged within its borders, domestic ICOs were banned for the
foreseeable future.
Refuge turned catastrophe
9. Japan South Korea
Olive + Goose
• South Korea’s blockchain community has flourished in recent years
• Domestic ICOs have been banned September 2017
• “We are preparing a bill to ban virtual currency exchanges…We also aim to close
exchanges.” – January 2018
• Caused uproar
• 8 months later, began discussing guidelines to allow ICOs again
• Japan was one of the first countries in the world to recognize Bitcoin as a currency and to
issue cryptocurrency exchange licenses to businesses
• At the same time, Japanese regulatory bodies have restricted their assessment of
cryptocurrencies to Bitcoin solely, and are not ready to embrace other blockchain-powered
businesses as of now.
Uncertain times
10. How does this compare to other jurisdictions?
Olive + Goose
“I think that blockchain technology, DLT and cryptocurrency is
where innovation is happening right now and we are very glad
that Malta can offer the first jurisdiction in the world to regulate
this sector. We are excited about what this will lead to in the
future.”
- Joseph Muscat, Malta’s Prime Minister
11. How does this compare to other jurisdictions?
Olive + Goose
12. • Formalizes crypto and
blockchain regulation
• Establishes Malta Digital
Innovation Authority (MDIA) to
serve as the regulatory body
for the industry
• 1st country in the world to take
this step
• Details registration and
certification of technology
service providers &
arrangements
• Created to make Malta the
destination of choice for
cryptocurrency exchanges
Malta: Blockchain Island
Olive + Goose
• Regulates ICOs
• Requires companies to publish
white papers outlining a
detailed description of the
project and to make their
financial history public
.
Virtual Financial Assets Act Digital Innovation Authority Act Technology Arrangements and Services
Bill
What did this do?
• Provided a framework for how to raise funds/provide certainty to investors by weeding out scams
• Provided clarity to businesses on exactly how regulations will work
• Incentivized exchanges and other businesses to come to Malta
13. The United States
Olive + Goose
• The U.S. Treasury classifies cryptocurrencies as convertible decentralized virtual currency
• The Commodity Futures Trading Commission (CFTC) classifies them as commodity
• IRS taxes cryptocurrencies as properties
• Earlier in 2018, the US Securities and Exchanges Commission (SEC) communicated to
crypto exchanges that they will come under SEC purview.
• US Consumer Financial Protection Bureau Initiates “Regulatory Sandbox”
Regulatory patchwork
14.
15. Olive + Goose
• HB 0019: exempting virtual currencies from money transmitter licensing
• HB 0070: a blockchain token that is not deemed a security specifically is not a security and is
exempt from securities legislation
• HB 0101: Allows for storage of corporate records on a blockchain
• HB 0126: Allows for creation of sub-LLCs to isolate and allocate certain assets
• Senate File 111: defines tokens as property and exempts them from property taxes
BLOCKCHAIN VALLEY: WYOMING IS POISED TO
BECOME THE CRYPTOCURRENCY CAPITAL OF
AMERICA
16. Delaware
Olive + Goose
• Launched Delaware Blockchain Initiative in May 2016 (Governor announced at Consensus)
• 2017: Passed amendments to the Delaware General Corporation Law to allow all companies that incorporate in
Delaware to use a blockchain to manage corporate governance and a stock ledger.
• Testing Blockchain based business filing system in 2018
• The state envisions a blockchain network that lets firms incorporating in Delaware automate business
processes and will allow regulators and investors to track stocks and assets in real time.
• Awarded IBM a $738,000 contract to build the project on Hyperledger
Delaware eases off early blockchain zeal after
concerns over disruption to business (Feb 2018)
18. Who am I?
Political Strategy and Business Services
Consultant
Olive + Goose
• Business Services Consultant with Olive + Goose
• Microsoft Gold Certified Partner and FastTrack Ready partner
• Chair, Legislative Action Committee - Washington Blockchain Coalition
• Provided political and regulatory consulting for clients such as Dragonchain,
Congresswoman Pramila Jayapal, and Lieutenant Governor Cyrus Habib.
