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Jenny Leung is an Australian attorney (admission to the current New York Bar) who will begin as a blockchain attorney to Blakemore Fallon in 2019. Previously, she was a lawyer at the Australian Securities and Investments Commission (ASIC) and a privacy advisor at PwC .
The following is an exclusive contribution for the 2018 year of CoinDesk under consideration.
7. Will the SEC define "sufficient decentralization?"
The SEC has provided some of its most important regulatory guidelines for 2018 through conferences, interviews and personal statements. With each statement, the SEC representative stated that their opinions do not necessarily reflect the views of the SEC.
Looking back at the biggest hits, from "Every ICO I've seen is a security" to "If the network on which the token or currency is to operate is sufficiently decentralized … the assets may not represent an investment contract" and " current offers and ether sales are not securities transactions ", the SEC has not officially confirmed any of these claims and has instead clarified that staff opinions are non-binding and do not create applicable legal rights.
Although the SEC does not make law, it can issue an official guide on these areas that will effectively create reference points for blockchain networks to achieve "sufficient decentralization".
Even if a certain level of decentralization could lead to sales of tokens outside the SEC jurisdiction, SEC Commissioner William Hinman is right in saying that the ethereum network is sufficiently decentralized? At what stage does a token's bids and sales turn from security to non-security?
6. Will an ETF crypt be granted?
The latest ETF application based on the remaining cryptocurrency, the ETF VanEck / SolidX Bitcoin, could see an answer on February 27, 2019. Some key questions that remain are:
- The purpose of the term "significant markets". To quote the Trust VanCOck SolidX Bitcoin presentation, "As broadcasters we are concerned that SEC staff have created a mobile target in their use of the word" significant. "Staff has never provided any indication as to what" significant "means, allowing they move their goal post indefinitely. "
- The correct interpretation of the Securities Exchange Act of 1934 Section 6 (b) (5), which requires that the rules of "exchange" are designed to prevent fraudulent and manipulative acts and practices. Does "exchange" refer to the national stock exchange in which the ETF would trade in the bitcoin spot market? See the dissent of SEC Commissioner Hester Pierce.
- If the underlying bitcoin (or cryptocurrency) spot markets are effectively resistant to fraud and manipulation (and how the Department of Justice's investigation into Tether will influence this analysis).
5. Can blockchain systems comply with privacy regulations?
The French Data Protection Authority (DPA), Members of the EU Parliament and the Observatory and the EU Blockchain Forum are among the few government actors who have publicly recognized the tensions between blockchain and GDPR, in particular the rules on the right to cancellation, the right to rectification and the principle of data minimization.
Some companies have simply blocked European residents from accessing their websites or services, but this may no longer be a viable solution with the California Consumer Privacy Act, which will come into force in 2020 and the recent request for a US federal privacy law.
There are numerous solutions proposed for compliance with the GDPR, such as zero-knowledge evidence and destruction of private keys, but it is unclear whether they are methods of cancellation or anonymity.
The French DPA has done the farthest suggesting that solutions such as the destruction of private keys would allow interested parties to approach an effective exercise of their right to cancel.
Will the EU Data Protection Council issue guidelines and recommendations to "ensure that blockchain technology complies with EU legislation" as suggested by the Committee on Civil Liberties, Justice and Home Affairs?
4. Will international regulators collaborate?
Because blockchain projects become more geographically decentralized, anonymous and / or resistant to censorship, national lawmakers face violations of their laws by facilitating global coordination or, perhaps, the harmonization of their securities, commodities, money transmitter and tax laws.
In 2018, efforts have arisen from IOSCO, CPMI, G20 and FSB, OECD and the EU Blockchain partnership (launched by the EU Commission). However, it could be years before we see real progress because of the different approaches and attitudes of regulators and governments around the world.
How can we reconcile the wide range of regulatory responses from different nations within these international organizations?
