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The hedge fund Numerai is going to issue its own cryptotoken, and this article nails the policy issues.

It doesn't hurt that they quoted me, but--in all seriousness--the two primary risks inherent in app-coin issuance are well flagged: securities regulation and buggy smart-contract code. And, on the securities question, the article focuses, appropriately, on the Howey test and whether there is an issuer-investor relationship here: 

First: securities law. The Numeraire is one of a slew of new cyptocurrencies that have been released in the last year or so that have piqued the interest of Andreessen Horowitz, USV and other venture capital firms and entrepreneurs — and they’re generating real money for their developers. In 2016, according to cryptocurrency research firm Smith + Crown, 64 tokens were released in what are commonly called “initial coin offerings,” raising $103 million, enabling these efforts to bypass venture funding.
However, Peter Van Valkenburgh, research director at Coin Center, an advocacy group focused on the public policy issues facing cryptocurrencies, says that, unlike some other new tokens, the Numeraire would likely not be considered a security. “If they’re giving them out to people who submit trading strategies or perform some sort of useful work, it’s not a speculative investment relationship between the putative issuer and putative investor,” says Van Valkenburgh. “It’s really more like someone being paid for contributing something, more like a wage in a giant decentralized corporation. … It wouldn’t be that different from rewarding people with points.”

Numerai's work here is a great example of how app-coins and open blockchain networks may be able to streamline the provision of public goods and enhance transparency in financial markets. Read the whole article.

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We taught Congress about Bitcoin vs Blockchain.

The Congressional Blockchain Caucus, which we helped kick off a couple of weeks ago, held its first briefing on blockchain technology yesterday. The event was full to standing room only as lawmakers and their staff gathered to build their understanding of these technologies. Coin Center director of research Peter Van Valkenburgh demystified the buzzword “blockchain technology,” giving attendees a better sense of the difference between permissionless blockchain networks, like Bitcoin or Ethereum, and the private blockchain networks being experimented with by corporations around the world. As we’ve stressed before, understanding this distinction is essential to understanding the critical role that open networks will play in the future of internet infrastructure and business innovation. Joining Peter on the panel were Reuben Bramanathan of Coinbase, Mark Wetjen of the DTCC, and it was moderated Robin Weisman of Coin Center.

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North Dakota’s new money transmission bill fails to define “control” of bitcoins.

Update: The original text of the bill has been amended. It now only calls for a legislative study to be carried out regarding:

the feasibility and desirability of regulating virtual currency, such as bitcoin.

We're glad to see the legislature taking a more cautious approach!

Original post:

The bill defines money transmission with respect to digital currency in a way that is a bit more specific than some we’ve seen (looking at you Bitlicense):

Money transmission … also includes … maintaining control of virtual currency on behalf of others …

and generally mirrors language we saw in North Carolina legislation last year, and which we thought could be improved.

As we said in regard to the NC bill:

A clear definition of ‘control’ written in law—not just in guidance that can change at the discretion of a banking commissioner—has been recognized by the Uniform Law Commission to be of paramount importance to any serious virtual currency legislation. Working with the ULC, Coin Center has helped develop a very precise definition for the draft ULC Virtual Currency Businesses Act:

“(3) “Control” means possession of sufficient virtual currency credentials or authority on a virtual currency network to execute unilaterally or prevent indefinitely virtual currency transactions[.]”

That definition echoes the one we proposed in our State Digital Currency Framework last year, and it’s a legal definition that is important to ensure that innovation on open permissionless networks is not inadvertently squelched.

We urge North Dakota to include that definition in their legislation, so that the law would not be amenable to interpretations treating infrastructure providers (mult-sig wallets, lightning network nodes, miners, or full nodes) as money transmitters thus requiring that these low-risk, non-custodial innovators be licensed.

Additionally, unlike the North Carolina bill, the North Dakota bill does not include virtual currency among the list of permissible investments for licensed firms. This is a big problem because it would mean that a company holding other people’s bitcoin would need to hold an equal amount of value in dollar-form. That’s a 200% reserve requirement and it discriminates against virtual currency firms seeking to get regulated as money transmitters.

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ESMA issued their final DLT report but continues to underestimate open networks.

Our previous comment to the European Securities Markets Authority was referenced in the final report; it looks like we were the only commenter sticking up for permissionless blockchain networks:

For many respondents, appropriate governance frameworks will play a key role to ensure trust and provide legal certainty to market participants. Many of them agreed that permissioned-based DLT networks would be the most appropriate for financial markets. One respondent however disagreed that permissioned-based DLT networks were more appropriate. According to this respondent, all permissioned-based systems remain in the proof-of-concept stage of development. In contrast, permissionless systems have been running in public for almost ten years and are battle-tested.

But unfortunately the bulk of the report continues to prematurely identify permissioned systems as the only viable technological architecture for building-out future financial systems:

Importantly, ESMA understands that the DLT that would be used for financial services would differ from the Blockchain designed for Bitcoins in a number of ways. In particular, while the Bitcoin Blockchain is an open system where all can contribute to the validation process (‘permissionless’ system), the DLT that is likely to be used in financial markets would be a permissioned system with authorised participants only. Permissioned DLTs have a number of advantages compared to permissionless systems when it comes to governance issues, scale or the risk of illicit activities, which makes them more suitable for securities markets. Yet, some of the benefits attached to permissionless frameworks, e.g. ‘openness’, may be lost in a permissioned framework. In line with current market initiatives in securities markets, the rest of the report deliberately focuses on permissioned DLT.

As we point out in our recent report, the "benefits attached to permissionless frameworks" (e.g. privacy, security, and interoperability) shouldn't be underestimated. Even in the securities settlement process, "openness" may matter in the end.

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Great news for bitcoin and other blockchain startups from Switzerland today.