• Former Board Member of:
• League of Women Voters of Washington
• Children’s Campaign Fund
https://www.linkedin.com/in/conorbronsdon/
19. What can we do?
Olive + Goose
• Trained professionals
with established
relationships
• Know regulatory bodies
and how to navigate
them
Governmental Affairs
• “I vote” – people
power
• Lends a real voice to an
issue, ideally from
people who are
“within district”
• Example: Code.org
postcards, phonebanks
Grassroots
• Trade groups build industry
power by demonstrating
financial benefits
• Higher success in engaging
legislators together
• Example: Association of
Washington Businesses
Trade Associations
20. Olive + Goose
Never doubt that a small group of thoughtful, committed,
citizens can change the world. Indeed, it is the only thing that
ever has.
• Grassroots action
• Public education & PR
• Industry networking & development
• Legislative engagement
• Investor education
21. As blockchain innovation explodes, regulatory agencies world wide are considering how to
proceed
New regulations are coming
Olive + Goose
In July 2018, The Reserve Bank of India(RBI) formed a new unit to evaluate regulations for emerging
technologies including blockchain
“As a regulator, the RBI also has to explore new emerging areas to check what can be adopted and what
cannot. A central bank has to be on top to create regulations. This new unit is on an experimental basis and
will evolve as time passes”
In addition, the RBI is working to develop a prototype blockchain platform
Example: India
22. What does regulation look like moving forward?
Olive + Goose
• Melting pot of perspectives and governance structures
• Unified regulatory framework
• In March, members of the G20 convened to discuss the future of
cryptocurrencies on the international stage.
• Lowering tensions between regulators and industry as blockchain is recognized as
an essential technology
• Continuing innovation
Ahh regulation, everyone’s favorite topic right?
Look, I’ll be honest. Everyone here has been presenting solutions
We’ve heard about the potential to innovate supply chains, solve governance problems, and face the challenges of the world.
I’m here to bring us all back to earth a bit. We’ve got a lot of work to do.
Blockchain businesses face increasing regulatory challenges
as government begins to attempt to understand and address the industry’s potential.
With regulation looming, many businesses are stuck in regulatory grey areas
the regulatory environment is becoming increasingly patch work depending on the state and country in question.
I am going to break down several examples of state and national regulatory strategies, compare their successes and failures, and discuss strategies for developing pro-innovation regulatory environments.
Blockchain technology has immense positive potential: to decentralize and streamline financial transactions on a global scale. - Financial Institutions
With large amounts of capital flowing into cryptocurrency markets and the continuing rush to develop and fund blockchain projects, regulatory measures are on the horizon. - Governments
Plus how will the courts react – and how will all of these new financial instruments be taxed?
Blockchain’s potential to disrupt also means some people are afraid of what blockchain can do,
particularly some of those who hold the levers to global financial markets and they seek to unduly regulate or co-opt blockchain’s potential.
Until recently, a blockchain startup could benefit from an environment of legal ambiguity.
However, this legal vacuum is changing fast as mainstream legal entities catch up.
While the legal developments themselves are fast evolving and vary from region to region,
a more definite governmental response will undoubtedly affect future ICOs limiting the speed of innovation and disruption in the industry.
Such future regulations need to be closely monitored and taken into an account when starting a blockchain business.
With the technology still in its infancy, regulatory agencies are still catching up
Many disagreements about where blockchain fits in the international commercial ecosystem
Taxes
While this offers potential problems for the industry, with the right engagement – this could be a huge positive.
If we can help to shape regulations in a positive manner, we could actually spur further innovation and investment.
However, there is a problem
Source for image: https://lisk.io/academy/blockchain-business/the-blockchain-business/blockchain-regulations
For better or for worse – at the moment, bicoin is the standard bearer for cryptocurrency and blockchain at large. Public education needs to happen
We have a PR problem – if you believe the headlines, bitcoin is causing bankruptcy, money laundering, human trafficking, drug trafficking, death, misery, your grandmother’s joint pain.. Etc. etc.