Encrypted investors and blockchain companies are really "thronging up to Blockchain Island Malta" and, if so, how these new cryptic cadres overlap with more established but restrictive regimes, such as the regulatory framework on US securities and years of consolidated jurisprudence?
3. Will the privacy coins be (and can) be banned?
While cash and fiat transactions can be controlled and monitored through banks, financial institutions and customs agents, transactions in private currencies such as zcash and monero may be more difficult to track due to cryptographic techniques such as zero evidence of knowledge and ringing.
The regulation could come in the form of bans or regulatory pressures (see reports on the Japanese Financial Security Agency that drives cryptographic exchanges to remove zcash, monero and other currencies at the start of this year ). However, private currencies can still be traded on foreign cryptographic platforms, P2Ps, OTC markets, decentralized trading platforms or websites like localmonero that could escape the tele-scopic view of regulators.
Perhaps the most practical way to regulate privacy coins today is to allow them to be traded on regulated cryptograms, which could encourage trading under the watchful eye of regulators and create an initial audit trail. After all, an on / off ramp track is better than nothing.
For example, two regulated cryptographic exchanges, Gemini and Coinbase, have recently started offering zcash trading. Both panels now allow zcash withdrawals only on transparent addresses, rather than on secure or private addresses. As a result, there is now a detectable track of the initial transaction that would not have existed if it had been conducted off-exchange.
Regulators from around the world will follow the United States' approach to authorizing the listing of privacy coins on regulated stock exchanges or the approach of Japan in encouraging coin withdrawal. private?
2. Will we be able to regulate decentralized exchanges?
Before 2018, many believed that DEXs were unstoppable and rarely any DEX implemented know-your-customer (KYC) procedures. If that were the case, the community would not have considered a "true" DEX – at best it was a non-custodial exchange with a central party that controlled access.
In 2018, the SEC published guidelines on online digital resource exchange platforms, ShapeShift reluctantly introduced KYC in the form of mandatory membership, and the SEC condemned the creator of EtherDelta for causing software to violate the law that required registration of stock exchanges. Perhaps in 2019 real DEX will emerge and difficult regulatory issues will proliferate.
How do you set up an unregistered, unregistered, headless securities trading platform? How do you regulate the trading of private coins on these platforms? Do the recent regulatory guidelines prompt developers to become anonymous?
1. Will developers be held responsible for violating the law?
Under company law, the "corporate veil" allows a company to be treated as a separate legal entity, isolating the owners of the company, in most cases, from personal responsibility for corporate violations.
Likewise, a "technological veil" has helped code developers to escape state and federal laws and civil lawsuits resulting from errors or the malicious use of third parties of their code. This "technological veil" is maintained by the courts' willingness to support large disclaimers in open source software licenses and is supported by the argument based on the principle that users (not programmers) ultimately cause and should take responsibility for violations of the law (eg: "Augur is not a forecasting market, it is a protocol for cryptocurrency users to create their own forecast markets").
However, just as the corporate veil can be perforated under certain circumstances, the "technological veil" could be just as valid and 2018 provided guidance on when this could happen: first, when CFTC Commissioner Brian Quintenz suggested that the developers of smart contract code could be prosecuted by mistake if it was reasonably foreseeable, the code would probably have been used by US people in a way not compliant with CFTC regulations; and second, when the SEC mandated Zachary Coburn (founder of EtherDelta and writer / deployer of the intelligent EtherDelta contract) with the management of an unregistered national stock exchange.
What is or is not reasonably foreseeable in an era of constant innovation?
How, in the event of a dispute, do the courts and regulators distinguish between the role of the code writer, the code deployer and the platform operator? Will the "technological veil" be further pierced in criminal or civil cases and, if so, how will the application be influenced by decentralized networks, unstoppable smart contracts and anonymous code developers?
We will have to wait for our responses in 2019.
Have an opinion of 2018? CoinDesk is looking for proposals for our 2018 under consideration. News via e-mail [at] coindesk.com to learn how to be involved.
Jurisprudence library through Shutterstock
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