The Swiss Federal Council has proposed a simple plan that would exempt small fintech firms (accepting less than 1 million CHF from customers – or a bit over $1 million) from the requirement to seek authorization in order to conduct business:

the acceptance of public funds up to CHF 1 million should not be classified as operating on a commercial basis and can be exempt from authorisation

This is probably the simplest “sandboxing” proposal we’ve yet come across. A clear and easy to interpret minimum-dollar threshold for when you are and are not regulated is exactly what we’ve advocated for here in the US in the context of state money transmission licensing.

Again, as with the FCA in the UK and the MAS in Singapore, foreign jurisdictions are leading the way in offering reasonable and pro-innovation policies for these new financial technologies and the small start-ups that are building them.

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The price of bitcoin still doesn’t matter right now.

The new year began with a bang as the price of a single bitcoin rocketed up past $1,100 and quickly fell back to around $900, where it seems to be holding steady for now. With such dramatic price movement comes attention, especially from those who are excited about the investment possibilities for Bitcoin and similar decentralized blockchain-based assets.

The last time there was so much attention on the price, Coin Center executive director Jerry Brito made the case in Wired that focusing so much on this one fluctuating metric is a distraction:

Unlike the early Web, though, Bitcoin has a price ticker people look at daily, and so they wring their hands. Every dip and spike in the price gets a lot of attention and spells either doom or “irrational exuberance.” But as Marc Andreessen has pointed out, “the price of domain names didn’t determine the usefulness of the Internet.”

With a longer time horizon in mind, you can put the short-term drops and rallies in price of Bitcoin in perspective. So don’t worry so much.

The case holds true even today and should be referred to for perspective every time there is a sudden burst in bitcoin price news.  

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"Dear Mr. Trump: To ‘Cyber’ Better, Try the Blockchain."

As president-elect Trump prepares to take office he must develop comprehensive plans to address growing cybesecurity concerns. In a recent op-ed for WIRED, Coin Center director of research Peter Van Valkenburgh suggests a novel approach: embracing new internet infrastructure built on open, permissionless, blockchain networks that would be far more resilient than the vulnerable system in place today.

Trump’s team should know that open networks like bitcoin are a promising development in the otherwise bleak story of cybersecurity, even if while they sometimes present challenges to law enforcement and financial regulators. Just like the early internet, these tools may cause a policy headache or two, but they are well worth protecting.

Read the full op-ed on

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This academic study of digital currency businesses needs your help.

The University of Cambridge Judge Business School’s Centre for Alternative Finance is launching the first Global Blockchain Benchmarking Study. We’ve partnered with the centre to help create what will be a global empirical understanding of how cryptocurrencies and blockchain technology are being used today. 

But of course a study needs data! And that’s where you come in. If your company is building products in the areas of token exchange, wallet security, mining, wallets, and payments/money transfer then we would appreciate it if you took the time to fill out a brief survey

The results of this study will be published by the CCAF in early 2017. All survey participants have the option to be prominently acknowledged in the benchmarking report with their logo displayed. Please note that all identifying information from organizations that complete the benchmarking surveys will be removed from the research team's analysis, and findings will only be presented in an aggregated form (e.g., by country).

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Coin Center filed comments with the Federal Elections Commission on bitcoin political contributions.

We did so on Friday in response to a proposed rulemaking considering how to classify bitcoin and similar cryptocurrency contributions, and whether they should be subject to the same $100 cap as cash.

Citing Bitcoin’s scarcity and its classification as a commodity by the CFTC and property by the IRS, we recommend that the IRS treat bitcoin donations as “in-kind contributions” under the Commission’s regulations, which would require no amendment to the rules and have no lower contribution limits like cash. On that question of a low cash-like limit, we clarify some common misconsceptions present in the Commission’s notice. Namely that bitcoin transactions as untraceable and that bitcoin intermediaries are not BSA-regulated.

We hope the FEC will find these comments useful and let Bitcoin into the campaign trail.

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The OCC has decided to pursue the federal fintech charter for which we have been advocating.

We've been calling for a federal alternative to state money transmission licensing for digital currency companies since our inception, and today we are thrilled by Comptroller Curry's remarks: that the OCC will be providing that path in the form of a national fintech charter.

We've repeatedly argued in regulatory comments, letters, testimony, and breifings that the complexities and uncertainties of the state licensing system is one of the key impediments to digital currency innovation here in the U.S. As we wrote in our most recent comment to the OCC:

The U.S. does not currently offer a particularly welcoming home for digital currency exchanges because of two troublesome structural features of U.S. financial regulation that are not present in many foreign jurisdictions: federalism, and a rules-based rather than principles-based approach.

Today's announcement is great news for the federalism half of that problematic equation, because it opens up the possibility for preemption of state by state licensing laws for those companies that obtain a federal charter. Best of all, this approach doesn't necessarily create new obligations for companies. Firms can still seek licenses or charters at the state level, but now a unified federal approach will also be an option. As the Comptroller remarked:

Merely making a charter available, does not create a requirement to seek one. Nor does it displace the other choices a fintech company may have—for example, seeking a state bank charter in a state that makes one available or to continue operating outside the banking system. A company’s choice to pursue a national charter should be driven by the company’s business model and strategy on how best to serve their intended customers.

And a federal charter would be a very sensisble option for companies in the digital currency space who, because of the nature and of the Internet and digital currency networks, operate globally from day one. We've yet to review any specifics of the proposed chartering process but hopefully it will be in line with our other big ask from the OCC: that consumer protection regulation of these innovative firms follow a principles-based rather than rules-based approach, mirroring the FCA's flexibile approach to regulating these firms in the UK.

We'll keep working toward that goal, but today we're happy just to celebrate this excellent step in the right direction. 

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