I think you’ll agree – that is a major problem for us all as we strive to push blockchain forward into the light as a potentially transformational technology opportunity.
https://www.cnbc.com/2018/04/13/how-bitcoin-and-cryptocurrencies-are-fueling-americas-opioid-crisis.html
https://www.denverpost.com/2018/05/07/dark-web-bitcoin-national-drug-business-denver/
https://www.forbes.com/sites/nikitamalik/2018/08/31/how-criminals-and-terrorists-use-cryptocurrency-and-how-to-stop-it/#461086103990
https://www.cbsnews.com/news/japan-virtual-currency-techbureau-zaif-exchange-hack-bitcoin-monacoin/
http://jamaica-gleaner.com/article/business/20171011/jamaican-traffickers-turning-bitcoin-mask-trail
So show of hands: How many of you think this is at least a little bit accurate?
Some of this is.. Well FUD, bs, spin – whatever you want to call it.
Some of this is true Bitcoin is being used like any other financial instrument, and some of that use is illegal transactions
Bitcoin was seen as “untraceable”
We now know this to be blatantly false
Turning this public relations tide isn’t easy – but it can be done. A big step in that – working with government to create positive, common sense regulations for the industry.
Ask yourself – what are the key issues with blockchain r egulations
How do we engage major companies to help us build power and push regulations we want? How do we use their muscle with regulators?
When it comes to regulation – certainty is the end goal.
Yes, the lack of regulation in this space has been incredible for innovation. At times, new regulations have stifled that innovation.
However, for the protection of individuals (such as the work the EU is doing around data privacy) and simply from the perspective of what is going to happen moving forward, we know regulation is coming.
No matter how hard we fight, and particularly because regulators have larger, more established, and more powerful industry lobbyists in their ears, we need to make sure we have a voice at the table when regulations are being implemented.
Our goal; is certainty.
You or I may have different visions of what blockchain regulation should look like
What sort of regulation do you want to see?
We need a cohesive vision if we’re going to be successful
So if our goal is certainty – what does blockchain regulation look like now across the world?
European Union
The EU has taken a firm stance on data privacy, implementing stringent regulations that have notable implications for blockchain.
The General Data Protection Regulation (GDPR), which took effect on May 25, seeks to harmonize data privacy efforts across the union,
mandating, in particular, that EU citizens have a “right to be forgotten” online.
For many blockchain companies, this right may contradict the immutability and decentralization that the technology provides its users.
The new GDPR standards rest upon the moral foundation that EU citizens should have the fundamental right to control their data.
The onus, therefore, will fall on blockchain companies to ensure that the EU threshold for data ownership is met sufficiently.
While this may make some technology innovation challenging – I have to say I personally applaud this idea.
As you will see, as crypto exploded last year, many countries took a tougher regulatory approach and shifted to much more significant regulatory scrutiny
Mine 80% of the worlds crypto
Hardware is built in china
Uncertainty
While the government views blockchain technology favorably, it has yet to define its stance on the legal and regulatory aspects of funding and trading cryptocurrencies
Korea’s ICO Exodus: Catalyst for Change of Heart?
Related Story: South Korea – Battleground RegulationIn an effort to skirt the ban, several Korean projects have laid roots in more blockchain-friendly nations.
As one of the world’s most prolific cryptocurrency markets, South Korea may be squandering multi-billion dollar opportunities on account of this exodus.
An increasing number of high-profile ICOs have been conducted offshore, including but not limited to ICON ($42 million, Switzerland), EdenChain ($24 million, Singapore), and even Hyundai’s affiliate BS&C raising $20 million for its Hdac token (Switzerland).
Binance moved from China (founded there in 2017) to Malta
It’s a strategy that appears to be working. Binance, the world’s second-largest cryptocurrency exchange, has moved from China, where it was founded in 2017, to Malta, where it is creating a blockchain-based bank called the Founders Bank.
Yanislav Malahov, one of the creators of Ethereum — the second-most popular cryptocurrency after bitcoin — has chosen Liechtenstein as his base to build a new blockchain called Aeternity. And companies like remittance firm eXlama decided to set up shop in Gibraltar, because it was “one of the first” territories to “answer to the demand” for a legal framework for blockchain, cryptocurrencies and ICOs, says the organization’s founder and CEO Pavel Kaprisek.
