Proponents of bitcoin have long asserted transnational decentralised structures cannot be regulated by centralised state-based actors. The recent legislative activities of dominant financial jurisdictions, premised on the standards articulated by the Financial Action Task Force, negates this assertion. Regulators have chosen to impose old rules on new business structures, ensuring the dominance of traditional financial surveillance to meet AML and CTF compliance. With recognition that governments can regulate distributed ledger technology, and that analogous behaviour in the cryptocurrency space will be treated similarly to already regulated activities, the discussion needs to shift to the efficacy of using centralised methods in decentralised spaces. There is no disagreement as to the importance of stopping money laundering, the financing of terrorism, or the proliferation of weapons; the question is rather if these goals can be achieved with a new balance between the competing interests of privacy and surveillance, while facilitating the nascent promises of new technologies.
Anzeige
Bitte loggen Sie sich ein, um Zugang zu Ihrer Lizenz zu erhalten.
The earliest well-known usage of the term ‘whitepaper’ is associated with the British Government, a term used applied to a document crated at the request of Winston Churchill (Secretary of State for the Colonies, as he then was). Despite the fact the term has developed to refer to marketing materials, there is much irony in its origins. Acknowledgment to Dr. F Grisel, King’s College London for highlighting this.
There is much discussion about “trustless trust” in the blockchain space (see Werbach 2016); in this author’s view, in trusting the math, one must also trust the distribution of validator nodes (concentration can lead to collapse), the structure of consensus (if not proof-of-work), protocol changes and software upgrades agreed to within decentralised communities, and the corporations that propose centralised solutions.
For the now infamous figure of centralised, decentralised and distributed systems used ubiquitously but rarely attributed, see the original pictogram in Baran (1964).
Arguably one must have sufficient personal resources to purchase the hardware and/or software to access the protocol and have access to electricity and the internet. For some individuals, these requirements by definition make any protocol exclusionary.
In 2019 in London a group of academics and practitioners ran a series of open debates deconstructing whitepapers of various protocols given that no one could really determine what was going on. See Livshits and O’Riordan (2019).
Regarding the last, which will not be addressed in this paper, see, for example the United States’ Commodity Futures Trading Commission https://www.cftc.gov/Bitcoin/index.htm.
Digital currency includes e-money, which highly regulated in many jurisdictions. The term central bank digital currency is also gaining traction but is a different digital construct from that of bitcoin and may (or may not) be built on a distributed or decentralised ledger. See Bank of England (2020); see also Lockett (2020).
In this author’s view, simply because one has the resources to purchase a full-page ad in The Economist does not equate to a functioning blockchain business model.
Specifically the resolution of the Byzantine General’s Problem. The XRP Ledger is a fundamentally different structure from that of the Bitcoin protocol, as there are no economic incentives for mining and the consensus algorithm is not based on proof-of-work.
It is hard to find an updated version of whitepaper, which is not the case with Bitcoin and Ethereum. According to Todd (2015), “Detailed documentation about exactly how the ledger is structured is spotty.” There are also ‘gateways’ that provide access to the XRP ledger, suggesting its distributed structure. https://xrpl.org/become-an-xrp-ledger-gateway.html.
The legal nuances of the United States regulatory regime and potential jurisdictional overlap between FinCEN, the SEC, the CFTC is beyond the scope of this paper, but it is recognised that technical jurisdictional issues and allocation of powers may affect the outcome of the litigation, in addition to substantive analysis.
See, for example reference to the term virtual currency in reports concerning Norway, Finland and Japan as indicated in the Draft updated Guidance (2021).
The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, Terrorism Act 2000, Proceeds of Crime Act 2002, Companies Act 2006, Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009, Unregistered Companies Regulations 2009, Electronic Money Regulations 2011, Scottish Partnerships (Register of People with Significant Control) Regulations 2017.
Direct cross-chain trading between unhosted wallets can be facilitated through a technical structure that allows two peers to trade cryptocurrencies on different ledgers through the use of an atomic swap. An atomic swap in the blockchain context is comprised of a smart contract that essentially acts as an escrow account between two peers seeking to trade cryptocurrencies; such a swap requires certain cryptographic commonalities between differing protocols and may or may not be facilitated on-chain. See Frankenfield (2020) and Crypto Adventure (2020).
The travel rule is the colloquial name given to the wire transfer rule found in Recommendation 16. The Draft updated Guidance (2021), paras 152, 158 clarifies that Recommendation 16 applies to functionally analogous activities such as the transfer of virtual assets.
Ibid, p. 130. The Draft updated Guidance (2021), paras 47–79 includes clarification on the definition of VASP, taking a broad interpretative and functional approach. See immediately above at Sect. 5.1 for a discussion of exchanges and custodial wallets.
Directive (EU) 2015/849. The recitals of the 4MLD explicitly reference the February 2012 update of the FATF Standards as the basis for the 4MLD (see paras 3, 4, 28, 43, 44).
If a decentralised exchange facilitates conversation between fiat and cryptocurrencies, this activity clearly constitutes the exchange as a VASP and subject to existing regulation governing the ‘on-ramp’ to the cryptocurrency space.
There are various structures of decentralised exchanges, differentiated primarily based on how the order book and matching services are provided. See Rhodes for a general outline.
Although relating to the exchange of security tokens, see SEC Press Release (2018-258), outlining the USD 400,000 fine charged against the founder of EtherDelta.
It is acknowledge that in Draft updated Guidance (2021), para 73, box 4 the FATF specifically carves out these types of service providers; the point is that app creators can be identifiable corporates or individuals and thus subject to regulatory rules.
See Haywood (2020) for a discussion of the IP address geo-ban self-imposed by Bybit to ensure no application of United States SEC rules to the company.
The business model of Uber may be unprofitable if labour law standards and existing employment regulations are applied; similarly, the recent suicide of a young retail investor trading on the Robinhood app might be an additional reason to maintain regulations governing sophisticated investor status and access to financial markets.