Published: December 30th, 2019
– As the US Congress prepared to break for the holidays, one thing was clear, The Project Libra fronted by Facebook stirred deep reactions. The Congress’ investment in the Blockchain space is so deep now that a bill with a sweeping regulatory framework for every digital asset, cryptocurrencies included is now before the house.
The US Congress has come under attack in the past for acting aloof and playing catch up to the developments in the Blockchain and cryptocurrency space. The proponents of this argument cite the sheer lack of proper policies and regulations to guide the industry. The institution, however, seems to have risen to the occasion.
Paul Gosar, the Republican member of the US Congress representing Arizona’s Fourth Congressional District has introduced a bill that seeks to bring clarity in the cryptocurrency space.
The plan by Facebook to release a cryptocurrency christened Libra may have rubbed a substantial portion of the people in politics the wrong way. Now, through the bill called Cryptocurrency Act of 2020, Congress seeks to put out legislation that defines the roles of the various bodies that regulate the release, use, and circulation of digital assets.
According to the terms of the bill, Congress wants to clarify which Federal agencies should regulate which digital assets. Besides, the bill stipulates which agencies should notify the public of any necessary Federal licenses, registrations, and certifications that are required to hold or trade the various digital assets.
The bill assigns a definition of roles of the three key agencies that will regulate digital assets should the bill become law. The three are the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CTFC), and the Financial Crimes Enforcement Network (FinCEN).
Proposal to split digital assets into three categories; crypto-currencies, crypto-securities, and crypto-commodities is the core of the bill. The act also proposes to assign one Federal authority referred to in the bill as the ‘Federal Crypto Regulator ‘or ‘Federal Digital Asset Regulator’ to each category of cryptocurrencies. It will also make the authority the only body responsible for regulating the assigned class of digital assets.
In the above regard, CFTC will be in charge of crypto-commodities while SEC will regulate crypto-securities. FinCEN, on the other hand, will take charge of crypto-currencies.
Every Federal Crypto Regulator shall provide a current list of all requisite Federal licenses, registrations and certifications that the public needs to create, hold, and trade in digital assets.
If the bill becomes law, the Secretary of the Treasury acting through FinCEN shall establish rules that mirror those created by financial institutions to trace cryptocurrency transactions.
Aside from defining the various categorizations of digital assets, the bill also stipulates the rules of engagements of the three regulators. It also defines a few other aspects of the Blockchain concerning the release and circulation of digital currencies.
Crypto-Currency – The bill defines a Crypto-Currency as a representation of the US currency or its synthetic derivatives that rests on a decentralized cryptographic ledger (Blockchain). Such assets could be digital such as stablecoins that are reserve-backed and fully collateralized in bank accounts. The term also refers to synthetic derivatives defined either by smart contracts or decentralized oracles and that are collateralized by either Crypto-Commodities or Crypto-Securities or even other Crypto-Currencies.
Crypto-Commodity – Refers to fully or substantially fungible economic goods and even services hedged on a blockchain and regarded in the market without considering who the producer is.
Crypto-Security – Define the debts, derivative instruments, and equities that are hedged on the blockchain. This term, however, includes synthetic derivatives that are operated as and registered by the Department of the Treasury as a money service. The term also excludes such products or services that are hedged on the blockchain but comply with the Bank Secrecy Act, and meet the Anti-terrorism, Federal Anti-money laundering, and other screening requirements as stipulated by the Office of Foreign Assets Control (OFAC) and FinCEN.
The letter of the bill defines the essence of the blockchain environment and the various stablecoins that power the transactions in this environment.
Policy development and legislation around the cryptocurrency space has been lackluster. This is so probably because the cryptographic nature of the space was unfathomable to the political and civil service classes.
However, the runaway rally that characterized the ICO scene between 2016 and 2018 confirmed everyone’s fears; something had to be done and fast. Most ICO projects raised billions of dollars on the backdrop of nothing more than ideas floated on glossy whitepapers. These projects failed mostly because the regulations around them were so loose. What remains now are unending trails of dejected investors.
Then, Facebook showed up with the lofty plan to introduce a game-changing cryptocurrency, Libra. Facebook’s announcement sent the political class on a roller-coaster ride. Industry players opposed the project while legislators sought to tame its proposed far-reaching effects via the Token Taxonomy Act of 2019.
This latest attempt at regulation is easily the most vivid demonstration of how elaborate the cryptocurrency space has become. Without proper policy and legislation, legislators realize that the Wild West feeling will linger and all manner of bad actors may take advantage of the lawlessness.
However, the nature of cryptography is not as straightforward as most of these legislators want to assume. Already, innovations in the field have proven to bypass the enforcements in place and make regulations unattainable.
Regulation in the cryptocurrency environment has been largely lacking with most players relying more on conventions as opposed to grounded rules. This situation may change if the bill introduced to Congress becomes law. The greatest concern now, however, is if the law developed from the bill will be elaborate enough to make the cryptocurrency community conform. Already, there are fears that innovation in the space makes it easy for people, products, and services to evade regulation. Will the bill before congress morph into pieces of legislation that can curtail such a phenomenon?