To Liechtenstein and Bermuda, tax havens for traditional businesses, the move to cryptocurrencies represents an investment in the future.
If virtual currencies increasingly replace traditional ones, they’ll be ready as the tax havens for these new coins.
For Gibraltar and Malta, the move marks a bet aimed at leapfrogging from small economies to major financial hubs by connecting crypto companies with a global customer base.
May 2018 Marshall became the first country to launch a sovereign cryptocurrency, called the SOVereign
The Marshall Islands, despite its independence from the U.S. in 1986, remains economically tied to America. The U.S. dollar is still its principal currency.
The SOV, which will supplement the dollar, offers it a chance to slowly reduce its dependence on America. People on the islands can now pay for everything — from taxes to groceries — in the SOV. For new entities like the Floating Island Project, a cryptocurrency promises an entry into the global economy from birth.
https://bitcoinmagazine.com/articles/malta-passes-favorable-cryptocurrency-laws-next-step-blockchain-island/
Passed into law July 4 while we were celebrating independence day
This bill details the registration and certification of technology service providers and technology arrangements, and it focuses on the registration of exchanges in Malta. Industry insiders believe this bill was created to make Malta the destination of choice for cryptocurrency exchanges.
Malta, which is known as a friendly hub for blockchain businesses, has already attracted some crypto heavyweights such as OKEx and Binance.
The new bills are expected to guide the government on how to embrace the technology and achieve its aim of becoming a hotspot for crypto and blockchain businesses.
https://bitcoinmagazine.com/articles/malta-passes-favorable-cryptocurrency-laws-next-step-blockchain-island/
https://www.forbes.com/sites/rachelwolfson/2018/07/05/maltese-parliament-passes-laws-that-set-regulatory-framework-for-blockchain-cryptocurrency-and-dlt/#14ee806949ed
https://cryptoslate.com/u-s-initiates-regulatory-sandbox-for-blockchain-and-cryptocurrency/
In early December, the SEC took legal action against a company holding a “scam” ICO for the first time when it filed charges against PlexCoin. Fortune reported that the PlexCoin ICO was “a blatant ripoff” that promised 13-fold returns for investors within a single month. Prior to the charges, the ICO had raised $15 million.
Following the Plexcoin case, the SEC released an additional statement in mid-December of 2017. In the statement, SEC chairman Jay Clayton warned investors of the risks involved in ICO participation, as well as a set of guidelines that were intended to help investors identify possible illegitimate behavior in an ICO:
“If an opportunity sounds too good to be true, or if you are pressured to act quickly, please exercise extreme caution and be aware of the risk that your investment may be lost.”
Within the industry, the term “regulatory sandbox” indicates a rapidly developing regulation that aligns with the fast-paced development of the sector. The CFPB’s initiative strives to create an open dialogue between developers and government officials charged with compiling regulatory assignments while mitigating unintended negative consequences.
We’re all paying a bit too much attention to the headlines and not the work – markets are tumbling off of one statement or another
I’m guessing some of you have seen this headline, or something like it
https://www.newsweek.com/wyoming-cowboy-state-poised-today-become-blockchain-valley-828124
H.B. 0019 “Wyoming Money Transmitter Act – virtual currency exemption,” nicknamed the “bitcoin bill,” exempts those who deal-in and exchange virtual currencies from onerous money transmitter licensing laws. In this bill, virtual currencies exempted are defined as those that are a digital representation of value and used as a store of value or medium of exchange that are not recognized as legal tender by the U.S. government. This would allow operators of payment token exchanges to more easily operate in Wyoming.
H.B. 0070 “Open Blockchain Tokens – exemptions,” dubbed the “utility token bill,” would provide that a blockchain token that is not deemed a security is specifically exempt from securities legislation as well as money transmitter laws. This means that issuers and dealers of so-called utility tokens can deal freely and not have to register as licensed broker-dealer firms. Notwithstanding the foregoing, the same anti-fraud statutes that apply to securities will apply to those issuing utility tokens.
H.B. 0101 “Electronic Corporate Records” could be very important to all businesses and non-crypto enthusiasts alike. It ultimately allows for the recording and storage on a blockchain of common corporate records, filings, voting and accommodates the use of “data addresses” and electronic signatures.
H.B. 0126 “Limited Liability Companies – Series,” passed 57-3 in the House, allows the creation of “sub-LLCs” compartmentalized within the general designation to isolate and allocate certain assets and or liabilities to specific members. Finally, Senate File 111 “Property Taxes – Digital Currencies” in effect defines tokens as property and further exempts them from property taxes. More information on the house bills and senate files before Wyoming’s 64th Legislature can be seen here.
https://www.delawareonline.com/story/news/2018/02/02/delaware-eases-off-early-blockchain-zeal-after-concerns-over-disruption-business/1082536001/
- PR cognitive dissonance
Deleware has long been known as the best state in which to do business. Took an aggressive stance on blockchain early in the tech
Deleware has no sales tax gets nearly one-third of its revenue from franchise taxes on more than a million corporate entities, accounting for $1.3 billion of its $4.2 billion general coffer.
64% of fortune 500 companies call the state their registered home
Despite the headlines, Delaware is moving forward with an anticipated October test of a smart contract enabled network that would give lenders and borrowers a more efficient record for transacting business and meeting regulations
This is mostl yabout business lifecycle management
The state of Arkansas recently held a blockchain summit where it launched an initiative to use blockchain to set up a food safety supply chain, enabling shipments to be tracked in real time. The food chain tracker is currently being tested by 10 of the world's largest companies, including Walmart and Nestlé SA.
Elections are why deleware is changing course somewhat
On a pos
Let me back up for a second – who the heck am I
- Why am I saying this? Well, I’m going to talk about an organization I’m a part of and I want to be transparent
Ideally, all 3 of these work in tandem
Trade:
- Invite legislators to speak
Margaret Mead quote
Industry event
Legislative engagement:
Inviting leg to events
Individual meetings to educate
Educate investors not in the crypto space
Provide a place for collective action
Educated the public and try to demonstrate positive successes
Educate investors who aren’t familiar with and haven’t invested in crypto; without education, you won’t be the first blockchain project they invest in
Engagement with tax officials
Get a statement from the DOR on how they will treat such things
Copy the bills
Other example: Colorado just said 2 days ago that exchanges that don’t deal in fiat currency don’t need a money transmitter license
Interestingly, CoinDesk reported last year that the Institute for Development and Research in Banking Technology (IDRBT), founded in the 1990s by the RBI, was developing a prototype blockchain platform.
As indicated by a report published by the RBI in February, the IDRBT has already tested a proof-of-concept for settling trade finance transactions via a distributed network, with participants including banks and payment vendors.
https://economictimes.indiatimes.com/markets/stocks/news/new-rbi-unit-to-track-blockchain-and-ai/articleshow/65557685.cms
Close with cause for hope
- Seattle public libraries reached out Partnerships and government relations manager
Moving forward
The current state of regulation in the cryptocurrency and blockchain space has attracted a melting pot of perspectives that have left many perplexed as to which governance structure to follow. With an uncertain road ahead, a unified regulatory framework for blockchain and cryptocurrency will be crucial to utilizing these exciting technologies to their full potential.
This has already begun. In March, members of the G20 convened to discuss the future of cryptocurrencies on the international stage. While no consensus was reached, members acknowledged the unique value proposition of the industry, and pledged to publish a formal proposal by July.
This is anticipated to be one of the first globally recognized resolutions to date, and will likely set the standard for government and regulatory scrutiny for years to come. However it is slow, and other entities are leading the way
In the pursuit of advancement in our commercial ecosystem, blockchain is the next frontier. By providing immutability and decentralization to traditional exchanges, we can ensure that security will never again come at the expense of efficiency, and vice-versa.
At present, it may seem as if there is more friction than unity between regulatory bodies and industry experts about how the space should develop. However, in the very near future, this is all expected to change, as blockchain becomes internationally recognized as an essential technology for companies seeking to connect the dots in an increasingly globalized world.
We have a little time left – I’ll answer any questions that I can